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Wednesday, 15 June 2011
Page: 2965

Taxation

(Question No. 438)


Senator Cormann asked the Minister representing the Treasurer, upon notice, on 11 March 2011:

With reference to Taxation Ruling 2011/1:

(1) What is the policy intention of the proposed measure.

(2) How does the proposed measure enable the policy intention to be achieved.

(3) Is the effect of the proposed measure revenue neutral:

(a) if so, how has revenue neutrality been achieved;

(b) have other saving measures been needed to achieve revenue neutrality;

(c) if not, how much revenue is expected to be raised as a result of the measure; and

(d) can the annual numbers for the forward estimates period be provided, and any further information covering the longer term.

(4) Have the likely administrative and compliance costs of implementing the proposed measure been assessed; if so, what are they.

(5) (a) What stakeholders will be directly affected by the measure;

(b) have these stakeholders been involved in consultation prior to and during the development of the measure;

(c) what consultation has the Government been engaged in; and

(d) have independent bodies or experts been involved in the consultation process.

(6) Is this proposed measure a government response to an identified problem; if so, what problem is it addressing.

(7) Were any alternatives considered before this approach was proposed; if so:

(a) can details of those alternatives be provided; and

(b) why was it decided that those options would not be implemented.

(8) Will inaction pose a risk to the integrity of the tax system or broader government administration; if so, how would you rate that risk.

(9) What modelling has been carried out in developing the proposed measure.

(10) Have the broader implications of the implementation of the measure on the economy been forecast; if so, what are they.

(11) Have international comparisons been considered and does the proposed measure accord with international 'best practice'.


Senator Wong: The Treasurer has provided the following answer to the honourable senator's question:

Taxation Ruling 2011/1 is not a proposed measure. Taxation rulings do not alter the existing tax law, but rather set out the Commissioner of Taxation's interpretation of how the existing law works. In a ruling, the Commissioner is simply expressing his view of the law enacted by Parliament and he applies accepted principles of statutory interpretation in doing so.

Taxation rulings are not legally binding on taxpayers (that is, they do not create legal obligations under the tax law for them). Rulings, once finalised, are only binding on the Commissioner. Their legal effect is to protect taxpayers who choose to follow the Commissioner's views expressed in them. Taxation rulings have no policy intent, and the Government has no involvement in the issuing of taxation rulings. The Commissioner releases draft taxation rulings for public comment before finalising them.

Most taxation rulings are considered by the ATO's Public Rulings Panel. The Panel advises the Commissioner on the issues proposed to be dealt with in taxation rulings and determinations and is made up of senior ATO officers and external experts.

Taxation rulings do not have a revenue impact on the forward estimates because, as far as the law allows, the Commissioner interprets the law consistent with policy intent on which revenue estimates were based. However, they may have a compliance leverage impact by protecting the forward estimates to the extent that revenue is at risk from taxpayers not applying the law properly. The ATO is therefore unable to provide an answer to questions (1), (2), (3), (5) (c), (6), (7), (8), (9), (10) and (11).

(4) Yes. It is not anticipated that taxpayers will have to change any common practices or systems to comply with the extra clarification provided by this Ruling because it does not require any work beyond that needed to adopt the (pre-existing) process envisaged in the law and Organisation for Economic Co-operation and Development (OECD) commentary and explained in Taxation Ruling 98/11 (Income tax: documentation and practical issues associated with setting and reviewing transfer pricing in international dealings) in developing and documenting a reliable arm's length outcome for a dealing under a business restructuring arrangement.

(5) (a) Large businesses may be affected by this Ruling, depending on how they propose to comply with the transfer pricing rules in the law in relation to business restructures. No specific industries will be affected.

(5) (b) The normal consultation process for rulings was followed: The draft ruling issued (as TR 2010/D2) on 2 June 2010, the consultation period ran until 30 July 2010, and the final ruling issued on 9 February 2011.

(5) (d) The Public Rulings Panel provided advice in the development of this draft ruling.