4.35 As outlined in Chapter 3, since 1 July 2013, objections for large businesses have been dealt with by the RDR business line in the LD&P Group. This arrangement was extended to include taxpayers with annual turnover of $100 million or more on 1 July 2014. All other objections remain within the compliance business line where the original audit decisions are made. This further differential treatment between groups of taxpayers gives rise to concerns that there is unequal and inconsistent treatment. 4.36 The IGT considers that transferring the responsibility for dealing with all objections to the Appeals Group would not only enhance both actual and perceived independence of the objection process but would also ensure equal treatment for all taxpayers. A dedicated network of officers and centralised set of procedures and guidance would need to be developed to deal with objection cases consistently and reduce the risk of arbitrary outcomes irrespective of the category of taxpayers.
Internal tensions between the Appeals Group and other areas of the ATO
4.37 It has been suggested that a structural separation may present some risk of tension between different sections of the ATO. In this respect, the IGT has previously stated that there are benefits arising from such tension:
…a separate appeals and review area may on occasions give rise to internal tensions within the ATO such as auditors’ perceptions that ‘cases are given away’ and reviewers’ perceptions that auditors’ decisions are not technically robust. The IGT considers that tensions of this nature are not necessarily undesirable in ensuring robust and tested outcomes are achieved, thereby reducing the overall level of taxpayer disputes and the cost to the broader tax system.270
4.38 The IGT remains of the above view. Such tensions when appropriately managed would assist the ATO to build community confidence and address any remaining perceptions of bias by reason of the function remaining within the ATO and not in a separate agency.
4.39 The ATO has also raised concerns that the creation of the Appeals Group under separate leadership would lead to tensions at the most senior levels which would require intervention by the Commissioner. These concerns are addressed later in this chapter.
By-passing the objections process
4.40 The concerns regarding the lack of independence of the objections process have led some stakeholders to consider that it would not yield useful outcomes in all situations and that the parties should have the option to proceed directly to an independent tribunal or court.As described by the ARC:
Opponents of mandatory internal review criticise it as a barrier to access to external review rights. The additional number of steps the applicant must proceed through in order to reach finally external review may mean that persons with meritorious cases will fall victim to ‘appeal fatigue’.271
4.41 The suggestion to by-pass the objections process is not novel. It was also previously raised in the Ralph Review272 and such a bypass mechanism aligns with the current processes in the US and the UK.273 The Australian system, like Canada, does not presently permit taxpayers to apply directly to the AAT or the Federal Court.274 As noted earlier, New Zealand has a statutory opt-out of the NOPA process with consent of the IRD.
4.42 It is important to recognise the different purposes of the statutory objections process and pre-assessment processes instituted by the ATO. The objection is a full review and investigation of facts and evidence. Pre-assessment processes are reviews based on existing information only to filter out unsustainable cases which would otherwise proceed to objection. Taxpayers who do not receive a satisfactory outcome during a pre-assessment review process retain the option to object to the ATO decision. 4.43 The IGT considers that, where the pre-assessment review and objection processes offer an effective and independent review of the audit decision, there may only be a limited number of cases where the taxpayer should be able to directly apply to the tribunal or the court for determination. In such rare cases both parties should have agreed or agreed to disagree the facts of the case275 and there should be a fundamental disagreement as to the operation of the law.276
4.44 In order to achieve agreement (or agreement to disagree) on the facts and whether the case genuinely turns on a fundamental disagreement of the law, some degree of engagement between the parties following issuance of the audit decision is necessary. Therefore, as initially recommended in his Objections Review, the IGT is of the view, that once these matters are established, the objection process should be expedited and fast-tracked to external review.277
271 ARC, Internal Review of Agency Decision Making (2000) p 16. 272 Above n 31, p 148.
273 HM Revenue and Customs, ‘Appeals and Tribunals – an overview for agents and advisers’ (undated) <www.hmrc.gov.uk>; United States Government Accountability Office, Government Accountability Office
report: Tax administration: Compliance: Appeal feedback Project (19 April 2006) p 6.
274 Above n 269; Canada Revenue Agency, Resolving your dispute: objection and appeal rights under the Income Tax
Act (undated) <www.cra-arc.gc.ca>.
275 Above n 31, p 148. 276 Above n 42, p 50.
4.45 There are benefits to co-locating responsibility for litigation (explored further below), objection and pre-assessment review functions. Greater synergies may be realised by, for example, efficiently converting an informal review decision to a formal objection decision and progressing these matters to litigation in appropriate cases.