Australian Taxation Office Research Articles

REVIEW OF ASPECTS OF THE TRANSFER PRICING METHOD AT THE COCA-COLA COMPANY RELATED TO THE EMBEDDED ROYALTY ON THE SALE OF CONCENTRATES (CASE STUDY ON UNITED STATES COURT JUDGMENT)

The Australian Tax Office (ATO) imposed withholding tax on what is considered an Embedded Royalty implied in the purchase transaction of Pepsi Australia's concentrate to Pepsi Singapore based on the United States Tax Court Judgment Number 31183-15 where the Internal Revenue Service (IRS), the Tax Authority in America, won the case against The Coca Cola Company by correcting the subsidiary's profit level using a fair price level approach to the profits of other independent bottling companies. The purpose of this study is to examine the court's Judgment can have direct implications for companies that produce Coca-Cola drinks in Indonesia. the research method used is qualitative with a literature study, namely by analyzing books, documents, news articles, national and international journals, and laws that are directly related to the research theme. This research concludes that the purchase of concentrate contains Embedded Royalty which can be subject to Income Tax Article 26 of the Income Tax

Smoking out Australia's growing illicit tobacco market: Current trends and future challenges

Data from the Australian Taxation Office and Australian Border Force show notable recent increases in illicit tobacco seizures across Australia. The illicit tobacco market results in substantial losses in tax revenue, funds organised crime, and perpetuates tobacco use, threatening to undermine Australia's ability to achieve its national commercial tobacco endgame goal of 5 % or less smoking prevalence by 2030. This commentary discusses recent trends in Australia's illicit tobacco trade, reasons why this is of concern, potential drivers of Australians’ illicit tobacco use, and policy measures that could be implemented to mitigate increasing illicit tobacco trade such as implementing a track and trace system, increased investment in the Australian Border Force to enhance detection of illicit tobacco shipments at Australia's borders, and encouraging public tip-offs of illicit tobacco sales.

Is the Settlement of Rio Tinto’s “Marketing Hub” Transfer Pricing Dispute the Shape of Things to Come?

In July 2022 the Australian Taxation Office (ATO) and Rio Tinto Ltd (Rio Tinto) announced they had reached a settlement that brought to an end all tax disputes, including a long-standing dispute in relation to Rio Tinto’s Singapore “marketing hub”. The settlement involved payment of almost AUD 1 billion by Rio Tinto to the ATO. That followed a settlement in late 2018 between the ATO and BHP Billiton Ltd concerning BHP’s Singapore marketing hub and requiring the payment of AUD 529 million by BHP. The settlements confirm that the ATO is continuing to protect the Australian tax base by making sure taxpayers comply with their international transfer pricing obligations. The authors examine the Rio Tinto and BHP settlements and the tax treatment of marketing hubs, and make a number of observations on the implications of the settlements for transfer pricing in Australia.

Navigating the complexities of section 100A: a look at the future of trust taxation in Australia

Abstract Section 100A of the Income Tax Assessment Act of 1936 is a provision designed to prevent arrangements in which a distribution is made to a beneficiary with a low tax rate, yet, the economic benefit is conveyed or paid to a second beneficiary with a higher tax rate. The Australian Taxation Office provided its final guidance on this provision very recently. This article provides an overview of the guidance, analyses cases regarding the application of Section 100A, and assesses the guidance’s potential future implications on trust taxation in Australia.

The ATO Longitudinal Information Files (ALife): Individuals—A New Dataset for Public Policy Research

AbstractThe Australian Taxation Office Longitudinal Information Files: Individuals (ALife: Individuals), is one of the most comprehensive tax administrative datasets in the world. The ALife: Individuals dataset, which currently covers the period 1990‒1991 to 2017‒2018, is based on a 10 per cent longitudinal sample of administrative unit‐record personal income tax data. This new, high quality, longitudinal, de‐identified, research‐ready dataset is available to approved researchers through secure environments that safeguard taxpayers' information. The availability of ALife: Individuals opens exciting new possibilities for public policy research and evaluation that will improve understanding of taxpayer behaviour and support policy development and its administration.

