Australia tax: Australian Taxation Office (ATO) fast tracks revised risk assessment approach by collecting new information

The Australian Taxation Office (ATO) has continued to fast track the new international dealing schedule for financial services (IDS-FS), which will be introduced for the 2010 tax year. A revised draft, including an instructions booklet, has been released, and the ATO is seeking comments.

The introduction of the IDS-FS underpins the ATO's new approach to risk assessment, which is based on analyzing the likelihood and the consequences of taxpayer noncompliance. This "risk differentiation framework" will guide case selection in the future. The information gathered from the IDS-FS is likely to form part of this assessment framework, which is based on a review of factors affecting the likelihood of noncompliance, including economic and tax performance and deviation from industry norms, as well as factors affecting the consequences of noncompliance, such as total taxpayer income and assets.

All foreign banks, foreign bank branches and financial service entities with gross turnover greater than AUD 250 million (based on a defined set of industry codes) will be required to complete the IDS-FS. The consequences of noncompliance for these entities are likely to be at the higher end of the scale, and the initial focus on financial services indicates the ATO's frustration with the aggregation of information received on the original Schedule 25A, which was not tailored to financial institutions. The revised version is more concise than the first draft, but will still involve significant compliance costs for taxpayers in collecting and analyzing the required information.

From the schedule, it is clear that the ATO is looking at dealings with offshore tax havens, share-based remuneration recharges, global trading arrangements, instruments with debt and equity features, business restructures, offshore banking units, financial guarantees and derivative transactions.