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Economics Legislation Committee
10/02/2016
Estimates
TREASURY PORTFOLIO
Australian Taxation Office

Australian Taxation Office

[13:55]

CHAIR: I now have the pleasure of calling the officers of the Australian Taxation Office. I welcome you, Commissioner Jordan and officers, to the February estimates and look forward to getting through the big issues. Before we get to the questioning, I invite you, if you would like, to make an opening statement.

Mr Jordan : Thank you, Chair. I would like to offer a few opening remarks today, because I do feel strongly about the debate that has been taking place regarding our tax system.

Commentary suggests that our tax system is under fire from the actions of multinationals and large companies seeking to abuse it, to sidestep it, to delay us and, importantly, to get around paying tax in Australia. My message to companies operating in Australia is clear: you must pay your fair share of tax on the profits you earn here. There is no getting around. There are no exceptions to be made. There is no weakness in our resolve to administer the tax system.

Last year we made significant progress in addressing tax avoidance domestically and globally. We have shown our resolve and commitment to take on these difficult and complex matters. In 2016, progress continues unabated. We are seeing some positive changes in the behaviour of multinationals and large corporates already. But I acknowledge that, despite the progress made, the community still has questions. In my time as tax commissioner I have never been asked more than now to explain, 'What are you doing about big companies paying their fair share of tax?' I have said many times that the majority of large corporates, especially Australian owned companies, pay the right amount of tax in Australia and are open and transparent in their dealings with us. There are, however, a minority of large corporates who try to avoid their obligations, and we do act on this behaviour.

Last financial year we completed around 50 audits and 250 reviews of large corporate groups raising $2.5 billion in liabilities, and we collected $1.6 billion in cash over that year. Currently we have over 70 audits and 220 reviews of large businesses in play. We have 162 active advanced pricing arrangements, APAs, in place, with an additional 115 progress and another 42 in early engagement stage. These APAs give certainty that revenue is being accounted for and that we have predictability about pricing structures.

We constantly raise the bar in our engagement with large taxpayers, but positive engagement is no longer enough. Yes, we value open and frank dialogue, but we also judge companies on their structures and what they actually do. In December we issued risk assessment ratings to six large public groups, informing them that they were in our highest risk quadrant, Q1, reflecting our view of their tax behaviour. We remain actively focused on multinational enterprises. We have already written to 26 taxpayers who we have had under audit to tell them that they need to get their house in order. Last week, we approved letters to be issued to another 60 companies to say the same thing. There will be more put on notice in the coming months as we work our way through the pool of taxpayers who have an 'operate here and bill overseas' business model. Where these companies do not voluntarily comply with the new law, we will be commencing immediate reviews and audits. These are non-negotiable.

We will always look to work cooperatively with multinationals and the large market, to promote positive engagement. But this does not mean that we will be afraid to take these discussions further, to investigate the evidence presented to us or to take firm action. Some of these cases have been going on for 12 months or more now. People have come to the table, they have said all the right things and they have made promises, but, when push comes to shove, they do not deliver. We continue to negotiate back and forth with requests for information and more detail bit by bit. The excuses we sometimes hear from these companies are, frankly, over the top. How is it possible that companies known for their new-age technology and innovative products and services fail to be able to furnish us with basic reports showing their business structures, their profits, and how much tax they have paid and where? Their clear tactic is to delay and obstruct. They game the system. They even have the gall to complain that we are uncooperative and unreasonable, simply because we do not agree with them or their advisers on what are, at times, quite outlandish claims.

These companies have pushed the envelope on reasonableness. They play games. They string us along. They believe we can be stooged. However, enough is enough and no more of this. We will be reasonable with those that genuinely cooperate, but we will now take a much harder stance on those who do not. We will not be rolling over and giving further extensions of time. We are ruling the line under these protracted negotiations, proceeding immediately to raise assessments and creating liabilities in these cases, potentially taking them all the way to the court if necessary. We will continue to challenge the sharp tax practices in the courts. We have received positive court decisions in respect of Chevron and Orica. So the worm is turning. These decisions demonstrate without doubt that if these companies engage in tax avoidance behaviour, they can expect more than just a 'please explain' letter. Cases featuring the same types of rolled up loans and intracompany financing arrangements will now be aggressively pursued. I do expect significant assessments to tax as a result. The Orica case was worth about $40 million in tax to be paid and penalties plus interest, and there will be more cases to come forward on this topic this year.

There are differing views on the ATO's approach to managing these challenges and disputes with the big end of town. There are those who call for caution and for us to tread more gently where outcomes have the potential for wide-reaching effects across industry and may be stated to potentially curb foreign investment or growth in Australia. Yet we continue to face criticism that the ATO is settling cases with the large market too easily—that we are not going hard enough. Some critics will tell you that settlements are a bad thing. But these cases are extraordinarily complex, they are risky, they are expensive to run and they take years to resolve. Settlements are about locking in a great result for the Australian taxpayer now and creating certainty for the future. I can assure you that we will be aggressive against egregious behaviours from these companies. The ATO will not settle a dispute at any price, and it is not just my word: we now have an independent assurer, a former Federal Court judge, who is assisting us and designing and testing our settlements through an independent assurance process. This independent examination of our settlements, including those with large business, ensures that the best outcome is likely to be achieved and that we are settling the right cases in the right way.

My people are just as concerned about media reports suggesting large corporates are getting away with it or that the ATO is too soft. They want to be the front line in ensuring we maintain the community's confidence in our tax system. We now have over 150 people working in our Internationals team. This includes more than 20 new recruits who have specialist experience working in economics, transfer pricing and international risk. These complement the more than 1,000 people in our Public Groups area. I am absolutely confident of our skills, our resources and our resolve to pursue these important matters.

In summary, my message to the community is this: be in no doubt that the ATO is resolutely tackling tax avoidance. Our work program this year will continue to focus upon implementation of the MAAL and BEPS action plans, e-commerce, thin capitalisation manipulation, related party finance and offshore hubs. Where we see behaviours that do not meet the intentions of the law, we will be front and centre.

Our domestic work is backed by unprecedented worldwide cooperation to ensure multinationals pay tax where they generate profits. We will continue to support the OECD and work with other countries to improve global cooperation to tackle multinational tax avoidance. As countries adopt the new OECD approaches in tax treaties, the full benefit from global transparency and cooperation will become evident. Multinationals will be under much more scrutiny and accountability across jurisdictions.

So for the great majority of individuals, small businesses and companies that are trying to do the right thing on tax, we will continue to work as hard as we can to make your experience simple, fast and convenient. But those who actively seek to avoid or minimise their tax through aggressive practices can expect to be challenged. The ATO is well resourced and better positioned globally to deal with tax avoidance. Australia's laws are stronger than ever and we are determined to secure this revenue for the Australian community.

CHAIR: Thank you very much, Commissioner. Very strong words. Given that this committee has dealt actively in this space now for some 12 months, probably in parallel with the work you have been doing in this area—and quite effectively, I think; to hear that is quite heartening—I speak for all the senators in saying I am quietly emboldened by that very strong statement from the outset.

I have asked you about resourcing here before. We are ahead of the curve, as far as I can assess, in terms of global practice in trying to crack down on avoidance. We are at the OECD level, the G20 level. The former Treasurer and the serving Treasurer are hell-bent on sorting out multinational tax avoidance. BEPS came in late last year and we had some progress on that in October. We are more than up to date with that. How are we going on taking with us the other countries that need to come on this journey with us?

Mr Jordan : We have been working very closely with the OECD. We have devoted quite a lot of resources in having people attend all the working group meetings. So we can actually shape some of the outcomes. We are a significant influencer in the OECD, probably way beyond our relative size in terms of our economy versus the size of the world economies combined. So we are well aware of the background and the issues that need to be dealt with coming out of the OECD BEPS agenda.

We will be watching carefully and participating in the OECD monitoring of how countries adopt it. Of course, it is one thing for everyone to sign up at the G20 leaders meeting to the outcomes of the OECD; it is another thing to see the actual initiatives adopted under domestic law and implemented in a very practical sense. We will obviously be a country that will do that comprehensively, and we will certainly participate in a process of monitoring how other countries are doing that.

As I mentioned, once you see these multilateral agreements, if you sign up to them, all your existing treaties automatically get changed. That is one of the beauties of this, because you would spend decades negotiating every single treaty to change what is needed to be done. But, by merely signing up to this one agreement, automatically those principles are embedded in your existing treaties. That will be a great outcome.

The country-by-country reporting is coming in as well. Australia is an early adopter of that. It will be very useful to have a common platform because we get a lot of data now, but, as you would know, getting data is one thing, but being able to interrogate it in a meaningful way is another. So to have a common reporting template and to receive all this data as to where companies are paying tax will be a great thing. To get their transfer-pricing policies and documentation, their master file and their country reports will be a great thing.

With our new multinational anti-avoidance law, the MAAL, as I said, which is operative from 1 January, we will see changes. We are. We will see changes. I have made the comment before that we will work with companies who come to us and have a plan to make the changes to their structure, stop billing overseas and start to return sales here in Australia, but, if they do not, there are 100 per cent penalties, and we will levy them. We will levy them.

So there are a whole host of things that over the course of 2016, some into 2017, will have a dramatic change in our ability to get that fair share, that right amount of tax, paid here in Australia.

CHAIR: That is very good to hear. I just want to take you to a couple of comments in your opening statement which I picked out on the resourcing issue. I quote you here:

I am absolutely confident of our skills, our resources and our resolve to pursue these important matters.

I think another one relevant to that was in your final summation:

The ATO is well resourced and better positioned globally to deal with tax avoidance. Australia's laws are stronger than ever …

The resourcing issue has always been a concern to me. Explain to me how we are going to do this. This is a massive new area.

Mr Jordan : Clearly, we have to make judgements, and we have to marshal resources to the areas that most need them. We have gone out of our way to make sure that we have the right level of resourcing and the right type of people both in the Internationals area and in the large-groups area more generally. We did receive some funding a few years ago in terms of this International Structuring and Profit Shifting initiative, ISAPS, which gave us the ability to go out and recruit a relatively significant number of quite senior, experienced people across that transfer-pricing, international tax, international risk area. So we have some of our best and most senior people in the Internationals area. It was an area that was only really created separately—it used to be called PGI, Public Groups and International, or Large Business and International. We split International out. I got Mark Konza, one of our most senior, experienced people in the large-market sector and international, who is hugely respected internationally and through the OECD for his capability, to head that area up. So we have treated this seriously.

We obviously know there is community concern. You have concern, quite rightly. So we have focused our resources where we need to put them. It is a very specialised area. It is complex. It is time consuming. And that is why we have tried to be reasonable with people and with companies. But, as I have said, when you give someone 12 months—we have often been criticised in the past: we do not give enough time; we are not reasonable; this is all difficult; people have other roles and responsibilities. We have tried to do that. But when we have these things that have run for 12 or 18 months and we are only edging towards what we need in a real bit by bit way, we have said: 'Enough is enough. We're now going to proceed. We've done the reasonable bit and we're going to have a much sharper, harder view on timeliness around these issues.'

CHAIR: That is very encouraging.

Senator BUSHBY: Thank you, Commissioner, for that. That is a fascinating opening statement and it would be very encouraging, I think, to many Australians to hear the approach that you will be taking on this. Most of your statement, though, revolves around the interrelation between you and large taxpayer companies and how you are going to change that to better address this issue. Apart from the last sentence where you say that Australia's laws are stronger than ever, you do not talk about the laws. Is it open to us to presume that the laws are adequate for you to be able to chase that—to quote you—'fair share of tax'?

Mr Jordan : I believe they are. A number of them are yet untested. We have the expanded general anti-avoidance provisions in part IVA. We have the new transfer pricing provisions. We have the new thin capitalisation provisions. There are still some others. I mentioned we are going to focus this year on the manipulation around then capitalisation. There are some issues around people artificially trying to create equity value so they can leverage up their debt. So we are going to focus on that one specific issue.

There is the MAAL to cover these sell-here bill-overseas type structures. Virtually all of those are untested. So when we are talking about these cases coming forward, a lot of that work is even under the old law. Some of these sell-here bill-overseas sorts of structures we are challenging because what was written on the whiteboard years ago, what was put into a big document by the advisers five or eight years ago may not actually be happening precisely like that on the ground. There are two stages here: the pre-MAAL legacy issues and there is the new law that drives a change clearly to the structure.

The government have made it quite clear that if we need more laws, they will entertain that. I have said: 'Right now, I don't think it's the law; it's the cooperation of the companies; it's the ability to get things through the judicial system in a reasonable way; and it's a change in attitude on our behalf.' Often, these are driven by lawyers. We will often have the senior counsel who will be taking the matters for us. Before it has gone to court, they tend to insist on dotting every i and crossing every t, a hundred per cent of every piece of information. That is why it is like extracting teeth at times, trying to get this information.

We have said: 'You know what? Let's do the best we can with what we have got.' That tends to mean assessing a higher figure because we just do not have the information. This is a different approach and the lawyers are not always keen on this—apologies to any lawyers in the room. Historically they say, 'You've got to get every document, every piece of paper, everything there.' And we have gone, 'That takes years.' Enough is enough, let's do what we can with what we have.

Senator BUSHBY: In summary, at this point of time, you believe that the regulatory tools you have available to you are adequate, but as you progress through this new approach and you have court cases and, presumably, even some of the multilateral negotiations there may be a need for some tweaking, and the government has indicated to you that it is open to make the changes that are required as required.

Mr Jordan : Yes, that is a fair summary of the situation.

Senator WHISH-WILSON: Just a point of clarification. Mr Jordan, do you employ the services of the big four accounting companies to help you with these kinds of legal cases or in your negotiations around tax payments?

Mr Jordan : No, they tend to be on the other side in terms of disputes.

Senator WHISH-WILSON: I am certainly aware of that.

Mr Jordan : We do not employ or pay them. It tends to be more senior counsel at the bar we use to support or to help us on our arguments. It would be more on the bar side of things.