Trying to Make a Good First Impression: A Natural Field Experiment to Engage New Entrants to the Tax System

Very little is known about the compliance behavior of first-time taxpayers although their tax paying habits may affect the long-run functioning of a tax system. This paper studies the compliance behavior of new entrants to the tax system using data from a large-scale natural field experiment that was implemented in collaboration with the Australian Taxation Office (ATO). We examine the effectiveness of a welcome letter from the tax authority that aims to nudge first-time taxpayers to lodge their first income tax return. We compare this letter to a standard letter that emphasizes the possibility of penalties and interest charges. We find that both letters have surprisingly similar effects on tax compliance, suggesting that the main channel through which the letters affect individual behavior is by providing information. By contrast, the type of messaging and the way in which information is presented to first-time taxpayers appear to be relatively unimportant. Our analysis of heterogeneous treatment effects indicates that both letters are most effective for young entrants to the tax system and, within this group, more effective for Australian citizens than for visa holders.

Australian Taxation Office Pronouncements: Why Tax Advisers Need to Exercise Caution

Australian Taxation Office Pronouncements: Why Tax Advisers Need to Exercise Caution

Postgraduate Income Contingent Loan Scheme : A Comparative Study of the United States, the United Kingdom and Australia

[연구목적] 이 연구는 미국, 영국, 호주의 대학원생 소득연계 학자금 대출 제도를 분석하여 우리나라 대학원생 취업 후 상환 학자금 대출 제도 도입에 필요한 시사점을 모색하는데 목적이 있다. [연구방법] 이를 위해 각 국가의 학자금 대출 관련 웹사이트에 탑재된 내용 및 안내책자 등을 분석하였고, 관련 연구보고서, 학술논문, 법령자료 등 각종 문헌자료를 참고하였다. 또한 선행연구 분석을 통해 소득연계 학자금 대출 제도의 도입 및 운영상의 쟁점으로 법적 근거, 관리 기관, 대출 유형, 지원 기준, 상환 방식을 선정하였으며, 이를 분석 준거로 활용하였다. [연구결과] 주요 연구결과는 다음과 같다. 첫째, 미국, 영국, 호주는 모두 법적 근거에 기반하여 대학원생 소득연계 학자금 대출 제도를 운영하고 있다. 둘째, 미국과 영국은 학자금 대출과 상환을 담당하는 기관이 존재하지만 호주는 교육부, 대학, 국세청이 지원 및 상환업무를 분담한다. 셋째, 지원기준 중 소득기준은 모든 국가에서 적용하지 않으며, 성적기준은 호주에서만, 연령기준은 영국에서만 적용하는 것으로 나타났다. 넷째, 미국과 영국은 대출 프로그램별 대출한도가 정해져 있는 반면, 호주는 통합 HELP로 대출한도가 통합, 관리된다. 다섯째, 미국과 영국은 이자율을 적용하는 반면, 호주는 이자율을 적용하지 않는 것으로 나타났다. 여섯째, 미국, 영국, 호주는 모두 상환기준소득을 설정하고 있다. 일곱째, 미국과 영국은 소득에 관계없이 동일한 상환율을 적용하는 반면, 호주는 소득에 따라 상환율을 차등 적용하는 것으로 나타났다. 여덟째, 미국과 영국은 상환소요기간에 대한 기준이 있으나 호주는 상환소요기간에 대한 기준이 없는 것으로 나타났다. [결론] 분석결과를 바탕으로 우리나라 대학원생 취업 후 상환 학자금 대출 제도의 도입 및 설계 방향에 대한 시사점을 도출하였다.[Purpose] The purposes of this study are to analyze the postgraduate income contingent loan scheme in the United States, the United Kingdom and Australia, and to draw implications for the introduction of the scheme in Korea. [Methods] To achieve the purposes of this study, the contents and brochures on each country’s student loan websites were examined, and various literature materials such as research reports, articles, legal materials were used. Drawing on prior literature, issues such as a legal basis, management institutions, loan program, eligibility criteria, and repayment criteria were selected as basis of analysis in the introduction and operation of the postgraduate income contingent loan scheme. [Results] The major findings are as follows. First, all countries operate postgraduate income contingent loan scheme based on the legal basis. Second, the United States and the United Kingdom have institutions for student loan scheme, but in Australia the work of student loan shares with the Department of Education, Skills and Employment, universities, and Australian Taxation Office. Third, all countries do not apply income criteria; grade restriction is only applied in Australia, and age restriction is only applied in the United Kingdom. Fourth, while the loan limit in the United States and the United Kingdom is calculated by each loan program, Australia counts all loans debts as a Combined HELP loan limit. Fifth, the United States and the United Kingdom apply interest rates, while Australia does not. Sixth, all countries set repayment threshold. Seventh, the United States and the United Kingdom apply the same repayment rate regardless of income, while Australia applies different repayment rates depending on income status. Eighth, the United States and the United Kingdom provide repayment periods, whereas Australia has not. [Conclusion] Based on the findings, we suggest implications for the introduction and design of the postgraduate income contingent loan scheme in Korea.

