Australia: Australia deals with new methods of resolution
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Australia: Australia deals with new methods of resolution

Anti-avoidance has been the battleground in the courts in litigation between taxpayers and the commissioner of the Australian Taxation Office, report Stewart Grieve and Nasos Kaskani of Corrs Chambers Westgarth

The Australian tax controversy landscape continues to undergo rapid change. Three important recent developments are:

  • in tax administration, the commissioner of taxation's continued focus on maximising the ability of the Australian Taxation Office (ATO) to identify, at the earliest opportunity, uncertain or contentious tax positions by introducing a requirement for certain taxpayers to disclose "reportable tax positions" when filing their tax returns;

  • in tax litigation, an increase in the incidence of the commissioner making determinations that the general anti-avoidance provisions in the Australian Income Tax Assessment Act (known as Part IVA) apply to taxpayer arrangements, with mixed results for the commissioner and taxpayers when those determinations are challenged in the courts; and

  • in dispute resolution, a continued focus on early and alternative dispute resolution to avert litigation and, where litigation proceeds, on improved tax case management by the Federal Court of Australia (Australia's main tax court).

The reportable tax positions regime

The commissioner has announced that, for income years commencing on or after July 1 2011, large business taxpayers will be required to complete a new schedule to their tax returns in which they disclose their most contestable and material tax positions not previously disclosed to the ATO.

The reportable tax positions regime (RTP) is similar to the uncertain tax positions regime introduced in the US in 2010. However, the US regime was introduced on the back of the 2006 US accounting standard known as FIN 48 dealing with accounting for uncertainty in income taxes. By contrast, in Australia, the commissioner has introduced the RTP in isolation of any reform of the accounting standards.

The RTP is not a statutory regime. Rather, the commissioner has introduced the regime using his general power of administration under tax legislation.

Under the RTP, taxpayers will be required to disclose any of these:

  • a position that would be considered material for the purposes of the taxpayer's financial statements and which is not more likely to be correct than incorrect;

  • a position about which uncertainty about taxes payable or recoverable is recognised and/or disclosed in the taxpayer's or a related-party's financial statements; and

  • a position about a "reportable transaction" which, broadly, is a transaction involving a sale of an asset, business or entity which generates more than A$200 million ($209 million) of current year income, less than 50% of which is treated as assessable income by the taxpayer in that year.

According to the commissioner, the RTP is designed to provide greater assurance to businesses about their most contestable, material tax risks and help the ATO to better understand tax risk for large businesses.

It is generally anticipated that the RTP will act as a roadmap for the commissioner to identify and challenge positions taken by taxpayers. The commissioner may also hope that the RTP will encourage conformity by taxpayers with the commissioner's views on how the tax laws operate. Apart from the possibility that the RTP effects behavioural change in taxpayers, it is likely that, in the short term at least, the regime will lead to an increase in the number of disputes between taxpayers and the commissioner. It is also possible that the RTP may:

  • lead to an increased incidence of administrative law actions by taxpayers;

  • change the dynamic between taxpayers, their legal and accounting tax advisers and their statutory auditors; and

  • create circumstances which lead to heightened scrutiny and debate of taxpayer claims of confidentiality in advice received from external professional legal and accounting advisers.

Commissioner's use of the general anti-avoidance provisions in Part IVA

In 1996, and again in 2004, the commissioner won important High Court victories on the application of the general anti-avoidance provisions in Part IVA. Perhaps buoyed by those victories, the last 10 years have witnessed an upsurge in the commissioner's application of Part IVA to cancel tax benefits otherwise available under the general tax provisions. This heightened Part IVA activity has inevitably flowed through the tax controversy system and manifested itself in a rash of recent Federal Court Part IVA cases.

In the last two years, there have been 14 Federal Court cases concerning the application of Part IVA. After expiry or exhaustion of all appeal rights, the commissioner and the taxpayer were each successful in seven of the cases.

Some observations that can be drawn from the recent Part IVA cases are:

  • There is controversy as to the proper test for determining whether a taxpayer has obtained a tax benefit (a necessary pre-requisite for Part IVA applying). Broadly, a tax benefit exists where it can be shown that, but for the arrangement entered into, the taxpayer would not in fact, or as a matter of reasonable expectation, have obtained the taxation benefit in question. The commissioner argues that where there are a number of reasonable alternative courses of action, it is enough for him to show that at least one of those courses would not have resulted in the tax benefit. To date, the courts have rejected this line of analysis in favour of a test requiring a determination of the most reasonable alternative course of action. As such, for the time being, parties to Part IVA litigation must proceed on the basis that it is necessary to undertake detailed forensic analysis of possible alternative courses of action (to the arrangement that was entered into) to determine the most reasonable alternative. This adds considerable uncertainty for the commissioner as to the ultimate outcome of the case (as evidenced by recent Part IVA cases in which he has been unsuccessful on the tax benefit point).

  • The subject matter of many of the recent Part IVA cases are M&A properly described as ordinary commercial dealings. While accepting in these cases that the overall transaction or arrangement was directed at commercial ends, the commissioner's complaint has centred on a particular step or steps of the transaction or arrangement that he considered artificial or contrived. Leaving aside the tax benefit controversy, generally the commissioner has been successful in Part IVA cases where he has been able to identify such a step or steps superfluous to achieving the commercial outcome and instead directed at securing a tax benefit for the taxpayer.