CHAIR: Far more senior figures in the court system.

Mr Jordan : Yes.

Senator WHISH-WILSON: I will come back to that one.

CHAIR: You could always retain them all and that would stop the others from using them.

Mr Jordan : Sometimes if there is a big company and they always want them to be a client, they will never work against that company.

CHAIR: That is right.

Senator DASTYARI: Mr Jordan, this is a fantastic opening statement. It is incredibly powerful. From reading it and hearing you deliver it, the words that strike out to me are the words 'enough is enough'. It seems like, if I am reading this correctly, you are sending a signal that you are prepared to exercise a lot of the reserve powers that sit in the ATO to make sure that you can pursue revenue where there is revenue to be pursued.

Mr Jordan : That is correct. I wanted to make a very public statement, particularly in this forum, because, as the chair said, this forum, together with the corporate tax avoidance inquiry in the Senate, has exposed to the public a number of these issues. I wanted to use this forum to very publicly state the change in our approach to reasonableness where we believe we have been unreasonably delayed or we are unreasonably not getting information so that we could build a case. We will now proceed to issue assessments on the best available information to us.

Senator DASTYARI: In December you issued risk assessment ratings to six large public groups. When you say 'large public groups', is that an implication that the way some of these larger companies are structured is within a kind of—

Mr Jordan : They are a consolidated group under the tax, so, yes. You might be aware there was one—

Senator DASTYARI: There was one?

Mr Jordan : Yes.

Senator DASTYARI: Could you explain the four quadrants? This means high value, high risk?

Mr Jordan : High risk, high consequence. There are about 69 or 70 companies that are always in the high consequence area because of their size. That is quadrant 2.

Senator DASTYARI: What puts someone in high consequence? Is it a dollar threshold?

Mr Jordan : It is a dollar figure; a threshold of turnover.

Senator DASTYARI: What is the figure?

Mr Jordan : They can be very cooperative and very compliant, but they are just so large that if something did go wrong—

Senator DASTYARI: Somebody like Australia's largest taxpayer, which is, as we all know, BHP, in itself is a huge proportion—

Mr Jordan : They would always be in that Q2: high consequence, low risk. Is that a fair assessment, Jeremy?

Mr Hirschhorn : As a general rule, but there are exceptions. As a general rule, if you have more than $5 billion in turnover you will be in the top two quadrants.

Senator DASTYARI: When you say you issued ratings to six large public groups, does that mean now there are six in this group or there are now seven in this group?

Mr Jordan : It is an additional five, plus the one that was there.

Senator DASTYARI: So there are six companies, and each of these companies has a turnover of more than $5 billion.

Mr Hirschhorn : As a general rule.

Senator DASTYARI: Some will be higher, and it is unlikely that many are lower.

Mr Hirschhorn : That is right.

Senator DASTYARI: Are any of them lower than $5 billion?

Mr Hirschhorn : They are potentially lower in what they think is subject to Australian tax.

Senator DASTYARI: That is perhaps why they have been put in that category! We are talking about revenue of something—so quadrant 1 now has moved to having a floor of upwards of $30 billion of revenue in the firms?

Mr Hirschhorn : No, on the high consequence—that is Q1 and Q2—the general line is more than $5 billion in revenue in Australia.

Senator DASTYARI: And six of those—

Mr Hirschhorn : And six out of the 80 companies—I think 82 this year—six out of the 82 companies are in quadrant 1 because we view them as higher risk.

Senator DASTYARI: That is a big change.

Mr Jordan : It is a big change. When this first came in, there were about 17 or 18 companies in that risk group, and a lot went, 'How do we get out of this?' We talked, as an organisation, about transparency and openness. Everyone wanted to be transparent, so they moved out. I think that with Jeremy coming on board and heading up the public groups, it is nice to be transparent, but we actually want to see outcomes as a result of the transparency!

It is probably a recalibration, to some extent, of the criteria. It is a little more than transparency itself now; it is around being in there. Transparency is a starting point but action is needed. What we have found is that people are very open and have said all the right things but that they actually did not do what we were seeking them to do.

Senator DASTYARI: And you are saying now that there are 82 companies in Q1 and Q2—correct?

Mr Hirschhorn : Yes.

Senator DASTYARI: So there are 82 companies of revenue of over $5 billion—part of that is the dispute. Then you are saying that Q1 would have revenue of over $30 billion—some of these companies—

Mr Hirschhorn : No, sorry—to clarify: to get into Q1 or Q2 you should have revenue of over $5 billion. That is as a general rule—

Senator DASTYARI: Some have a lot more than that.

Mr Hirschhorn : Within that, some of them have massively more—some in Q2 have massively more and some in Q1 have massively more. But the difference between Q1 and Q2 is not size, it is risk.

Senator DASTYARI: Previously, one of the ways of dealing with that was transparency, obviously. What is the difference for a company being in Q1 or Q2 at a practical, organisational level in the ATO?

Mr Hirschhorn : Every Q1 and Q2 taxpayer is subject to comprehensive review every year. To that extent, it is not that different. Indeed, we have disputes with taxpayers who are in Q2. The practical consequence of being in Q1 is that to some degree the company is on absolute notice of our view of their affairs. And, I suppose, as emphasised in the commissioner's opening statement, if you are in Q1 and there is a fundamental disagreement around your risk and our views as to your tax profile there will be a harder edge.

Senator DASTYARI: Okay. You have written to 26 taxpayers who, under audit, have been told to get their houses in order. What does that mean, 'house in order', Mr Jordan?

Mr Jordan : It is around the new multinational anti-avoidance laws—the MAAL. As you are probably aware, with the number of audits we do in the large market sector some of them are these aggressive foreign companies that attempt to argue there is no taxing right in Australia, because what is done here by the salesforce, who find the customer, conclude contracts and actually make the sale, is of no consequence to the value chain of the organisation, and that all the value is overseas and they are invoicing overseas.

We were pretty advanced with 26 of those. Basically, we said to them, 'We know that this applies to you, so you need to do something.'

Senator DASTYARI: The other point that you made in your fantastic opening statement was, 'We will not be rolling over and giving further extensions of time. We are ruling a line under these protracted negotiations and proceeding immediately to raise assessments and create liabilities on these cases.' Effectively, what you are saying is that you are fed up with one technique that had been used—the stalling for time for the simple purpose of avoiding an assessment being made.

Mr Jordan : Absolutely. Under our law—I think it is called a 'section 264A notice'; it is an offshore information request—we have to give 90 days' notice. So it is 90 days' notice, then the 90 days end. They say, 'Head office has been busy, people are away on leave—you know.' One company said that the phones were down in New York—it has just gone over the top.

Senator DASTYARI: And you have the power to seize documents—

Mr Jordan : Not if they are not in Australia. This is part of the problem; they do not put the documents here, I think for this reason—that we could go in and seize them if they were here. We have said 'Look—

Senator DASTYARI: So at the moment, the tax office has incredible powers in terms of seizing documents, and part of the technique that is used is just never to keep those documents physically in Australia?

Mr Jordan : With respect to some of these overall plans, I think that is right—yes. We cannot turn up in New York and enter and seize. We do not have jurisdiction—

Senator DASTYARI: And if you seize their Australian service, the documents do not exist?

Mr Jordan : I might pass that over to—

Senator DASTYARI: Or you do not know whether they exist here or not, I suppose?

Mr Jordan : That is one of the things—that we would not know whether they are there or not. Or we are told that they are not here, that they are held by the parent. So we ask for them and we do not get them. Mark Konza here will—

Senator DASTYARI: Hello, Mr Konza, how are you?

Mr Konza : Good afternoon. I think the important point here is that these companies are implementing global tax plans, so what we are doing is unpicking a global tax plan. The global tax plan is held in headquarters, or wherever they are operating out of, so we inevitably need to get access to the plan, any correspondence about the plan and contracts pursuant to the plan in particular. So our inquiries always end up involving overseas information requests.

Senator DASTYARI: What you are saying, Mr Jordan, is that part of what you are prepared to do now is that, rather than constantly waiting for the documents to appear—you effectively said that this is a stalling technique that you have had enough of. Part of what you are saying that you will now be moving to is raising assessments, which is effectively, to put it in layman's terms, sending a tax bill and saying, 'If you want to dispute this, go to court.' Raising assessments is sending a tax bill; correct?

Mr Jordan : That is correct.

Senator BUSHBY: If they do want to contest it, they will have to actually produce the documents then?

Mr Jordan : They have what are called 'rights of objection', and then they would have to, at a minimum, produce the documents and argue the case in court. There is that shift. You are correct that we are now constructing assessments on the best available information that we have. Obviously, we will always err on the higher side in that situation and issue the assessment and create the liability.

Senator LEYONHJELM: Can I just interrupt there?

Senator DASTYARI: Yes, sure.

CHAIR: On the same point?

Senator LEYONHJELM: Yes, on the same point. The assessment leads to legal action. Am I right in assuming that there is a reverse onus of proof? They have to establish that that is not a liability?

Mr Jordan : Correct, yes. They have a right of objection, and the onus of proof is then on them to show that our assessment is incorrect.

Senator LEYONHJELM: Thank you.

Mr Jordan : That is why we are so careful normally and we are so reasonable as a general proposition: to make sure that what we are doing is fair and reasonable. I think that some companies have played on this. They have simply played. They have gamed the system, knowing that we would always err on the reasonable side of things because of the consequence of what we are doing. We are publicly saying we are changing that approach in certain circumstances.

Senator DASTYARI: With respect to the Chevron and Orica kinds of decisions that you point to, I know that you are at pains not to talk about matters that are currently before a court, but—

CHAIR: He cannot. He is not at pains; he cannot. He could, but he—

Senator DASTYARI: He can. He can at Senate estimates, but we have gone through this with Mr Jordan before, and I can understand why he would not want to. But part of the problem seems to have been the slowness of the legal process. I am not for a minute saying you are responsible for this, Mr Jordan; you are not. How many years did the Chevron matter take to be resolved?

Mr Jordan : From memory, the Chevron case related to years 2004 to 2008. It eventually got to court in 2014, and a decision was handed down just on 12 months later, in 2015. It cost us $10 million in out-of-pocket expenses for expert witnesses, legal counsel et cetera, let alone the time of people inside the ATO. There were something like 11 legal counsel for both sides, in excess of 12 expert international opinions and what I would have thought was a relatively straightforward thing, a borrowing at 1.2 per cent, a currency swap from US dollars to Australian and a loan at nine per cent. When you take that and you translate that back into some of the more extraordinarily complex things about harbours, values and intellectual property, what the economic activity actually created here in Australia is and how you measure that, that is really complex stuff.

Senator DASTYARI: By the way, has that Chevron matter been appealed? Are you aware of it being appealed yet?

Mr Jordan : It has been appealed. It is a single court judge, and it has been appealed to the full Federal Court. It did establish a fairly significant principle—

Senator DASTYARI: A hugely successful case.

Mr Jordan : in that the orthodox thinking used to be that you had to treat these companies as though they were some random project company that got together with some other random enormous energy company and it was financed as a project, whereas that established that you could not totally ignore that they were a subsidiary of a major worldwide energy company. So we will be looking at other cases that have relied on that orthodox prior transfer-pricing type advice that the advisers had given companies saying that that is the way you treat these loans. We will be more aggressively pursuing those cases, as well as the Orica. The Orica was a classic roll-up loan: stick some money overseas, do not pay tax in the US on that and get it back as an exempt dividend—all the flows go around in a circle and all it ends up as economically is a large tax deduction in Australia.

Senator DASTYARI: Is that when you said there will be more cases to come forward this year?

Mr Jordan : Correct.

Senator DASTYARI: Are you saying the precedent set by these two legal victories—I am using the word 'victory'; one of them is being challenged—will result in you bringing forward more cases?

Mr Jordan : Absolutely, and we are about to issue significant assessments in some of those cases regarding roll-up loans, because one goes to court and then we have a series of others sitting there waiting. We will be issuing assessments in the hundreds of millions of dollars.

Senator DASTYARI: Is it fair to say that the pace of the legal system in keeping up with the kinds of techniques and tactics being used has been frustrating?

Mr Jordan : It is frustrating. The Federal Court has shown a willingness to try to work better with us to see if we can prioritise some cases, but the fact is some of them are just awfully complex. As I said before, the historical approach has been to get every possible piece of paper, every possible thing and boxes and boxes of material and contracts, and I think it is getting difficult for any single person—like a Federal Court judge—to sit there and be able to absorb this amount of material in any reasonable length of time.

Senator DASTYARI: You said the ATO will not settle a dispute at any price. As you know, a criticism that has been made of the ATO is the lack of transparency around the settlement process. So, on one hand, you have the objective of protecting the privacy of the taxpayer and, on the other hand, there is a lack of public ability to have information, assessment or review of the settlement decisions that are made. I appreciate that they are two principles you are trying to balance. When was the former Federal Court judge appointed?

Mr Jordan : I think it was in June or July last year—around that time. We have run a pilot program of him being involved in reviewing the cases, because he can have all the information shown. He is like a part of the ATO, in that sense of being able to share all the relevant information on the taxpayers. So we are looking at doing two things. One is maybe increasing the number from one such person to a panel, because there is going to be more—potentially a lot more—in terms of litigation and potential settlements—

Senator DASTYARI: Some variation of this has been recommended by the Inspector-General of Taxation, has it not?

Mr Jordan : I am not sure of that. I do not know that. We are going to look at creating maybe a panel and bringing forward the time, because these reviews have happened after the event. We are looking to have it in a more contemporaneous sense with people that have been experienced in hearing these cases, running these cases, looking at all the evidence and making a judgement as to all the circumstances being considered—is this a fair and reasonable outcome for the community to lock in that as a certain outcome?—because often when you go to court it is all or nothing. So having a panel and making it more contemporaneous is maybe the first thing. The second is to develop some sort of reporting. We cannot name the people and companies, but we are looking at how we can give something that may have meaning and have these people potentially sign off on some transparent reporting.