Systemic design in the Australian Taxation Office – Current practice and opportunities

AbstractResearchers and practitioners alike are in general agreement that the public sector is increasingly tasked with managing ‘complex problems’. Many authors have warned that the established practices in government are not sufficient to deal with such problems. The integration of systems thinking in design practice has been advocated as a promising approach to understand and more effectively deal with the increasing complexity of societal challenges. However, the literature on systemic design largely remains in the academic and theoretical discussions. In 2020, the Australian Taxation Office (ATO) has pioneered the development and implementation of systemic design as its approach to designing and delivering change. This article outlines practice insights into the ATO's systemic design framework, including its applications to a range of initiatives, including the stimulus measures resulting from the COVID‐19 pandemic. It discusses early insights into considerations of implementing systemic design at scale. Future research should focus on the implementation factors that may enable or inhibit its successful adoption.

Mapping the field of public ancillary funds

AbstractThis study analyses and profiles public ancillary funds (PubAFs), charitable trusts that act as intermediaries between public donors and approved nonprofit beneficiary organisations. PubAFs are an important part of Australia's philanthropic landscape given their public benefit purpose, yet little is known about this sector's characteristics and identities. This paper examines PubAFs, analysing online databases and reports and PubAF websites (where available). Based on the analysis of data from three sources: the Australian Charities and Not‐for‐profits Commission, Australian Taxation Office, and websites of 991 PubAFs (where available), this study provides valuable insights for the public, philanthropic practitioners, and researchers. Findings systematically map the field to develop an extended taxonomy, as a basis for promoting understanding and legitimacy beyond PubAFs’ moral intentions, providing valuable insights into an opaque group of organisations at a time when the philanthropic sector's transparency is limited and legitimacy is being questioned.

GST and Phoenixing of Companies

In this article, the author examines several measures that have been put in place in Australia to target “phoenixing” of companies, especially focusing on tax and GST-related legislative developments. He also reviews the steps taken by the Australian Tax Office in this regard, and looks at the position prevailing prior to 2012, under the law applicable to companies, which was largely ineffective in recovering GST payable when companies indulged phoenixing.

Women specialist managers in Australia – Where are we now? Where to next?

Management as an occupation has become increasingly feminised in Australia over the last two decades. This article focuses specifically on specialist managers, answering the question of where we are now in terms of gender equity. It charts the increasing but uneven growth of women’s employment among specialist management occupations. Women remain concentrated into a relatively small number of management specialisations and it is argued that there is a gendering of certain management roles which is reflected in the value attached to these roles. Using data sourced from the Australian Tax Office, the article shows that men earn higher income across all specialist management groups, including those that are highly feminised, and higher salary across all specialisations excepting one – childcare directors. Evidence is presented detailing the relativities between management specialisations, showing a variation between men and women in terms of rank. Women are much less valued in some management specialisations, such as finance. Men are much less valued in others, such as childcare. The article concludes by speculating how greater gender equity can be achieved among specialist managers but observes that ‘management’ and ‘male’ are still tightly connected.

