An update on the debate about an independent Taxation Appeals Office

An update on the debate about an independent Taxation Appeals Office

Christopher Bevan

Barrister, Wentworth Chambers, Sydney and Chancery Chambers, Melbourne

 In the August edition of Taxation in Australia, an article by me advocated for a Taxation Disputes Office (or Taxation Appeals Group) and appointment of an independent Second Commissioner of Taxation Disputes or a Second Commissioner to head a Taxation Appeals Group. My proposal had been advocated for 3? years by the recently-retired Inspector-General of Taxation, Ali Naroozi. The Tax Institute’s Senior Tax Counsel supports that proposal and questions whether it should be refined for a Taxation Disputes Office to instead be headed by a First Commissioner of Taxation to ensure its independence from the ATO.

 Over the last 3? years the senior officers at the ATO have opposed this reform proposal tooth-and-nail. On 31 August 2018 the Federal Opposition published a media release in which it adopted this proposal. Since then the senior officers at the ATO have refined their opposition to this reform proposal as a fall-back case. Their new stance is enunciated in a paper prepared for the Westminster Tax Discussion Group on 9 October 2018 by the Second Commissioner for Law Design and Practice (“LDP”) (“the latest ATO proposal”).

 In a nutshell, the latest ATO proposal suggests that the ATO has belatedly created its own “independent” mechanism for reviewing taxation decisions within its Review and Dispute Resolution (“RDR”) line in 2013, which is headed by a Second Commissioner as a part-time activity, in addition to his principal activities as the statutory officer responsible for LDP within the ATO.

 The thrust of the ATO’s latest proposal is for the Second Commissioner for LDP (Mr Mills) to “assume” the role of Second Commissioner for Taxation Disputes as an administrative step. The ATO gives a number of arguments in support of its latest proposal. It is clearly designed to head-off at the pass (so to speak) my reform proposal (supported by the former IGT and two parliamentary committees) by converting my statutorily-independent office under the Taxation Administration Act into an administratively-independent office. The ATO wishes to substitute a creature of the ATO (without statutory support) for a creature of the Parliament.

 The arguments given in support of this latest ATO refinement of my proposal for a (First or Second) Commissioner of Taxation Disputes (or Taxation Appeals) are as follows.

 Firstly, it is said by the ATO that the current RDR regime operates independently of the ATO. This is notwithstanding that it is part of the ATO. This has several problems. Firstly, it is a contradiction in terms. Secondly, day-to-day practice shows that it is not the case – there is in fact no true independence of RDR. Thirdly, even if it were so, there is no way to enforce this independence because it is not enshrined in statute; it is merely an ex-gratia approach to the resolution of taxation disputes by senior officers in the ATO made as a rear-guard action to ensure that there is no truly independent review of their taxation decisions by a statutorily-independent Commissioner for Taxation Disputes or Commissioner for Taxation Appeals.

 Secondly, the ATO suggests that there is no difference between the adoption of precedential ATO views by the current RDR, compared with their adoption by a statutorily-independent Commissioner of Taxation Disputes (or Appeals Group). That surely cannot be right. An independent Commissioner of Taxation Disputes self-evidently would decide whether a precedential ATO view is correct and whether it is worth propounding in the Federal Court or the AAT or, in a tax recovery case, in a State Supreme Court, District Court or County Court.

 Thirdly, the ATO (now) suggests that creation of a statutorily-independent Commissioner of Taxation Disputes would see that Second Commissioner “out of a job” . The proposition is, with great respect to the ATO, unfounded. The Second Commissioner (LDP) is a fixed-term tenured statutory office created by the Taxation Administration Act. The Second Commissioner appointed to that office is appointed for a seven-year term and can only be removed by Parliament for proved misbehaviour or ill-health. The relevant Second Commsisioner performed the office of Second Commissioner (LDP) before the creation by the ATO (as its rear-guard action to my reform proposal) of its supposed independent internal RDR line.

No doubt, if and when a change of government occurs in May 2019 and a statutorily-independent Commissioner of Taxation Disputes is enacted and appointed, the relevant Second Commissioner will revert to the role he had when he was first appointed and, indeed, which he continues to perform to this day, albeit on a part-time basis, namely, designing new taxation law and implementing it in practice. It must be remembered he was appointed Second Commissioner for Law Design and Practice, he has never ceased to hold that statutory office and he will continue to hold that office until the end of his term or until the end of any further term, assuming he is reappointed (hopefully he is).

 None of the arguments advanced in my August article for an independent Commissioner for Taxation Disputes – be it a First or a Second Commissioner – are answered by the ATO’s latest proposal. There can be no logical rationale for substituting a statutorily-independent statutory officer with an administratively-independent statutory officer, especially where the creation of that supposed administrative independence occurs, not with the considered imprimatur of the Parliament, but rather at the whim of senior officers appointed for other purposes under the Taxation Administration Act. There is a serious separation of powers question involved in this entire debate which is either being glossed over or ignored by the senior officers in the ATO.

 This reform proposal is a question entirely for the government of the day: democratically-elected parliamentarians who constitute the Federal Cabinet, and for their considered policy on this issue as enshrined in the Taxation Administration Act. It is not for appointed statutory officers who are not democratically elected to be “calling the tune” on this issue. Yet they have successfully done so for 3? years under the Coalition Government. This is the fundamental separation of powers question that this debate raises but it is being ignored or glossed over.

 It is hoped that one of the high priorities of the Federal Opposition, if elected to government next May, will be to procure the Parliament it presumably will control to amend the Taxation Administration Act to make the amendments which I have publicly advocated, and which I have drafted for it, in my August 2018 article in Taxation in Australia, the Tax Institute's Blue Journal, giving the reasons for this reform proposal.