Senator DASTYARI: Because, with the current system at the moment, prior to June last year—and I want to talk about that—effectively, it was all on you.

Mr Jordan : Correct.

Senator DASTYARI: And the system was that the ATO would make a decision; there was not a process in place to review a settlement decision that was made. Correct?

Mr Jordan : Correct, subject to the point that often we would have senior counsel working on the case with us, and we would seek their advice as to: 'Is this appropriate, given all the litigation, risk and circumstances for that type of settlement?'

Senator DASTYARI: But you get advice.

Mr Jordan : Yes.

Senator DASTYARI: But, at the end of the day, it was—

Mr Jordan : It was our decision.

Senator DASTYARI: In June last year you brought in a former Federal Court judge. Is he on contract or employed full-time by the ATO?

Mr Jordan : He is on contract as I understand it. I should say, even going forward, that it still will be our decision on all those settlements. It is just that we will seek, perhaps, more direct input.

Senator DASTYARI: You have run a pilot program where a former Federal Court judge—is there a reason why you are not naming them?

Mr Jordan : We have sought his approval and he has agreed. It is Justice Garry Downes QC. He was President of the AAT and has experience in running and hearing complex cases, including transfer pricing cases.

Senator DASTYARI: You have brought him on. You have run a pilot program where he has independently reviewed decisions that have been made for settlement—

Mr Jordan : Correct.

Senator DASTYARI: to better inform how you make future settlement decisions.

Mr Jordan : Yes.

Senator DASTYARI: And you are saying that what you are now looking at is really two things: firstly, whether or not you change that from one person to a panel?

Mr Jordan : Correct.

Senator DASTYARI: And, secondly, whether or not you change that from being a retrospective process of review to also being more of a consultative body to inform settlements before they happen, not after they happen?

Mr Jordan : Correct.

Senator DASTYARI: That is a big change in how the ATO has operated.

Mr Jordan : It is.

Senator DASTYARI: I think it is a good change.

Senator KETTER: I just have a follow-up question on the tax settlements. There is some data to suggest that the proportion of the settlement in relation to the tax amount has actually decreased over a period of time. I understand in 2012-13 the settled positions were 62.5 per cent of the presettlement position for large businesses, while in 2014-15 that figure was 52 per cent, which leads one to the conclusion that the ATO may be settling for less money in order to get through the cases more quickly. Is that the position?

Mr Jordan : I will ask Andrew Mills, Second Commissioner, Law Design and Practice Group, to respond.

Mr Mills : It is true that the real numbers have changed, but it is always going to be, 'What is the nature of the cases?' There is no set program, as we have said, to settle at any cost. It is always an assessment of the particular merits of the two sides of the argument. As the commissioner said previously, a lot of the time this is very complex stuff and there are always litigation risks associated with it. We have to make an assessment about trying to collect the right amount, as much as we can. I know that some companies will argue that they have paid a premium and that, in their view, they have lost. If they walk away feeling that they have not done very well out of it, that is a good result as far as we are concerned.

In many cases, the starting point is that you are dealing with a prima facie case. It is not necessarily the absolute settled case, because a lot of the settlements—in fact the majority of settlements—are happening at the pre-audit and audit stage where we have not even raised an assessment and so we are settling the matter at a very early stage. All of those factors go to the variation amount. The other point to be made is that the number of settlements has gone up quite considerably. There are nearly 1,000 cases between 2014-15 and the first half of 2015-16 that relate to Project DO IT. That has actually boosted the numbers, and they range across a number of different classes of taxpayer.

Mr Jordan : And Project DO IT, just to clarify, is Disclose Offshore Income Today. It is that concessionally taxed one-year period where we allow people to bring forward assets from overseas and to disclose income from overseas that had not previously been disclosed over the prior four-year period. The number of settlements was quite high because of the impact of that particular project.

Senator KETTER: The report of 2013-14 says that there has been basically a 250 per cent increase in the number of settlements over the previous two years, so the numbers are increasing quite dramatically.

Mr Jordan : I think some of that is that Project DO IT, because there were a lot of individual cases. Some of those were small and some were quite large, but there were a lot of them.

Senator KETTER: Thank you.

CHAIR: Senator Leyonhjelm.

Senator LEYONHJELM: I have a couple of questions for Mr Jordan, and then for the Treasury Revenue Group later on, but I will come back to them later.

Mr Jordan, I refer to questions I asked you last year at estimates, on 21 October, in relation to your guidance note on the sharing economy and on ride-sourcing. You said:

When we released the guidance about 10 days or maybe two weeks beforehand, as is normal practice, we shared that with, I think, the Australian Hotels Association and the Accommodation Association …

Do you recall that at all?

Mr Jordan : Yes, I do.

Senator LEYONHJELM: I have the transcript if you need it.

Mr Jordan : No, I am all right.

Senator LEYONHJELM: You're right? I also sent a question on notice to you just a few days after that, to which the reply that came back was:

There was no consultation with the Australian Hotels Association or the Accommodation Association of Australia in forming the ATO view or before publishing the public guidance.

At face value, they would appear to be contradictory.

Mr Jordan : Yes.

Senator LEYONHJELM: Which one should I rely upon?

Mr Jordan : There are two different pieces of guidance here. There is one that was a fairly short one, from memory, on more general principles of the sharing economy. There was a second one that was specific with respect to ride-sourcing—the Uber type thing. Unfortunately, I was conflating, in my own mind, the two separate rulings. I was making comments around some things that happened, I recall, in the more general sharing economy one and implying they happened in the ride-sharing one, whereas it was not the ride-sharing one; it was the general sharing economy one. We do, as a matter of principle, always—like we did in that circumstance—have discussions with a variety of stakeholders, to inform them of what our views are and, before finalising views, to sometimes get some input to shape those views. And then sometimes we have a view and we are simply informing people, 'Here is our view; we are just letting you know that this is coming out.' My apologies for conflating some of the issues from the two different pieces. I did write to the committee, when this was pointed out to me by my people afterwards, clarifying this situation.

Senator LEYONHJELM: Sorry, I am not aware of that letter.

Mr Jordan : I did write, clarifying those issues.

Senator LEYONHJELM: Okay. In relation to the ruling on ride-sharing, the Uber situation, I think now you are confirming that you consulted with no industry association other than the taxi industry. Was that right?

Mr Jordan : I will not attempt to try to recall that. I did not do too well the first time! Again, I think there were consultations with some state bodies, from memory—and I will call the committee if this is wrong. But I think we did consult with some other people, so it is just not right to say we only consulted with the taxi industry.

Senator LEYONHJELM: All right. Just to remind you of the reply to the question on notice that I placed, it says:

There was no consultation with the Australian Hotels Association or the Accommodation Association of Australia in forming the ATO view or before publishing the public guidance.

So I am presuming, if you do not want to alter that—

Mr Jordan : No, if that is the written response, that is the correct situation.

Senator LEYONHJELM: So I am assuming, if there was consultation with anyone other than the Australian Taxi Industry Association, that it was not those two groups. Would that be a safe assumption?

Mr Jordan : Correct.

Senator LEYONHJELM: All right. Can I give you that on notice so you can verify whether there was anybody else consulted in addition to the Australian Taxi Industry Association?

Mr Jordan : We can take that on notice.

Senator LEYONHJELM: Thank you very much. I have questions for the revenue group, but we will come back to it later.

CHAIR: No worries. They are not going anywhere, but the commissioner will be.

Senator WHISH-WILSON: Mr Jordan, in your opening statement on page 1 you say:

In 2016, progress continues unabated. We are seeing some positive changes in the behaviour of multinationals and large corporates already.

Can you elaborate a little bit more on that, what those positive changes are?

Mr Jordan : Yes, in a general sense, whilst Deputy Commissioner Mark Konza, who heads the international area, is coming up. Obviously we have started dialogues. Some have approached us about this MAAL, this multinational anti-avoidance Law—this is the sell-here bill-overseas type model of operation. They are part of that 26 we have written to saying, 'You need to get the house in order.'

Mr Konza : I think the main thing that we are referring to is that in the lead up to the MAAL we were approached by approximately eight of some of the biggest trademarks in the world. In a number of cases they flew their global tax managers to Australia because they were informed that the MAAL was taking operation from 1 January 2016 and they wanted to find out what our attitude to its administration was going to be. They were probably a bit disappointed because we said, 'It starts on 1 January 2016, so you have to comply straightaway from day one.' I think they would have liked a holiday. But they did take that on board and have since been meeting with our officers to work out how they can begin to adjust their organisational arrangements so that they will be, in the future, building in Australia and accounting for their income in Australia. But while they are making those arrangements and putting them in place they will also be estimating the amount of tax that they should have paid had they had those arrangements in place from 1 January 2016. At the end of that process they will be paying the right amount of tax going back to 1 January and they will have worked with us so that we can sign off that their ongoing arrangements are compliant with the law. It seemed to me that they had realised that the MAAL was a pretty serious piece of legislation.

CHAIR: The gig is up.

Mr Konza : Yes.

Senator WHISH-WILSON: In relation to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 that was passed in the Senate late last year, what role did that play in this rush to compliance or cap in hand?

Mr Konza : That bill was a piece of machinery, if you like, in that it firstly changed the rules so that those who were operating an operate-here bill-overseas business model were going to be brought to account from 1 January 2016. It also heightened the pressure on companies by doubling the penalties that might be applicable to them if they were caught out afterwards.

Senator WHISH-WILSON: Do you think that stick approach there, rather than the carrots, being part of the reason, is enough of a disincentive?

Mr Konza : We are great amateur psychologists. We always offer the carrot and the stick—

Senator WHISH-WILSON: I understand that.

Mr Konza : because we find you get the fastest response. We published a paper that said if you come and work with us you can really minimise your exposure to penalties by entering into what's called 'voluntary disclosures'. But if you do not, the new legislation will apply and you will potentially be exposed to double penalties. But even worse is that these penalties are a stain on a company's reputation. They really do not like these scheme penalties being applied. The third part of that bill was the transfer pricing documentation component and, while that is a bit of a delayed effect, because it takes a year or more to come into operation, companies do see that administrations around the world are going to have greater visibility of their business model. So, in that way, the three elements work together.

Senator WHISH-WILSON: So what role did the ATO play in the drafting of that legislation and the consultation to get that to the parliament and the Senate last year?

Mr Konza : The main role that we played was to test the administrability of ideas, and so we work very closely with Treasury, who understand the policy intent that they are trying to achieve, and we simply provide ideas about whether we can make that work or not.

Senator WHISH-WILSON: Would you say it would have been a missed opportunity if that legislation had not passed the Senate in December last year?

Mr Konza : That would be a speculation.

Senator WHISH-WILSON: Speculation?

CHAIR: Of course.

Senator WHISH-WILSON: Would you agree the 1 January cut off would not have applied in relation to these multinationals?

Senator LEYONHJELM: This is as bad as a government backbencher question!

CHAIR: I think he might have been involved, maybe, but that is okay. Are you finished?

Senator WHISH-WILSON: No, I still have a few more questions, Chair, if that is okay.

CHAIR: That is okay; I'll let you go. Sorry—I thought you were finishing on that flourish!

Senator WHISH-WILSON: But the 1 January cut off is obviously important, to get the ball rolling, so to speak, and to lock that into legislation?

Mr Konza : Yes.

Senator WHISH-WILSON: Can I ask you a couple of questions around one of the other parts of that legislation—another amendment that the Greens put up to that piece of legislation, around disclosures for Australian private companies over $200 million. Could you tell the committee when the first round of disclosures will occur for Australian private companies over $200 million?

Mr Hirschhorn : The intention is that the data on the approximately 300 Australian private companies with turnover greater than $200 million is expected to occur in the second half of March.

Senator WHISH-WILSON: How much administrative work has that required you to do, to get that set up? I know there was a previous piece of legislation around $100 million prior to that. Presumably—

Mr Hirschhorn : We are currently going through the process of giving taxpayers the opportunity to understand what numbers we are planning to publish and giving them a chance to comment if we have made a mistake with a number. These are numbers which are taken from the tax returns, and so, as we did with the public companies and the international private companies, we have been giving the Australian private companies the opportunity to confirm the numbers, and the process is now a more trodden path in getting that data onto data.gov.au.

Senator WHISH-WILSON: Are you prepared to comment on criticisms or views that private companies over $200 million are able to restructure their tax affairs so that they do not meet that threshold? Has the tax department considered how that might be policed?

Mr Hirschhorn : Again, I cannot speak on that, but what I would say is that this is historic data—

Senator WHISH-WILSON: Sorry—I will just say on the record, before you answer that question: that would apply to any threshold, be it 20, 50 or 100, in terms of restructuring affairs, but is it something you have considered?

Mr Hirschhorn : I do not want to speculate as to what companies might do, but what I would say is that this data is historic data. So in a sense that behaviour is not reflected in the data which will be published in March because the company would have had to anticipate something several years in advance—

Senator WHISH-WILSON: That was actually going to be my next question.

Mr Hirschhorn : and it was hard to anticipate a week in advance.

Senator WHISH-WILSON: Excellent. That was my next question. Because it applies to past years, will you be crosschecking these first years to see if some companies do rearrange their structures in the future to avoid disclosures? Are you able to do this as a benchmark?

Mr Hirschhorn : What I would say is: of course this is all data that we already have. So, in terms of transparency between the taxpayer and us, this adds nothing to that transparency—we have all that data, and we can respond when we see companies doing things. This is about transparency to the public, and I am sure that, when we print one spreadsheet list this year, and companies mysteriously disappear from it in subsequent years, there will be many interested people who will identify those companies.

Senator WHISH-WILSON: Could I ask, more broadly: would many tax settlements have occurred over the past year? What has been the total value of settlements, as against the originally assessed amounts? We have talked about those numbers of settlements in previous answers.

Mr Mills : Sorry, can you just give me a moment to get those numbers to hand.