Capital Gains Tax and Tax Avoidance – Recent Developments

Continual attempts to avoid capital gains tax came again under scrutiny by the courts and the tax office in 2020. Coming on the heels of the decision by the Federal Court in April 2020 in Peter Greensill Family Company Pty Ltd (trustee) v. Commissioner of Taxation [2020] FCA 559, the recent decision in the case of N&M Martin Holdings Pty Ltd v. Commissioner of Taxation [2020] FCA 1186 (18 August 2020) is a further note of caution for trustees distributing capital gains to non-resident beneficiaries. The Australian Taxation Office also issued a tax alert, TA 2020/4, in August 2020 concerning multiple entry consolidated groups that attempt to avoid capital gains tax using a transfer of assets to an eligible Tier 1 company prior to divestment of the relevant asset. This article will discuss the implications arising from the decision in the Martin Holdings case, and will consider whether the outcome would be different if the trust took a different form, specifically a fixed trust (the trust in the case being a discretionary trust). It will also look at the effect of amendments that were made in 2011 in respect of streaming of capital gains and franking distributions from discretionary trusts.

Trying to Make a Good First Impression: A Natural Field Experiment to Engage New Entrants to the Tax System

Very little is known about the compliance behavior of first-time taxpayers although their tax paying habits may affect the long-run functioning of a tax system. This paper studies the compliance behavior of new entrants to the tax system using data from a large-scale natural field experiment that was implemented in collaboration with the Australian Taxation Office (ATO). We examine the effectiveness of a welcome letter from the tax authority that aims to nudge first-time taxpayers to lodge their first income tax return. We compare this letter to a standard letter that emphasizes the possibility of penalties and interest charges. We find that both letters have surprisingly similar effects on tax compliance, suggesting that the main channel through which the letters affect individual behavior is by providing information. By contrast, the type of messaging and the way in which information is presented to first-time taxpayers appear to be relatively unimportant. Our analysis of heterogeneous treatment effects indicates that both letters are most effective for young entrants to the tax system and, within this group, more effective for Australian citizens than for visa holders.

Valuation and Service Trusts

The oblique nature of control over assets of a trust has always been challenging when personal asset distribution is at issue. This is no more apparent than in the context of Family Law. Complex organisational arrangements may make sense when considering tax planning or asset protection strategies, however, they may present difficulties for the application of sections 79 and 75 of the Family Law Act 1975. Specific difficulties are experienced when dissecting the economic structures of professionals, where the issues of professional and business intangible assets and tangible assets are held within service trust structures, intertwined with personal professional wages, incorporated professional entities, professional distributions and family distributions. Service trust arrangements have become popular for Australian professionals, such as, doctors, accountants, lawyers and engineers due to their tax effectiveness which passed the court’s test in the 1978 case FCT v Phillips. The Australian Taxation Office (ATO) has issued ‘safe harbour’ rules for the operation of service trust arrangements which may provide some, in principle, assistance to Family Law decision making. This paper investigates the Family Law issues with respect to partner distributions where a service trust structure is in place. In this regard, the paper considers the business structuring concepts including the rights and roles of those associated with trusts, particularly the exercising of control. Secondly, the paper reviews the courts decisions with respect to looking through business trust structures with reference to the reasoning expressed in past judgements. Finally, the paper considers the Family Law distribution effects of tangible and intangible assets when professional services are encased within a Philips Trust type structure. This paper should be of interest to those involved, or potentially involved, in Family Law asset distribution. Specifically, legal and professional advisors, such as lawyers, accountants and valuation professionals. The paper’s objective is to assist in clarifying the complex issues of understanding business structures underpinning the transaction based cash flows between entities and their potentially intertwined equity.

Trying to make a good first impression: A natural field experiment to engage new entrants to the tax system

Very little is known about the compliance behavior of first-time taxpayers although their tax paying habits may affect the long-run functioning of a tax system. This paper studies the compliance behavior of new entrants to the tax system using data from a large-scale natural field experiment that was implemented in collaboration with the Australian Taxation Office (ATO). We examine the effectiveness of a welcome letter from the tax authority that aims to nudge first-time taxpayers to lodge their first income tax return. We compare this letter to a standard letter that emphasizes the possibility of penalties and interest charges. We find that both letters have surprisingly similar effects on tax compliance, suggesting that the main channel through which the letters affect individual behavior is by providing information. By contrast, the type of messaging and the way in which information is presented to first-time taxpayers appear to be relatively unimportant. Our analysis of heterogeneous treatment effects indicates that both letters are most effective for young entrants to the tax system and, within this group, more effective for Australian citizens than for visa holders.

The ATO Longitudinal Information Files (Alife): Individuals - A New Dataset for Public Policy Research

The Australian Taxation Office Longitudinal Information Files: Individuals (ALife: Individuals), is one of the most comprehensive tax administrative datasets in the world. The ALife: Individuals dataset, which currently covers the period 1990-91 to 2017-18, is based on a 10 per cent longitudinal sample of administrative unit-record personal income tax data. This new, high quality, longitudinal, de-identified, research-ready dataset is available to approved researchers through secure environments that safeguard taxpayers’ information. The availability of ALife: Individuals opens exciting new possibilities for public policy research and evaluation that will improve understanding of taxpayer behavior and support policy development and its administration.

Arm’s Length Debt Test – Australian Tax Office Issues Guidance

In its continued effort to provide information, the Australian Taxation Office has issued significant guidance on determining the arm’s length debt amount in the form of a ruling and guideline. Relevant taxpayers are well advised to follow them in order to avoid any inadvertent pitfalls into any of the unwelcome risk zones highlighted in the guideline.

Creating Additional Census Income Topics from Linked Administrative Data

IntroductionThe Census is the largest statistical collection undertaken by the Australian Bureau of Statistics (ABS), with its data critical to informing the planning and delivery of Government and community services. While the Census measure of income supports a wide range of analysis, demand exists for additional income topics to complement and extend the range of socio economic analysis that can be undertaken. The ABS has recently developed three experimental income topics for the 2016 Census using linked administrative data: main source of income; main source of government payments; and previous financial year income.
 Objectives and ApproachThis research utilised administrative data integrated by the ABS for the Multi-Agency Data Integration Project (MADIP). Taxation data from the Australian Taxation Office (ATO) and social security data from the Department of Social Services (DSS) were used in conjunction with the 2016 Census data to derive the additional topics.
 ResultsOverall, the three measures compare relatively closely to similar measures from the ABS Survey of Income and Housing (SIH). The ‘Main source of income’ and ‘Main source of government payments’ measures exhibit similar distributions to those from the SIH. The ‘Previous financial year income’ measures compare more closely with Census and SIH at the higher end of the income distribution, with some differences apparent at the lower end of the income distribution.
 Conclusion / ImplicationsThis work demonstrates the potential to supplement and enhance existing Census topics with linked administrative data. Further research, development and consultation with data users and the Australian community is needed.

Reported Motivations and Aims of Australian Dog Breeders-A Pilot Study.

Simple SummaryIn Australia, it is estimated that approximately 400,000 puppies are born each year. These are bred both by breeders affiliated with breeding associations and by others with no such affiliation. There is no way to measure accurately the number of people breeding dogs because there is no national requirement to register breeding activities and dogs are relatively easy to breed and sell without the keeping of records. The only accurate publicly available figures are the number of ANKC registered breeders of pure-breed dogs and the number of puppies that these breeders produce and register. In 2019, these breeders bred fewer than 67,000 puppies. Little is known about what motivates breeders and what breeding practices they adopt. Less still is known about whether breeders prioritize practices that ensure that puppies are suitable as companion animals. This article explores the reported breeding motivations, objectives, and breeding and selling practices of 275 breeders who undertook an online survey. It reveals that most respondents view their breeding as a hobby, and they breed because of a love for a certain breed of dog. They report that they seek to breed healthy companion animals and are committed to the long-term health of the puppies they are producing. When they decided to start breeding, most respondents recall that they were not motivated by money, but they currently report that the aim to make money on each litter is very important.It is estimated that around 40% of Australian households currently own dogs that have been acquired from a variety of sources, including purpose-bred litters. However, little is known about how litters are being planned, whelped, and raised and less still on what motivates breeders to adopt their current practices. The current study used on online survey to explore the motivations and aims of Australian dog breeders; the breeding and selling practices Australian dog breeders favor and the extent to which breeders classify their breeding in terms of business, or hobby. Responses from breeders (n = 275) revealed that whilst most did not commence breeding to make financial gain, 86% of participants who answered the question confirmed that the making of money when they breed was a very important aim. Most breeders did not view their breeding as a commercial activity, despite nearly 20% of them confirming that they had declared income from the breeding and selling of puppies to the Australian Taxation Office.