Senator WHISH-WILSON: You could take it on notice, but it would be good if you could—

Mr Mills : We can give you the details.

Senator WHISH-WILSON: In the meantime, I will ask Mr Jordan a more general question. You talked about 150 people working in your internationals team and the quality of your staff. How difficult is it going to be to retain good people with those kinds of qualifications? Is it competitive for those staff?

Mr Jordan : It is early days. You find there are a lot of people who are willing to come and join the tax office and do some really interesting work—work that is of value to the community—and, in many cases, are willing to do it for less money. This has been a really positive thing that we have seen, that probably five years ago you might not have seen. There are a number of people, including sitting at this table, who have decided to come to the ATO to do some great interesting work that is of value to the community. There is more to it than simply the remuneration side of the job. It does depend, obviously, on people's life-cycles and children and mortgages and all that. But we are seeing some people saying, 'You know what? I want to do that.' The feedback we are getting from people is incredibly positive.

Senator WHISH-WILSON: Excellent.

Mr Jordan : The nature of the work is exciting and rewarding.

Senator WHISH-WILSON: Could I bring you back—did you want to take that on notice, did you?

Mr Mills : I can give you the numbers.

Senator WHISH-WILSON: If you could, please.

Mr Mills : Across the whole—for example, in 2014-15 the pre-settled amount, and as I have indicated in earlier responses, a large proportion, over 60 per cent, of the settlements actually occur at the pre-audit and audit stage—

Senator WHISH-WILSON: Six per cent?

Mr Mills : Over 60 per cent.

Senator WHISH-WILSON: Oh, 60—sorry, I thought you said six.

Mr Mills : Sixty-six.

Senator WHISH-WILSON: Sixty-six?

Mr Mills : Yes. And the pre-settlement position was $7.3 billion. The settled amount was $3.8 billion, which means the difference between those was in the order of about 3.4. We settled for—

Senator WHISH-WILSON: Around half?

Mr Mills : Just over half. That is across all markets. Consistent across a number of years, the vast majority—I think it is in excess of eight per cent, off the top of my head—relate to individuals and small business.

Senator WHISH-WILSON: Individuals and small business—

Mr Mills : represent eight per cent in numbers—not in dollar terms; in numbers.

Senator WHISH-WILSON: That is in line with my next question. You would have this information, but I do not think you would make it public. It would be great to see it on a register, but I am wondering if you do correlate those settlements against expected with large companies that are represented by the Big Four accounting firms versus those smaller companies. If you get big representation, does it affect—

Mr Mills : Traditionally, as to the proportion that we settled for, for the largest companies: we get more, proportionately, with them. The raw dollar numbers are very large in the large market, so you cannot get away from that, but proportionately we get more out of the settlement in the large market—not significantly more, but generally a little bit more.

Senator WHISH-WILSON: Is this the right place to ask questions around the petroleum resource rent tax? Can I ask you questions on policy related to the petroleum resource rent tax?

Senator Cormann: Policy is a matter for the government, but if you are looking for explanations—

Senator WHISH-WILSON: Yes, I am looking for explanations. I will come back to that. My question is in relation to what we have been discussing around MAAL and the combating multinational tax avoidance bill which was passed by the Senate last December. That has helped you get on with collecting money from the potential tax avoiders. At the risk of being unparliamentary—

CHAIR: Don't!

Senator WHISH-WILSON: Okay, I will use the word 'annoy', then. Is it true that, within the global community, because multinationals are transnational companies, that you can annoy, for example, the US government or other governments if you collect tax and they do not? Is there a bit of rush on through the G20 to get these laws synchronised between countries so each country can get their fair share of tax avoided?

Mr Jordan : I think it is fair to say that there is a lot of focus in many countries as to what the fair share for that country is. That is why it is pretty important that everyone signs up to the OECD initiatives—and not just signing up to them, but doing something about them—adopting them domestically and applying. I do not see direct governmental input to me, either here or from foreign governments, about how much and where and all that sort of thing. As revenue authorities internationally we are getting better talking to each other; literally three years ago there was no sort of sharing of intelligence or information on these broader industry or particular taxpayer issues. At our instigation, in fact, and that of Mark Konza, who has spoken earlier—at his doing—we have created a network of 30 or so countries that have signed up and are committed to sharing information in a real-time sense. This is an enormous advance in terms of international sharing of information through specific revenue authorities just agreeing to talk to each other on that basis.

Senator WHISH-WILSON: There is no envy or annoyance that we have got some policy in place? I know there is some other—

Mr Mills : I will make this observation: the multinational antiavoidance law that was passed, as has been said a couple of times in evidence today, is essentially focused on people who have a business model that relates to selling products or services to Australians, as the case may be, but billing it offshore. That, in essence, is one of the key platforms under the BEPS agenda anyway, and it is designed to go into the multilateral instrument that will be signed up to by most countries which will amend treaties to give exactly the same effect. In a sense the annoyance factor is only that we have moved a year earlier, I think.

Senator WHISH-WILSON: So we have shown some leadership?

Mr Mills : Yes.

Senator WHISH-WILSON: That is great. Put that on your billboard, Sam!

Senator DASTYARI: I do not have any billboards today, Senator Whish-Wilson. And if you want to be a government backbencher, that is a matter for you.

CHAIR: There is no need for that. We do not have that here at all. We have not had it this morning and we are not having it now. Your contribution is equally respected, as is Senator Dastyari's.

Senator DASTYARI: And thank you for the wine at Christmas. It was very nice. It was a very nice gift. Mr Jordan, I have one quick follow-on question.

CHAIR: Commissioner Jordan.

Senator DASTYARI: Commissioner Jordan, rather. As a quick follow-on from what you said to Senator Whish-Wilson about the international environment, I think you noted in some earlier remarks that the international environment has been changing. Drawing your attention specifically to Google, were you heartened or otherwise by recent tax decisions in France, the UK and Italy in relation to Google?

Mr Jordan : Again, we cannot talk about the individual companies, but this has been in the media. The UK brought in their different, but sort of roughly equivalent, tax—their diverted profits tax. You saw Amazon come out early and say, 'We're now going to bill our sales from the UK in the UK; we're going to restructure.' Clearly, Google—and I am just going off the media reports—came to an arrangement. It is the carrot-stick bit, because under the diverted profits tax the tax is 25 per cent, not 20; whereas ours is double—like 60 per cent, not 30, if they do not restructure and comply with the law. I think that, from our point, that is a good thing because it demonstrates at least a willingness to not be obstinate and stubborn and just refuse to recognise there are changes that must be made. Our job is to make the best possible arrangement we can with all taxpayers in that situation to cover both the legacy issues and the go-forward issues.

Senator BUSHBY: This is not so much a follow-on question from your opening statement but related to the detail of some of the aspects that you have been working on in following up changes by the government. I just want to go into the multinational anti-avoidance law a little bit further. Obviously, the law was passed late last year and came into effect on 1 January of this year. What practical action has the ATO taken to advise companies who are likely to be affected of their new obligations under that law? How is the ATO working to ensure that the corporates who are affected are compliant with the new law?

Mr Konza : There are two groups of people who are affected by the multilateral anti-avoidance legislation: those who have to consider it and work out that they are not within the scope of the law, and those who, upon considering it, work out that they are within the scope of the law. Our priority was the innocent bystanders. Last year we produced a guidance note which set out high-risk and low-risk scenarios and the criteria that you might apply in deciding whether or not you were within the scope of the legislation at all. This was specifically designed to allow inbound companies who are under American disclosure rules to sign off that they were not subject to some sort of anti-avoidance provision in Australia. We did that. We worked with industry to establish the demands that were on the corporate sector. We prioritised the 'innocent bystanders', if you like, with industry. We designed with industry the type of guidance they might find useful, and we published that last year. Then for the second group, we said—

Senator BUSHBY: Just before you go onto the second group. Do members of that first group self conclude or does the ATO sign off that they agree that they have no obligations under this?

Mr Konza : They are self-concluding. They are self-assessing for the purposes of their financial statements. We told industry that if they wanted to get a ruling of that sort they could come in, of course.

Senator BUSHBY: Have any sought that ruling?

Mr Konza : Not to my knowledge. It is pretty clear whether you are in or out, I think. That is the advantage.

Senator BUSHBY: That is an answer in itself. Deal with the second group.

Mr Konza : The second group were those that were within the scope. They have some sorts of operations within Australia which support sales which are being reported offshore, and they have a global turnover in excess of $1 billion. We said, 'We can try to audit our way to compliance, which would take us many years, or we can try and work with industry firstly to get as many of them as possible over the line, and then only chase up those who do not want to be cooperative.

We published what is called a roadmap to the multilateral anti-avoidance legislation. Basically, it said that we would be writing to as many companies as we can by 31 March this year, saying to them, 'It is our opinion that you are within the scope of the MAAL.' We said, 'We do not know whether the MAAL actually applies to you,' because we would have to identify a scheme with the primary purpose of avoiding tax et cetera.

Senator BUSHBY: How many companies have you profiled as being within the scope?

Mr Konza : The easiest ones were those that we already had audits on. Those were the 26 that the commissioner referred to in the opening statement. We already had audit teams looking at these client and we knew the MAAL was going to apply to them. We wrote to them straight away.

Senator BUSHBY: Those are companies you profiled as potentially being within the scope.

Mr Konza : Yes.

Senator BUSHBY: Are they the full range of companies that will be affected by the MAAL?

Mr Konza : No. We are writing to another 60 that we are pretty confident are affected by the MAAL. We have two or three hundred more that we think might be affected by the MAAL. We expect that some of them will drop off the list. They may not have global sales in excess of $1 billion, for example. We expect that number to sweat down quite a bit. Also, as we go along we will probably find new companies, so it will be a bit of a dynamic list. The way it works is that we have written to 26 companies and we are about to write to another 60. From March I would expect us to be writing to about 20 a week for probably a couple of months. That is really just to control our inbound inquiries. If these companies come back after getting a letter from us and say, 'We want to work with you on this,' they can get greatly reduced penalties. They can basically avoid being penalised for having an old arrangement. They can move to a new arrangement with us and avoid penalties. But if they do not respond to the letter then they go into—

Senator BUSHBY: They take their own chances.

Mr Konza : They take their own chances.

Senator BUSHBY: But ultimately, if they do fall on the wrong side of it, they will be looking at the full penalties.

Mr Konza : Yes, and we will be sending risk review teams out to each taxpayer that has been identified and has not responded, and we will be doing a review of them in any case.

Senator BUSHBY: It is probably a little bit early to tell, but has the ATO observed any changes in behaviour as these large corporates are looking to ensure that they are compliant or changing their commercial arrangements already as a result of the new laws?

Mr Konza : Certainly they are looking to change their commercial arrangements, and quite a number of them have shown a great willingness to engage with us to determine that. However, as I think I said last year to the corporate tax avoidance inquiry, we need to bear in mind that this is not some sort of withholding of tax at the gross level or something. It is not some sort of pro rata tax. This legislation requires the taxpayer to declare their gross revenue here in Australia—from Australian sources, obviously. But they are still allowed to have reasonable deductions or legal deductions against that income. I still expect that some will continue to say, 'We have very high levels of deduction and we still expect to pay very little tax in Australia.' I guess in some respects the commissioner's opening statement today was also designed to foreshadow to people, 'Don't try and push the envelope while pretending to comply with the MAAL.'

Senator BUSHBY: Putting all that together, those that do say, 'Well, we're still going to have high deductions,' either are going to have to prove it and bring forward the documents that they say they have, or alternatively are going to face assessments based on the information that the ATO has at the higher end, to quote the commissioner.

Mr Konza : Exactly.

Senator BUSHBY: Presumably this new law will see significant amounts of additional revenue obtained from these taxpayers. Is there any assessment at this stage of what you think that is likely to be?

Mr Konza : I do not know whether I or my Revenue colleagues would want to discuss revenue.

Mr Heferen : I was busy reading MYEFO, rest assured—apologies for that!

Senator BUSHBY: We were just talking about the MAAL. I presume that that will—

Senator Cormann: Given the unilateral targets of my colleagues at the tax office, I think Mr Heferen can be forgiven.

Senator BUSHBY: Yes. I presume that that will ultimately raise significant amounts of additional revenue. Has there been any assessment or estimate of what that is likely to be?

Mr Heferen : The short answer is no. When the legislation was introduced, in close consultation, obviously, with our colleagues at the tax office, it was in the budget as unquantifiable, because of the lack of certainty over what is going to occur. When tax collections come in that enable us to put a number on that with some confidence, we would certainly advise the Treasurer of that as soon as we can, and I am sure it would then be reflected in updates in budget papers.

Senator BUSHBY: We heard from the commissioner in his opening statement that—was it an extra $40 million in one case? Was it $40 million?

Mr Heferen : Both the ones that the commissioner was referring to—

Senator BUSHBY: Yes, I know they were not under the MAAL. Presumably, we are not talking about millions or even tens of millions of dollars. We are probably talking about hundreds of millions. Is it of that scale, or is it more?

Mr Heferen : One of the tricky things is that if we say we are talking in the order of what it might be then that very quickly gets translated into, 'Oh, okay, that's revenue that's going to be collected.' I think it is still fair to say—

Senator BUSHBY: I know you guys are not keen on that, but what we are talking about is likely to be significant money. It is a substantial measure that is likely to have a substantial, positive benefit on the revenue raised.

Mr Heferen : We certainly hope so.

Senator BUSHBY: Just moving on to a slightly different issue: international multilateral agreements. Last month, the government signed an agreement that will allow tax information to be exchanged amongst tax authorities in over 30 countries. How is that new agreement going to help the ATO?

Mr Konza : Firstly, it will require companies, under the OECD guidelines, to create and maintain certain information about their operations. Secondly, it will give us the opportunity to access that information from treaty partners. The country-by-country report, for example, which is, in essence, a very large spreadsheet which shows the key financial and other metrics of a company on a worldwide scale, allows us to diagnose the tax plan that is actually in operation. That is going to be available to us and our treaty partners. The type of cooperation that we have been encouraging on a worldwide basis will be greatly assisted when we are able to access a fairly standardised piece of information about each company.

Senator BUSHBY: The bottom line is that it is going to give you greater opportunity for exchange of information with other tax offices around the world to understand those global tax plans that were talked about earlier and then work out the consequences, in an Australian context, for what tax should be payable.

Mr Heferen : Yes, that is right. It is.

Senator BUSHBY: That sounds pretty good. That is probably all I need to ask.

Senator O'NEILL: I asked some questions around the Gosford ATO building yesterday in the Finance and Public Administration Legislation Committee, and for most of them I was referred to this committee by Senator Cormann. Before I go to those questions in detail, how many jobs have been cut by the tax office since the advent of the Abbott-Turnbull government?

Senator Cormann: We have gone through this in some detail in previous estimates. What our government did was implement the efficiency measures that were put in place by your government, the government that you were a part of. We did bring some of those efficiencies forward by one year. I might invite the commissioner to go through the details.

Mr Leeper : The answer is not so much around staffing numbers but around variations to the ATO operating budget. As the minister has pointed out, measures that were taken by the previous government have reduced the ATO's budget by about $292 million over the period 2013-14 to 2016-17. Subsequent decisions by the present government amount to a further reduction of $77 million over the period 2014-15 to 2017-18. We manage our staffing numbers within the overall budget with regard to expenses on property, IT costs and systems development work. As the commissioner has pointed out, we adjusted the stuff numbers significantly at the end of 2014.

Senator O'NEILL: By how much?

Mr Leeper : Since July 2013, the overall reduction of ATO staffing has been just over 4,000 headcount.

Senator Cormann: To put that really clearly again, these were efficiencies initiated by the previous Labor government and which we supported on coming into government. We brought some of those efficiencies forward, but the quantum is a direct result of decisions made by the previous Labor government.

Senator O'NEILL: Four thousand jobs have been shed. Commissioner Jordan, I wonder if you could explain to me the process that you undertook in determining that Gosford was a site suitable for 600 transfers of Taxation Office positions.

Mr Jordan : The decision to open an office in Gosford is a decision of government. We expect turnover of between three and four percentage points of staff each year. On a staffing base of 18,000, that is somewhere north of 700 jobs per year that we would expect ordinarily to turn over. We are very confident that we can make the necessary adjustments to our workforce, in the time leading up to the opening of Gosford in November 2017, to manage that.

Senator O'NEILL: I indicate a couple of questions on notice with regard to the closure of other sites and also details about the staffing and projections for the Newcastle office, because there is some discussion in the community about what is going on there and what your intentions are.

Mr Jordan : Just on the Newcastle office, we are renewing, as far as I am aware, the lease there.

Mr Leeper : Yes, we are.

Mr Jordan : It is on a smaller footprint, but that is just reflective of what the actual size of the office is now. There is no intention to change the size of the office in terms of staff numbers.

Senator O'NEILL: And how many are in that office?

Mr Jordan : I would have to take that on notice.

Senator O'NEILL: Thank you. Yesterday I asked if the Minister for Finance could explain what Finance's role was in relation to the Taxation Office lease, and he said—

Senator Cormann: Well, we provided you with some information, and I referred you, for the specific detail in relation to the lease between the ATO and whoever the landlord is, to these estimates with the Australian Taxation. Obviously we are now here, and you get the opportunity to ask all of your questions.

Senator O'NEILL: Could you give me any detail about the ATO office lease in Gosford and your role in determining that.

Mr Leeper : Following the announcement by government of the decision to open an office in 2017, we did a scan of the local market. We are looking for approximately 7,500 square metres of office space to house 600 staff, consistent with the current accommodation guidelines operated across government. No such site existed. So, completely consistent with other places where we have made arrangements with the marketplace to lease accommodation—like Adelaide, Docklands, Dandenong, Box Hill and Albury—we ran an expression of interest process indicating that we were seeking a certain grade of office accommodation to a certain size by a certain period and without regard to location, except that it is in a bounded part of the Gosford CBD. I have a map I can table if the committee is interested. But we did not specify location. We said, 'We're in the market for an office to support 600 staff, which we need constructed and able to be fitted out by the middle of 2017 for occupancy later in the year.'

Senator O'NEILL: Could you take on notice the types of jobs that you expect those 600 staff to be filling in that. I do not want to use the time today to go through that in detail.

Mr Leeper : Very briefly, it will be broadly representative of other offices that we have. We have not determined the final mix yet, but it will be a mix of job skills and levels.

Mr Jordan : Could I just make one comment here. There seems to be this myth that we are moving everyone from Canberra up there or something. There is no intention to move large slabs of people from Canberra there. We will clearly need some existing people to run an office. Some people who live in Gosford work in Newcastle. It seems like a reasonable thing. Some people who live in Gosford travel down to Penrith, Parramatta or the CBD in Sydney. It might be useful. But we are looking to recruit the vast bulk of the people from that local area.

Senator O'NEILL: You indicated that there was no preferred site. Are you aware of correspondence between Mr Perrottet, the Minister for Finance, Services and Property in New South Wales, and Minister Cormann with regard to a preferred site?

Mr Leeper : Yes, we are.

Senator Cormann: I assume that you are referring here to a period when I was the acting Assistant Treasurer. What is the date of the letter?

Senator DASTYARI: So many roles, Senator Cormann!

Senator O'NEILL: Look, there is such chaos in the government and such a changeover of roles that I cannot be sure of who is in what seat.

Senator Cormann: No, it is a very orderly process. But I just want to clarify that I do not believe that I had involvement in my capacity as the Minister for Finance, which is the suggestion that you just made. I believe that my involvement was because I had responsibility for the ATO in the period between March and December 2014 in my capacity as the then acting Assistant Treasurer. That is just to specify very clearly my involvement.

Senator O'NEILL: Mr Leeper, you are aware of the letter that states, 'We seek your commitment to nominate the former Gosford Public School site as the preferred location of the new purpose-built ATO office accommodation and to jointly procure a preferred proponent to respond to the ATO requirements, acquire and develop the site'?

Mr Leeper : Yes, I am aware of that letter.

Senator O'NEILL: I cannot ask you for your view, but I can put on the record that there is significant concern about the use of the site for a public sector building. There is also significant concern about the privacy of the deal done with the state government around the sale of that land.

Senator Cormann: That is all very interesting commentary, but have you got a question?

CHAIR: Senator, statements are for the chambers. If you have a question—

Senator O'NEILL: Thank you. I will have more to say down there. What have been your main considerations with regard to the best approval for the ATO release in Gosford?

Mr Leeper : There is a standard process that we follow. We released an expression of interest. Fourteen responses were received covering five sites in the marked area in Gosford. Eight of those were assessed as meeting the technical compliance criteria to proceed to a request for proposals stage, and they related to two sites. We invited those eight parties to submit a formal proposal. Five of them chose to do so. We then followed a completely standard cost-benefit analysis, value-for-money assessment, as we have done with all of the other sites that I have mentioned in my evidence a few minutes ago. A decision is made by the delegates. It goes through to the commissioner to sign off to the secretary of the Department of Finance. Then, as you would be aware, other parts of government have approval roles, including, for example, today the Public Works Committee has announced it will be running an inquiry into the fit-out costs because the fit-out costs exceed $15 million. But I would emphasise that this has been, from our part, a completely standard process. We engaged KPMG as a probity auditor. They gave us a completely clean bill of health in July 2015 about how the procurement process had been conducted.

Senator O'NEILL: Can you confirm the amount that the successful tenderer, Doma, will receive in rent as a result of the ATO lease in Gosford?

Mr Leeper : Yes. The estimated lease costs to Doma themselves over the 10 years are $42.9 million. The difference between those and the total costs of $71.8 million is $17.7 million for capital works and $11.2 million for property operating expenses, which are for cleaning, electricity, gardening services and so on—completely standard for leased buildings. So the $42 million becomes $71.8 million when you add in those two other factors.

Senator O'NEILL: So the $17.8 million is capital works.

Mr Leeper : The Doma lease costs, capital works and property expenses makes $71 million. There are fit-out costs of $17.7 million contained within that $71 million.

Senator O'NEILL: If we go back to the amount of $42.9 million, are you aware of a joint venture between the Gosford council and a Central Coast developer who put forward a case to the ATO for a lesser amount—$37.9 million over 15 years.

Mr Leeper : That is not a figure that we recognise.

Senator O'NEILL: What is the figure that you recognise? I have the tendered document here and I have the details of it.

Mr Leeper : I am not going to divulge commercial-in-confidence details because that would go to our relationship with prospective tenderers in the future.

Senator O'NEILL: I can assure you that I did not receive the document from the tenderer, from either the Gosford council or the Central Coast developer, but from a concerned citizen. The document clearly shows—and I am happy to table it—$2.527087 million.

CHAIR: We agree to table it. Table the document.

Senator O'NEILL: Which adds up to just under $38 million—$37.9 million.

Mr Leeper : I am sorry, Senator, but we have no record of a proposal that equates to rental outgoings of $38 million over 15 years.

CHAIR: We have a document that is going to be tabled. You can have a look at that. You will have a copy of it and you can consider it in time.

Senator O'NEILL: I look forward to your response to that. That bid would mean for the people of Gosford that they would have had a building with specific purpose for ATO in the middle of the CBD rather than on the site that Mr Perrottet encouraged the federal government to do a deal with. They would have had it beside Gosford council and it would have been a building that would have been able to be used, with the support of Gosford council, after the ATO, potentially, decides to move out in 10 years.

Mr Leeper : Can I make it very clear that the ATO did no deal with the state government. We stuck to our established procurement arrangements and we indicated that we were not going to be involved in specifying a particular site for the building. Whether or not there is a proposal amounting to that amount of money, it is not just about the cheapest tender. There is a value-for-money assessment process in these things. That is the methodology that we follow.

Senator O'NEILL: Is there a community consultation dimension to this? The community, clearly, should be much happier with the result, given that this is an investment, but you have not consulted the community.

CHAIR: Mr Leeper is not here to give commentary on the communities.

Mr Leeper : We went to market seeking access to A-grade office accommodation to support 600 people in Gosford. We were agnostic about the location. We asked for proposals. We assessed those proposals in a way which is consistent with any other property leasing arrangement that we have been involved in. We followed exactly the process we would follow for any other site.

Senator O'NEILL: Could you advise the process and the timing of the announcement of this and the signing off on the agreement for the lease.

Mr Leeper : We reached a position where we are identified a preferred partner, as it were, and proceeded to conclude the commercial negotiations by around the middle of September 2015. There was an announcement publicly by the then Treasurer on 25 September, and we then concluded the agreement for the lease about a month later. But I would say, on evidence, that those were more administrative matters. We were certainly not advising government to announce a preferred provider of the building until we completed the commercial negotiations. It is a well-established principle that you just do not do that.

Senator O'NEILL: When were the completed commercial negotiations actually signed off?

Mr Leeper : I am advised that they were completed prior to the announcement on 25 September. So what remained to be completed for the agreement for lease were essentially administrative procedures.

Senator O'NEILL: The information that flowed between your office through Assistant Commissioner Justin Untersteiner indicates a different scenario from what you just outlined.

Mr Leeper : That is not the advice I have.

Senator O'NEILL: I might have to provide you with that document as well. We have a sequence of events—

CHAIR: Are you going to provide that document?

Senator O'NEILL: Yes.

CHAIR: Do we agree to table it? We agree to table it.

Senator O'NEILL: That document indicates a communication between the ATO and Minister Stokes's office around the announcement. A senior policy adviser from Mr Stokes's office indicated a high degree of concern about the announcement being put out on 25 September because documentation was not signed and they were not confident that processes were being properly followed.

Mr Leeper : That is not my view. I had conversations with Assistant Commissioner Justin Untersteiner about how well prepared we were in the finalisation of both the negotiations and the relevant documentation, particularly around the commercial aspects, and I was satisfied that we had reached a point where it was very, very low risk for us to announce Doma as the preferred provider of the facility.

Senator O'NEILL: The document says 'We have not yet signed the agreement for lease, as approval was only received from the Department of Finance yesterday.' So the lease was not signed?

Mr Leeper : The lease was signed on 27 October. I just said that.

Senator O'NEILL: And the announcement was made on?

Mr Leeper : 25 September. But we provided advice that there was little or no risk in making the announcement because the fundamental commercial terms had been agreed between us and Doma.

Senator O'NEILL: But there was a risk, Mr Leeper—

Senator Cormann: That is your opinion. But I think the officer has just given you very direct evidence as to the ATO's assessment. You are obviously entitled to have a different view, but I do not know that you can assert that your view is the accurate view.

Senator O'NEILL: Let's just be clear: when the announcement was made by Treasurer Morrison and Ms Wicks there was not yet signed an agreement for lease?

Senator Cormann: I think what the officer has said is that the commercial terms had been agreed, and that, for all intents and purposes, an agreement had been reached, but that the paperwork had not yet been finalised. I think that that is, in essence, what the officer has said.

Senator O'NEILL: So that verifies the fact that when the community found out that this was happening on 25 September, there was an opportunity for the government to listen to the community and to respond to the community. They were well within their rights, and had the opportunity, to walk away from this agreement. But, nonetheless, the government continued and, you are saying, signed the lease on 28 October. Is that correct?

Senator Cormann: The thing that you do not accept is that the government went to the last election with a very clear, very explicit and very transparent election commitment. Obviously, not only did we win the election but also we won the particular seat that you are showing a particular interest in. That seems to indicate to me that people across Australia, and people in that particular electorate, voted with their feet in favour of the polices we took to the last election, including the policy that you do not agree with but that a majority of people across Australia did agree with. The government is now working to implement that policy. Whatever assertions you may choose to make, in your view, about people's opinions in relation to this, we are doing exactly what we said we would do in the lead-up to the last election. We received a mandate at that election both from the Australian people nationally and from people in that particular community.

Senator O'NEILL: You gave the community assurances that you would match the Labor commitment dollar for dollar but you did not follow through on that. I can say that the community is excited about an investment in Gosford but the community is very concerned that when the announcement happened on 25 September, and the site of Gosford school was the site that was announced, there was community outrage. In the space between 25 September and 28 October, this government had a chance to listen to the community's concern, but it chose to go ahead regardless. Is that a fact?

Mr Leeper : I should point out that it is not the government that executes the agreement for lease. It is the Australian Taxation Office. This is an administrative process. We have reached commercial terms. What remained was to execute the documentation.

Senator O'NEILL: If the minister advised you in the interim period that they were not going to go ahead because the community protest was so great, then what you do, Mr Leeper?

Mr Leeper : That would be speculative, Senator.

Senator O'NEILL: Do you follow the advice that you are given by the minister?

Senator Cormann: The Australia Taxation Office is an independent statutory agency which operates on the an act of parliament, which I am sure you would be very well aware of. In relation to this particular measure, obviously there was an election commitment that was made by the government where certain decisions were made by the government which the ATO is consequently implementing.

Senator O'NEILL: I will restate my question. If you were directed by the relevant minister—who is the relevant minister, Mr Leeper?

Mr Leeper : The relevant minister at the time, I believe, was probably the Assistant Treasurer or the person in that role—

Senator O'NEILL: And who was that?

Mr Leeper : but I do not think we would receive such a direction in relation to an administrative action, such as entering into a lease.

Senator O'NEILL: Can I clarify who at the time was the Assistant Treasurer.

Mr Leeper : I believe it was Minister Cormann.

Senator Cormann: Sorry, what date are you referring to?

Senator O'NEILL: Between 25 and 28.

Senator Cormann: Which year?

Mr Leeper : I beg your pardon. Minister Cormann was the acting Assistant Treasurer in September 2014. You are talking about September/October 2015.

Senator Cormann: At the beginning of September it was Minister Frydenberg and from late September it was Minister O'Dwyer.

Senator O'NEILL: Maybe that explains why Ms Wicks could not find the right person to say that the community do not want it on that spot; put it in the middle of Gosford. She had 33 days to do something.

CHAIR: We have two minutes. Just remain calm and get your questions out.

Senator O'NEILL: Who was the responsible minister in the interim period between 25 September and 28 October?

Senator Cormann: At that time, it was clearly Minister Kelly O'Dwyer.

Senator O'NEILL: So Minister O'Dwyer could have responded to the community outrage—

Senator Cormann: That is a hypothetical question. You are making various assertions and we do not accept these characterisations.

Senator O'NEILL: If Minister O'Dwyer directed Mr Leeper—

Senator Cormann: That is a hypothetical question. By starting a question with 'if', by definition. it is hypothetical.

CHAIR: Senator O'Neil, I have no idea what is going on in the community there; you do. You are obviously across it, and you are a very good advocate for it. If you could frame your questions so that the officers can answer your questions and give you some reasonable answers rather than what seems to be a bit of an attack, really, on the whole decision. I am happy to come back, and we will come back, and give you the floor, but perhaps if you can moderate what you are looking for and we will try and get you the information that you are after.

Mr Jordan : Can I make one comment. I understand the DA has now been lodged, so there is a bit more information and a more finite sort of look of the building. We were a little surprised when all this came out saying we are on the waterfront. We are actually the furthest part on the parcel away from the water—

Senator O'NEILL: I would love to have this discussion with you.

Mr Jordan : and the closest to the CBD. Of the whole precinct, the building is four per cent. Of the old school site, it is only 27 per cent. It is the furthest away from the water, I am told, of any part of the land. Unfortunately, there was some mock-up released at the time that bore no resemblance—there is now a proper-looking sketch of what the building looks like. We are happy to provide that if you have not yet received that through the DA. It is all natural, locally sourced material—all of that. I think sometimes something comes out and people think a big concrete block is going to be stuck on the water. It is sort of not that. We do not design buildings. We look for the best value for money. We had a proper process. We were not influenced by either federal or state government in that process. That would not have been appropriate. We were very careful about the way that we went about this. I said, 'We're right on the water?' and I was told that actually we are not. We are the furthest part away. We are happy to share any of that material with you.

Proceedings suspended from 15:46 to 16:00

CHAIR: We welcome back the Commissioner of Taxation. Senator O'Neill, you requested 20 minutes; you have had 25 minutes. Could you come to the conclusion of your questioning now, if that suits you?

Senator O'NEILL: If I do not get through them all, I might have to put some on notice. I go to a line of questioning. The Assistant Treasurer was given directions in the role as of 25 September, in the period between 25 and 28 October last year. If the Assistant Treasurer gave the ATO directions, did you follow—

Senator Cormann: 'If' is a hypothetical question.

Senator O'NEILL: I am assuming that, in that period of time, you were given directions by the Assistant Treasurer. Is that correct?

Senator Cormann: That is an appropriate question to ask—whether there was a direction.

Mr Leeper : I am not sure that we are subject to direction, in that sense.

Senator Cormann: I would be very surprised if there was, but we can take on notice whether there was.

Senator O'NEILL: Any communications between you and the Assistant Treasurer in the period between 25 and 28 October.

Senator Cormann: You are talking about 2015, are you?

Senator O'NEILL: Yes, last year.

Senator Cormann: We will take that on notice and we will check that for you.

Senator O'NEILL: Just to see if she indicated the community concern. I am referring to a document tabled in the Senate from the ATO which states: 'The review and approval process has been completed and approval from the Minister for Finance has been received for the ATO proposal.' Could you explain to me the link between the finance minister and the Assistant Treasurer in this instance?

Mr Leeper : That is part of the normal process. We go through the evaluation, we reach a conclusion about the best-value-for-money option from the field of applicants. The commission assigns an undertaking or a covering note to the secretary of the Department of Finance indicating that this has been the outcome of the tender process and the secretary of Finance, as I understand it, then needs to seek ministerial approval. I would emphasise that these are the normal, ordinary processes followed for these kinds of leases.

Senator O'NEILL: Could I have a copy of those normal, ordinary documents and the dates on which this happened?

Senator Cormann: We actually undertook to provide that to you on notice yesterday, but I am happy to repeat that undertaking.

Senator O'NEILL: Thank you. The communication between New South Wales planning minister, Rob Stokes, on the evening before the Treasurer's announcement, stated: 'The state minister's office is aware of the Treasurer's announcing in the morning but not 100 per cent comfortable. His preference was to wait until contracts are settled but understood the intention to announce in the morning and noted his office would be very careful about how they respond to the media until the contract is signed.' The senior policy adviser to Mr Stokes also said, 'Before the state government process can conclude'—this is for the purchase of the land by Doma—'the Commonwealth must announce the selection of the site for the delivery of a purpose-built Commonwealth facility in Gosford's CBD. Through the shortlisted proponents from the state government tender process, the former Gosford public site is participating in the Commonwealth tender process.' The timing of this is critical, isn't it? Before the state government process can conclude, the Commonwealth have to announce the selection of the site for the delivery of a purpose-built Commonwealth facility in Gosford's CBD.

Mr Leeper : That is exactly how we set the process up, though, Senator. It is obvious from the data I gave you about the number of expressions of interest and the number of requests for proposals as they related to the number of different sites in the process. It is obvious that at least one site had more than one proponent seeking to engage us around the building on that side. So the way we constructed the tender documents indicated that the tenderer had to give undertakings that they were confident that they could seek and receive approvals from the state government over the parcel of land.

On 25 September, we announced that we had completed commercial negotiations—I confirmed this in the break with the officer concerned. We signed the agreement for lease on 27 October. That then triggered the requirement for the successful tenderer to engage with the New South Wales government, seeking formal access to the parcel of land. Otherwise, quite obviously, anybody tendering would have borne an enormous amount of commercial risk if they had to acquire the land not knowing the outcome of the tender process. From our point of view, that was quite reasonable. Doma completed the purchase of the land from the New South Wales state government on 18 December 2015. That was exactly the process that we had envisaged from the way we had designed the tender.

Senator O'NEILL: You are reading from some pretty important notation there, Mr Leeper. Would you be able to table those documents?

Mr Leeper : These are just my briefing notes. They just have particular dates in them.

Senator O'NEILL: Well, that would be of interest.

CHAIR: He has just rendered it in evidence.

Senator Cormann: We are not going to go for the precedent where we table the briefing notes. I tried that as a joke myself when I was in your spot, and I got short shrift from Senator Wong as the then minister at the table.

Senator DASTYARI: It has turned out well for you, though, Minister!

Senator Cormann: I did not get anywhere at the time, so let us just stick to past practice and convention, all right?

Senator O'NEILL: It is going to be of interest to the local community to know that there was no risk to Doma.

Mr Leeper : There was no risk to any tenderer. We constructed it so that any tenderer could effectively partner with the owner of a parcel of land on the basis that, if they were the successful tenderer, they would then execute the appropriate legal agreements to gain control of the parcel of land. It was not just Doma; anybody in that tender had access to that facility.

Senator O'NEILL: But in this case it was money that is now going to the state government as a result of a process that was undertaken by the federal government.

Mr Leeper : The land was always owned by the state government. We have no interest in the land.

Senator O'NEILL: It is not now, because the federal government provided the wherewithal for Doma to purchase that piece of land and put a building on it, which is considered by the community as being against their wishes.

Mr Leeper : Any piece of land in Gosford that had been successful in the tender process would have been subject to the same opportunities and obligations.

Senator O'NEILL: So that I am clear, there was a period between 25 September and 28 October in which documentation and contracts were signed off by the federal government with Doma and, subsequent to that sign-off in October, Doma purchased the land in question on 18 December last year.

Mr Leeper : That was always the expected evolution of events. After the agreement for lease was signed, the successful tenderer had a period of time—I think it was either 60 or 90 days—in which to execute possession of the land.

Senator O'NEILL: Do you know how much they purchased that piece of land for?

Mr Leeper : I have no idea. That is a commercial arrangement between the New South Wales state government and Doma.

Senator BUSHBY: If there is a problem with the ATO moving 600 people into Gosford, I am sure that South Australia and Tasmania would love to have them. I was having a little chat with the chair here, and we would even be happy to flip a coin to see which one gets them. If 600 people were coming either of our ways, we would be very happy.

Mr Jordan : I am glad to inform you that in both Adelaide and Tasmania they have overweighting in terms of numbers for the ATO—

CHAIR: We would welcome you.

Senator BUSHBY: Two more would be good.

Senator O'NEILL: It is all right; they will be moving to Gosford soon.

Senator DASTYARI: I am sure they are in the right spot.

CHAIR: Hopefully, they will be welcome.

Senator DASTYARI: It will be Western Sydney after they get the submarines!

CHAIR: Senator Ketter.

Senator Cormann: Are we still on the ATO?

CHAIR: Yes.

Senator KETTER: In your opening remarks, Mr Jordan, you indicated you feel strongly about the debate that is taking place in respect of the tax system. It has become apparent in the last 12 months or so that there has been a lot of backgrounding of journalists happening in relation to, primarily, taxation matters. Have consultants been paid by the ATO to involve themselves in backgrounding journalists?

Mr Jordan : I am not aware of that—from us, do you mean?

Senator KETTER: By the ATO, yes.

Mr Jordan : I can take that on notice. I am not specifically aware of consultants backgrounding journalists on our behalf.

Senator KETTER: So you do not have an organisation managing media for you?

Mr Jordan : We have a contract with a firm, Newgate, that provides some advice to us in terms of media and other things—a fairly wide range of topics.

Senator KETTER: And you are not aware of whether those consultants actually then speak to journalists as well?

Mr Jordan : I presume as matter of course they speak to journalists. That is sort of their business, so I presume they do. I do not specifically instruct them to do things on my behalf.

Senator KETTER: I understand your concern about the public debate, and you have a legitimate interest in that. How appropriate is it for the agency to be engaging media management companies to provide preferred journalists with information?

Mr Jordan : I am not sure if we go about it in that way, but it is very appropriate for us to use whatever resources we think necessary to ensure the community is confident that the ATO is appropriately exercising its powers and collecting, wherever possible, the right amount of tax for the benefit of the community here in Australia.

Senator KETTER: Another person has been hired from KPMG into the ATO at a senior level, and that is Mr Geale. There are some concerns about the number of experienced SES officials having left the office. Is there a risk that the senior ranks of the ATO are losing valuable experience?

Mr Jordan : No.

Senator KETTER: What attempts are you making to ensure that does not happen?

Mr Jordan : We have had a number of the SES leave. People have reached a certain age, and they were in this old scheme which is a little bit of a mystery to me—CSS or PSS or something like that. Once they reach that age, I think it is 54 years and 11 months, there is certain vesting, so some people decide to leave at that time. We are undergoing significant change in terms of an organisation. We have significant cultural change occurring within the organisation, and some people have simply taken the opportunity to maybe leave a year or two earlier than necessary and take some sort of—in terms of the SES it is called an 'incentive to retire'. This has enabled us to significantly refresh our SES ranks, largely from within. Since I joined, there have been six or seven partner-level equivalents join the ATO from the large law and accounting firms. Andrew Mills was the first of those and Jeremy Geale, who you referenced, was the last. So they have been from a variety of firms, and that has been a fantastic opportunity for us to get extraordinarily talented and experienced people to come in, very much at a vastly reduced remuneration because they do want to work for the ATO for the benefit of the community and use their incredible knowledge and skills for our advantage.

ACTING CHAIR ( Senator Ketter ): I understand what you are saying. I think you indicated that about six or seven people have just been engaged—

Mr Jordan : In the last three years.

ACTING CHAIR: in the last three years. So, of the current members of the SES at the ATO, how many worked for the big four accounting firms before coming to the ATO?

Mr Jordan : I would have to take that on notice. Do you want that going back forever—if 30 years ago they did a year there, or is it recently? Some people might have worked somewhere 25 years ago and joined us, so it is bit hard.

ACTING CHAIR: Just in recent times.

Mr Jordan : So, if they have worked for them in recent times. Okay.

ACTING CHAIR: Yes. Finally, has the redundancy program at the ATO now concluded?

Mr Jordan : Pretty much. That was the large redundancy program a year or so ago. It was obviously completed, and we had a second, fairly targeted redundancy program at the executive level, EL, where we were seeking to offer up to, I think, 500 voluntary redundancies through various reviews that we had done to reduce duplication across the organisation in terms of functions that were being performed. It was also to reduce layers of management to provide the opportunity to empower our staff to make more decisions to be able to get on with their jobs, rather than having a series of levels sitting above them.

As I understand it, around 450 or so people have been approved to take that and we are looking to close that off in the short term. We probably will not get to 500 approved. Probably 500 have asked, but we have a pretty stringent evaluation process around the criticality of the position and the criticality of the skills being held by the particular individual before we will agree that they can take a voluntary redundancy. Simply asking for one does not mean that you will get a redundancy, because we have to assess both the position and your skills against our requirements as an organisation before they are approved. We will probably be a bit shy of the 500. About 450 is where we are at right now.

Senator KETTER: You said that they are all SES level?

Mr Jordan : Yes, executive level; level 1. There is APS1 to 6. I am getting very familiar with these categories. There is APS1 to 6, and then there is executive level, EL1 and EL2, and then you go into the SES band: SES band 1, SES band 2, and then SES band 3.

Senator KETTER: Are these staff across the ATO or are there particular sections?

Mr Jordan : They are across the ATO, but the primary purpose of this was more in the back office function and more in the enabling functions—plan and manage, HR, finance, communications. We have three groups within the ATO, headed by the three second commissioners sitting here with me. Unfortunately, over the years teams were built up. You had central finance, HR, governance and all those sorts of things, and then each of the groups built their own functions, which was really duplication and overlap. We have realigned those through reviewing all these functions, which basically required some of these executive levels becoming surplus—excess to our requirements.

Senator KETTER: You expect those redundancies of 450 or so take effect as of when?

Mr Jordan : A number of them have already left.

Mr Leeper : We can expect to complete them by 30 June.

Senator KETTER: Could I please have information as to the total number of full-time equivalent job losses since September 2013? This may be something you have to take on notice, but could we have a breakdown of which sections those jobs were from?

Mr Jordan : Second Commissioner Leeper mentioned that there were just over 4,000 since July when we did the numbers in our annual report. Maybe we can work on July rather than September? Is September particularly important to you?

Senator KETTER: September is particularly important.

Mr Leeper : We need to take that on notice.

Senator KETTER: That is fine.

CHAIR: Senator Ketter, you are all done? You guys have had a reasonable run. If I could get Senator Whish-Wilson in and out of the place, that would tidy the joint up a bit.

Senator WHISH-WILSON: I just have a few questions on, as I mentioned earlier, the petroleum resource rent tax. It has been reported that basically there has been very little uplift in revenue since it was implemented, although there has been a significant boost in gas production in the country. Could I start by asking a question on Chevron? I know that you are in a dispute with them at the moment. Are they one of the companies that are eligible to do self-assessment and voluntary compliance programs for—

CHAIR: Just to clarify: the ATO are not in dispute with them; they have won a court action—

Senator WHISH-WILSON: No, they are not. Sorry. They won an action, but it has been appealed.

CHAIR: and it has been appealed.

Mr Hirschhorn : I cannot comment on the relationship we have with Chevron in relation to PRRT as it would be revealing the affairs of an individual taxpayer.

Senator WHISH-WILSON: So you cannot say whether they do self-assessments?

CHAIR: No. We—

Mr Hirschhorn : The Australian tax system is fundamentally a self-assessment system.

Senator WHISH-WILSON: Yes. How do you audit? Do you do any audits of those self-assessments?

Mr Hirschhorn : Again, without talking about Chevron—

Senator WHISH-WILSON: That is right. In general, so for PRRT—

Mr Hirschhorn : With PRRT, as with income tax, we do a range of compliance work. We hope to engage with taxpayers early—often before the event for large taxpayers—and if we find areas of risk we will engage more forcefully.

Senator WHISH-WILSON: Have you found areas of risk? Have you contested any of those self-assessments from your audits?

Mr Hirschhorn : Are you talking about PRRT generally?

Senator WHISH-WILSON: Yes, all my questions are on PRRT.

Mr Hirschhorn : Again, I cannot talk about individual taxpayers.

Senator WHISH-WILSON: It is hard to say—

Mr Hirschhorn : There is a case from a few years back which was in relation to PRRT and what was eligible expenditure. We do take action in relation to PRRT.

Senator WHISH-WILSON: Do you do assessments of expected revenue from PRRT, or is that done separately within Treasury?

Mr Hirschhorn : At a macro level I will leave that to my Treasury colleagues. Obviously, at an individual taxpayer level we have risk filters and risk assessments to look at whether the amount of PRRT from the individual taxpayer is making sense.

Mr Heferen : On the revenue forecasts, what we in Treasury do is we work closely with officers in the Revenue Analysis Branch in the ATO, who have real-time collections information. We take into account the collections information to understand what has been collected over the last few years and what has been collected at the current point in time. Then, depending on the tax, we use a range of economic parameters to forecast how we think that tax is going to grow or decline in the future. With the PRRT the key element of that is that the prices are linked to the price of oil. As we see commodity prices come off, of course, that has an effect on our expected revenue—or the government's expected revenue; I should not say it is ours—from the PRRT, and that is identified in, I think, the media update. I am pretty sure we revised down the PRRT on the basis of lower than anticipated oil prices.

Senator WHISH-WILSON: Do you agree with the analysis that effective tax rates have significantly fallen over time? I think it was estimated in 2002 they were around 24 per cent. Is it now around five per cent in terms of the actual—

Mr Hirschhorn : In terms of the effective tax rate of the PRRT?

Senator WHISH-WILSON: Yes.

Mr Hirschhorn : It is 40.

Senator WHISH-WILSON: Forty per cent is what it is set at, but after deductions, in line with the growth of value in tax, tax collection has not really improved much since it started. As I was saying earlier, gas production has ramped up quite significantly. I cannot imagine that is all due to falls in prices.

Mr Heferen : You also have to think that with the way the PRRT is designed—and I must confess I am certainly no expert in it—the PRRT, being a rent tax, is aimed at taxing the cash flow. So rather than income tax, which looks at the tax paid at the normal and the above-normal return to capital, the PRRT just tries to tax the above-normal by having a cash flow tax. The big difference is the expenditure. The idea is that money comes in, money goes out, minus one off the other and pay 40 per cent of the difference. The difference between the PRRT and a genuine cash flow tax is that a genuine cash flow tax, where it is a negative, would have that refunded. The PRRT simply uplifts it and carries it forward. So, in a situation where there is a very large project and there is a lot of expenditure on both exploration and developing, there will be a lot of losses that are then carried forward. And they are uplifted, I think, at eight per cent. I think the exploration might be uplifted at 15 but the normal—

Senator WHISH-WILSON: A rate of the bond rate plus 15 per cent—

Mr Heferen : Sorry, yes, the bond rate plus. I beg your pardon. So, where there is a project that has had significant capital works over it over a number of years, you would expect those losses to be carried forward, to be uplifted, and—

Senator WHISH-WILSON: Do you know when those rates were set and what the rationale was for setting them?

Mr Heferen : I would have to take that on notice. I assume they were part of the original design of the PRRT.

Senator WHISH-WILSON: I could not find out if they were or not, so that is genuine. I am interested if you could.

Mr Heferen : We can take that on notice and provide that.

Senator WHISH-WILSON: Thank you. How many tax credits under the petroleum resource rent tax have the industry accumulated to date under this system? Could you take that on notice too. We have some figures of $156 billion, but I am not sure if they are accurate or not.

Mr Heferen : Tax credits?

Senator WHISH-WILSON: Yes.

Mr Jordan : Do you mean uplifted losses?

Senator WHISH-WILSON: Yes, correct.

Mr Heferen : I am not sure, but we will take that on notice and see what we can provide.

Senator WHISH-WILSON: Yes, if you could. Do you have any thoughts on what you are expecting to raise in the 2015-16 budget from the PRRT?

Mr Heferen : I would not like to say I have any thoughts.

Senator WHISH-WILSON: Sorry, projections.

Mr Heferen : In the midyear update, we estimate the PRRT will raise $1 billion in 2015-16.

Senator WHISH-WILSON: And in the forward estimates, to 2018-19?

Mr Heferen : In 2016-17, $1.05 billion. The projection for 2017-18 is $1 billion, and the projection for 2018-19 is $1 billion.

Senator WHISH-WILSON: While the chair is not looking at me, I might—

CHAIR: I will just remember you when you come back.

Senator WHISH-WILSON: I think with the Gorgon project, which is a joint venture, the construction of carbon sequestration in the project was claimed as an exploration cost. That was in freedom of information requests of the documents. Would you take issue with the construction of facilities as an exploration write-off?

Mr Heferen : We would leave the matter of interpretation of what would be an exploration cost and what would not be to our colleagues in the ATO. If the ATO had concerns that something might be mischaracterised or there might be some flaw in the legislation that enabled a more generous deduction to be claimed, we would have that discussion with them. If it were something germane to the integrity of the tax, we would certainly be advising the Treasurer on that.

Senator McALLISTER: I think Senator Dastyari has one question.

CHAIR: Good luck!

Senator DASTYARI: Actually, we will go straight to Senator McAllister, because that would be a lie!

Senator McALLISTER: I resent that!

CHAIR: That would be unparliamentary!

Senator DASTYARI: I would not want to mislead the Senate!

Senator McALLISTER: I want to ask about the small business instant asset write-off and particularly whether there are any indications of fraud that you are seeing in the implementation of that measure and how you are responding to that.

Mr Olesen : As you know, Senator, the instant asset write-off increased to $20,000 in the budget last year. Tax returns for that year are progressively coming in. We have quite possibly got about half of the tax returns in from businesses at this stage for the 2014-15 year.

Senator McALLISTER: That is quite a big number, isn't it?

Mr Olesen : What we have done is to look at that and compare that with the kinds of claims—sorry, I should just go back a step. In the tax return, there is a single number of people who claim the instant asset write-off, so there is limited information that we can see from the tax return that allows us to analyse, in any kind of depth, what is happening there. When we compare that with the full-year picture that emerged back in 2012-13, when there was a $6,500 write-off, the numbers look kind of comparable. There is nothing in the macro picture—that is what I am trying to say—that gives us any cause for concern. I should also say that anecdotally, in the feedback we are getting from the industry bodies and others that we deal with, we have not come upon anything that has given us undue concern about claims that are being made.

Senator McALLISTER: Can I just clarify something before you go on: when you talk about the macro picture and the total volume of tax returns accessing that particular provision being comparable, do you mean that it is the same as last time as a proportion of returns, or do you mean it is what would be expected given the change in the measure?

Mr Olesen : I think, both. My Treasury colleagues might like to comment on how the estimate is going but when we compare it with prior years where there was a significant write-off available of $6,500, the numbers look kind of comparable at a macro level.

Senator McALLISTER: The same numbers?

Mr Olesen : Yes, in terms of the numbers of people. That is right. To give us a little bit more granularity about what is going on we are now going through a process of running a range of risk filters over the data we have that are highlighting, for us, cases that might warrant some closure attention. As I said, we just have the one number on the tax return, which allows us to do some analysis comparing it with some other labels and prior years—those kinds of things. We now have selected a pool of cases and we are about to go out and start to have a closer look at the nature of claims that have been made in those cases. That work is just about to commence. We are looking to do small tens in the initial round of cases. Subject to what we find in that initial round of cases we might do some subsequent ones. That will then give us the next level of detail about what is happening out there in respect of this measure.

CHAIR: Can you just clarify: is that an increase from 2013-14?

Mr Olesen : Sorry, I do not have the numbers in front of me. From 2012-13, the numbers at this stage are looking—there is awful lot of projection in this because we are only about half-way through the lodgement period—similar in terms of the number of claims. I do not have the number in my head for 2013-14.

CHAIR: But it is not such a number that it is—

Mr Olesen : There is nothing in the macro picture that is causing us alarm about the way in which this is going.

Senator McALLISTER: Given your experience with the program in its other guises, what are the most common types of fraud that you would expect to see in this audit process that you are commencing?

CHAIR: That calls for a speculation.

Senator McALLISTER: What were the most common problems in the past with schemes of this kind in terms of tactics undertaken?

CHAIR: Was there any fraud committed in the past and give me some examples of what they were.

Senator McALLISTER: Thank you, Senator Edwards.

Mr Olesen : I might have to take that on notice, because I do not have information about the programs we ran a couple of years ago, across this measure.

Senator McALLISTER: Is there any concern, at the ATO, about assets being churned through different entities, or associated entities, for tax purposes?

Mr Olesen : We understand that that creates a potential risk but, again, that is a speculative concern because we have not been out into the field yet, to have a look at it.

Senator McALLISTER: Is there any indication, to date, that invoices are being split up to get under that $20,000 threshold?

Mr Olesen : Again, as I indicated we are about to start some fieldwork that will give us some closer insights.

Senator McALLISTER: There was an FOI document released last year from the ATO which stated that additional resources may be required to minimise the threat of fraud and, to a lesser extent, ensure genuine business claims are legitimate. Do you agree with the assessment that this will require more resources?

Mr Olesen : At this stage I have no concerns about the need for additional resources. As we go into the field and we get a bit of sense from some particular cases that have tripped our risk filters we may change our assessment. But at the moment we do not have any particular concerns.

Senator McALLISTER: I was not quite certain about your earlier answer about the audit process you are about the initiate. Have you allocated additional resources internally to undertake that?

Mr Olesen : We have allocated some resources to undertake that. I do not think there are additional ones. I might have to check my memory about whether we got any additional funding for that measure. It is a fairly modest program at the start—some small tens of cases. So you do not need a big number of people in order to do that.

Senator McALLISTER: How many people, roughly?

Mr Olesen : I am sorry, I do not have that here. I would have to check that.

Senator Cormann: You can take it on notice.

Senator McALLISTER: That would be great. Thank you. That is fine; it is helpful. I will turn, then, to the transfer of the residential real estate functions in relation to foreign investment, to the ATO. That was intended to be completed by 1 December 2015. Is that correct?

Mr Olesen : Correct.

Senator McALLISTER: Has that taken place?

Mr Olesen : It has.

Senator McALLISTER: Is it your area of responsibility?

Mr Olesen : It is, and I have some colleagues that can help me as well!

Senator McALLISTER: Excellent. So is this impacting on workload? Have we had to identify additional resources to meet this task?

Mr Olesen : Yes, but we were also provided with additional funding. We have approximately 50 people working in that area, and we got an additional funding envelope to assist us with that additional work.

Senator McALLISTER: Back in June 2015, the former Treasurer stated in a release:

Just one month after the Government announced plans to strengthen foreign investment rules for residential real estate, the Foreign Investment Review Board (FIRB) already has 195 cases under investigation.

That kind of investigation now resides with you; is that correct?

Mr Olesen : Correct.

Senator McALLISTER: Are you able, then, to update the figures for investigations, particularly how many cases are under investigation and, of those, how many have voluntarily come forward?

Mr Olesen : Yes, I can. We are trying to find the brief that has the actual numbers so I do not fluff them for you. From memory, we have completed something like 600 or 700 cases and we have a number of outcomes from those. Most of those cases—thank you, Mark— did not result in any breaches being identified. I understand we have a pool of about 900 cases on hand at the moment that we are continuing to work through.

You will understand that the sources of our investigations are, in a sense, from three main areas. One is foreigners who were invited to self-report if they thought they had something to self-report. I understand we received about 300 of those in the lead-up to 1 December, which was the time period by which they had to come forward, for the concessional penalties. In addition, we get dob-ins from the community. In addition to that, we do data matching. We match our records with Immigration records, with land titles records, and from that matching we identify other cases. So that pool of cases that we have on hand comes from those different sources. As I said before, of the matters we have closed so far, 80 per cent did not result in any breach being found. In the other ones we have found a range of concerns.

Senator McALLISTER: There is obviously a provision for divestment orders in cases where people are found to be in breach. Is that the responsibility of the ATO also, under this transfer of responsibilities?

Mr Olesen : Divestments are typically announced by the Treasurer.

Senator McALLISTER: Did you say 'announced by the Treasurer'?

Mr Olesen : Yes. We make recommendations about divestments, they go to the FIRB, and the FIRB then takes those through to the Treasurer.

Senator McALLISTER: Right. So it is not a direct power; it is a delegated authority to make recommendations.

Mr Olesen : That is my understanding.

Senator McALLISTER: Okay. That is helpful. Have you made recommendations around property divestment? I am not looking for individual cases, just a kind of global number.

Mr Olesen : I can say, in the cases that have been completed, there have been 38 divestments.

Senator McALLISTER: Just for clarity, they are recommendations from you to the FIRB? I suppose I am interested in whether there is a divergence between your recommendations and the ultimate outcomes.

Mr Olesen : I would have to take that on notice, just to check whether that is an announced number of divestments or they are recommendations we have made to the FIRB.

Mr Konza : I think, Senator, it is better to categorise it as being work in progress at the FIRB. So we have looked at 38, we have made recommendations, 27 have been processed and 11 are still in that process.

Senator McALLISTER: All right. That is very helpful. What about prosecution? Is that also a responsibility that still sits with the FIRB rather than with you?

Mr Olesen : Yes.

Senator McALLISTER: Any recommendations in regard to prosecution?

Mr Olesen : It is pretty early. We have only had the function for a relatively short period, so we do not have any successful prosecutions that have gone through yet; and there are only a handful of cases where we are considering that investigations for potential criminal penalties could be appropriate.

Senator McALLISTER: A handful is like five.

Mr Olesen : Only a couple are potentially in prospect, as I understand. It is too early for us to have got to a stage yet where we are actively pursuing an investigation.

Senator McALLISTER: Have any third parties knowingly assisting foreign investors been subject to any action at this time? One category where you can be in breach is to be a third party who knowingly assists a foreign investor. Have these been amongst the cases that you have been considering—amongst the 900?

Mr Olesen : We are certainly alive to that issue, naturally, but from the work we have done we do not yet have an accurate picture of any particular concerns around particular third parties. That is a piece of analysis that we will naturally be very focused on as we continue through our casework.

Senator McALLISTER: Can I ask you about the collection of application fees? In the press release from the then Prime Minister and Treasurer on 2 May there was an indication that there were a series of types of acquisition that application fees would apply to from 1 December. Are you responsible for the collection of those application fees?

Mr Olesen : Yes, we are.

Senator McALLISTER: Are you able to tell us how much in fees has been collected since 1 December?

Mr Olesen : I am looking for the number. I understand that it is in the vicinity of $5 million.

Senator McALLISTER: Are you able to tell the committee how that is broken down in relation to the types of acquisitions identified in the then Prime Minister and then Treasurer's press release? I have it here. The categories were residential properties valued at $1 million or less; residential properties valued at greater than $1 million—

Mr Olesen : We will take that question on notice.

Senator McALLISTER: I will run through it so we can have the question on notice—advanced off-the-plan certificates and annual programs. If you could provide that $5 million broken down into those categories, that would be helpful.

Senator DASTYARI: I will put a few things on notice, but this one I want to get something on. Mr Jordan, the tax transparency report published in December last year revealed that one in four companies earning over $100 million paid no tax in 2013-14. There was a lot of media coverage when that information came out. To help us place that in perspective—understanding that that every year is different and you are not going to have the same set of figures if I am talking about 2012, 2011 or 2010—in broad terms, is that a one-off? You have had this information over a long period. Is it roughly the trend, noting that every year will be different?

Mr Hirschhorn : We gave a lot of contextual information, which is worth having a look at. In looking at that data, I think is important to note that it is misleading to just add up all the numbers, because some economic groups appear multiple times, so when you add them together the percentage comes down quite significantly. In our contextual documentation we did a piece of analysis that looked at the ASX 200 as a comparable population and estimated their accounting losses year by year. What you see is that in any particular year more than 20 per cent of the ASX 200 over the last decade have made an accounting loss. Obviously that is a number that the companies want to be as high as possible, not a number, like taxable income, that they would like to be as low as possible. That spiked with the GFC, getting up close to 30 per cent, and then it is gradually subsiding back down to 20 per cent.

Senator DASTYARI: So you are saying that effectively a guide, and noting that is only a guide, is the profit and loss status of the ASX 200, and you found that your analysis roughly follows that?

Mr Hirschhorn : The ASX 500 is a reasonably comparable population. What that says is that among large companies, on a measure that they actually want to make profits on, between 20 and 30 per cent of ASX 500 companies in any year make an accounting loss. It is probably a number higher than people would naturally expect. The tax loss percentages were not dramatically different in that particular year.

Senator DASTYARI: I will put other questions on notice on that matter. On another matter, Project Wickenby, where are we at with the conclusion of Project Wickenby?

Mr Jordan : The funding for Project Wickenby ceased on 30 June 2015, I think. There was another new policy proposal that the government agreed to as a replacement. Project Wickenby was actually relatively narrow. It was about funds going to certain tax havens and investigation of that.

Senator DASTYARI: On Project Wickenby, at the end of it I think you released a report or media release which ran through the success of it. Could you quickly put on the record what the overall funding for Project Wickenby was?

Mr Olesen : I am sorry, I do not have those figures with me.

Mr Jordan : It is important to note that it was replaced by this Serious Financial Crime Taskforce, which is a multi-agency task force. Project Wickenby demonstrated the value of the free interchange of information between agencies for those purposes, and how effective that was. As a general proposition it is very, very restrictive to exchange information with other government agencies. The Serious Financial Crime Taskforce is a broader one that keeps intact the notion of multiagency exchange of information, working together in that particular area.

Senator DASTYARI: Where is that taskforce run out of?

Mr Jordan : It is jointly chaired by the Australian Federal Police and ourselves.

Senator DASTYARI: Part of that is an MOU between you and the AFP, I assume.

Mr Jordan : I am not sure if there is an actual MOU, but it is jointly chaired by AFP and ourselves, including the Australian Crime Commission, ASIC, the Commonwealth Director of Public Prosecutions, Immigration and Border Protection and a number of others such as AUSTRAC/

Senator DASTYARI: Where is it run out of physically?

Mr Jordan : It is really a committee. There is no head office as such. There is a meeting coming up shortly which is going to be chaired by the Commissioner of the Federal Police.

Senator DASTYARI: Where is the secretariat?

Mr Jordan : I think is it with the AFP. It is about to kick off.

Senator DASTYARI: There are questions I can ask the AFP about that. From what you are saying, it sounds like Project Wickenby demonstrated the success of interagency cooperation.

Mr Jordan : Yes.

Senator DASTYARI: I want to touch on a related issue to do with that. I get a lot of emails and correspondence about tax matters and people writing to me about different kinds of matters to do with tax. One thing I seem to have been getting a spike in—I am not sure if this is just because of the sample size of what I am dealing with—is the notion of individuals using residency as a mechanism to attempt to minimise their Australian tax affairs. What deems someone, as an individual, to be an Australian taxpayer? My understanding is that there are four different tests—is that correct? They have to meet one of four tests? Is that right, Mr Mills?

Mr Mills : It is a common-law test, effectively. The main test is that they are normally resident in the country. The kinds of indicia that are used are around what is their connection with the country, where is their family, where is their home, where they hold the insurances and bank accounts—all that kind of stuff. Those are the broad general tests that are used to determine whether or not someone lives here.

Senator DASTYARI: But do you have a clear test?

Mr Mills : There is a tie-breaker test that is available to use. It is the kind of one that is used in treaties, for example.

Senator DASTYARI: That would mean that regardless of my residency and physical residence in Australia, that does not necessarily have any bearing on my tax liability?

Mr Mills : Correct. There are two tests in relation to your tax liability as an individual: residence and sourced. If you are a resident you are taxed on your worldwide income. If you are a non-resident you are taxed on your Australian sourced income.

Senator DASTYARI: You knew beforehand, but you use Project Wickenby as a tool or mechanism to track down how a handful of individuals may have been using affairs in tax havens to minimise their Australian tax liabilities. Is it your view that there was a group of individuals who Project Wickenby identified, and the problem has been resolved, or is it an ongoing challenge?

Mr Jordan : There is always an ongoing challenge, because people sometimes go to great lengths to conceal assets and income. I think as a general proposition it is less of an overall risk now than it would have been 10 or so years ago, because the world has become a lot smaller. With the exchange of information, with secrecy in Switzerland being opened up now under our treaties, and with all of those 100 countries that we have information exchange agreements with, it is very difficult to be able to hide your money.

Also, you cannot trust anyone any more, because people leak things—you saw the 'Luxleaks' of disaffected employees, some of the Swiss banks with disaffected employees, and you see the US paying for discs of information. One famous case I think involved an employee of one of the Swiss banks in Lichtenstein who provided a lot of information, and there was quite a bit of money raised by the US and others. Those countries, the UK and the US, tend to share that with us. We had a situation of a Singapore trustee company where the IT consultant came in to update their systems and they downloaded everything there and sold it to a country. So you really cannot trust anyone any more. When you get these trustee companies and lawyers saying, 'Come to me. Your secrets will be our secrets. No-one will ever find out about this.' Well, take that with a grain of salt now, because money often speaks. There are a number of these examples in which we really say that you cannot trust anyone and the world is a small place.

On residency, often it is not trying to play with whether or not you are a resident of Australia. Often you are clearly a resident but you are just hiding money and trying to pretend that companies are controlled by someone else. A famous one of these recently was the Samoan bank case where the court held, and I think the full Federal Court has now held in that case, that clearly those companies were controlled by people here in Australia—the nominee Swiss director who gave all the money to the families and all these other things and did not really do that by their own motivations. That is the sort of thing that Wickenby really exposed—people here with highly artificial, highly contrived structures that pretended that the real control sat with someone else, so they were not assessed on their—

Senator DASTYARI: From what you are saying, it sounds like there are parallels in the tactics that may be used by individuals and the tactics that are used by multinationals that you are concerned about, noting that most Australian taxpayers pay their tax?

Mr Jordan : Some of the multinationals are probably more on the legal side of things and they are arguing finer points around the law. The other stuff is just evasion and fraud—straight up and down fraud. So it is probably in a lot worse category of activity in that individual's case. There are a few accountants and firms that do promote these things. Obviously we look at them and we look at all their clients. In one small accounting firm there was about $350 million in tax through the schemes that that firm ran.

Senator DASTYARI: You provided information for Q1 and Q2. Is there information on the numbers for Q3 and Q4—the four quadrants? If you want to take that on notice so that we can get the updated table.

Mr Olesen : We might take that on notice, because we are now looking at a much bigger population than we had before and we are working through the below-the-line numbers of public entities and how we characterise them. So we will take that on notice.

Senator BUSHBY: Earlier on, Senator Dastyari was asking questions about large private companies and the transparency laws. Is it fair to say then that the fact that some companies are disclosed as not paying income tax, despite having large incomes or large turnovers, does not necessarily mean that those companies are avoiding paying Australian tax?

Mr Olesen : That is correct. Income tax is not levied on gross revenues. It is levied on taxable income.

CHAIR: Commissioner, thank you very much. I am very excited about the work you are doing. I think everyone here in the committee is. The evidence that has been provided today gives the people of Australia great comfort that the work you are doing is new and innovative, and it is what we need to compete with an evolving global issue on taxation and how we keep it equitable.

Proceedings suspended from 16:55 to 17:07