Given the commissioner's mixed success in recent Part IVA cases and the court's approach to the tax benefit analysis, it can be expected that Part IVA will be a continuing area of controversy between the ATO and taxpayers and that there will be no immediate abatement in the rate of cases that come before the courts. While legislative reform of Part IVA is on the agenda (as evidenced by an Australian Treasury Discussion Paper released in November 2010 on Australia's anti-avoidance rules) there is no indication of an imminent change to the law that might arrest this trend.

Focus on alternative and early dispute resolution and on tax case management

In recent times in Australia the use of early dispute resolution (EDR) and alternative dispute resolution (ADR) has gained momentum and support from government, the judiciary and legal practitioners. While the commissioner also appears to embrace EDR and ADR, there is some concern that the ATO uses these processes sparingly and that ATO officers may not be equipped with sufficient skills and authority to make the processes that they do participate in meaningful and productive.

In response to these concerns, on July 26 2011 Australia's Inspector General of Taxation announced a review by his office into the commissioner's use of EDR and ADR. It is hoped that the recommendations from this review will result in an increased willingness and ability on the part of the ATO to participate productively in EDR and ADR.

Separately, in 2009, the Federal Court issued new tax list directions which revised arrangements for the management of tax cases; the objective being to promote the just and efficient determination of tax disputes in a timely manner.

Some of the measures included in the new tax list directions were:

  • the appointment in each registry of a tax list coordinating judge;

  • prescriptive rules on the required timing and content of documents initiating proceedings;

  • for each new proceeding initiated, provision for a mandatory scheduling conference before the tax list coordinating judge to narrow the issues in dispute, agree an initial witness list and settle a pre-trial schedule for interlocutory steps. The aim of the court is for all matters to be fixed for trial within 12 months of the scheduling conference; and

  • perhaps most significantly, provision for only limited discovery of documents, no interrogatories and requests for particulars only in exceptional circumstances.

The new tax list directions have forced the parties to tax disputes to turn their minds to the issues in dispute and undertake more detailed preparatory work before initiating proceedings. It is anticipated that this will lead to more disputes being resolved within a shorter time period and at a substantially reduced cost to the parties.

Stewart Grieve



Corrs Chambers Westgarth

Level 36

600 Bourke Street

Melbourne VIC 3000


Tel: +61 3 9672 3443

Mobile: +61 408 326 858



Stewart is a partner at Corrs Chambers Westgarth, a leading Australian law firm with offices in Sydney, Melbourne, Brisbane and Perth.

As partner in charge of Corrs' tax controversy practice, Stewart specialises in advising major listed public companies on all aspects of taxation investigations and enquiries, dispute resolution and litigation.

Stewart knows what matters to clients, because he has been on their side. After establishing a strong practice in taxation, litigation and dispute resolution, Stewart accepted an opportunity to head up the global tax function of Foster's Group. As director of taxation at Foster's, he oversaw the conduct of all of the group's tax controversy work in Australia, the Americas and Europe, and the Middle East and Africa.

Stewart was the instructing solicitor for Foster's successful Federal Court proceedings in relation to tax deductibility of interest and bad debts in the order of A$2.8 billion ($3.1 billion), the lead adviser in relation to a dispute with the Australian Taxation Office on taxation assessments relating to a capital loss of A$262 million, and lead Australian adviser working with Foster's Indian tax lawyers in relation to separate tax litigation proceedings in New Delhi and Mumbai.

Armed with a unique combination of extensive legal and client experience, Stewart offers a greater depth of insight and advice for his clients on dealing with the multitude of legal and commercial issues associated with tax controversy matters.

Stewart's expertise in dealing with all aspects of large case tax disputes has been recognised in various publications including, most recently, the International Tax Review's Tax Controversy Leaders' Guide.


Nasos Kaskani



Corrs Chambers Westgarth

Level 36

600 Bourke Street

Melbourne VIC 3000


Tel: +61 3 9672 3062

Mobile: +61 402 788 676



Nasos is a senior associate at Corrs Chambers Westgarth, a leading Australian law firm with offices in Sydney, Melbourne, Brisbane and Perth.

Nasos advises on corporate income tax and goods and services tax and has developed expertise in conducting tax litigation and dispute resolution. He has more than 10 years experience in managing complex tax disputes and conducting large scale tax litigation, including the recent win of Foster's Group in the Full Federal Court in the Ashwick litigation.

He also advises major clients in their disputes with the Australian Taxation Office (ATO). Nasos has worked directly with clients in responding to the ATO, meeting with members of the ATO during their conduct of tax strategy reviews, risk assessments reviews and specific issue audits. He has also dealt with freedom of information requests and disputes concerning material that is subject to legal professional privilege and restricted source (and non-source) privilege.

Nasos is a senior fellow at the University of Melbourne and lectures in the masters of laws programme. Nasos was ranked as an up and coming leading individual for taxation in Chambers Asia Pacific 2011


Jonathon Leek



Corrs Chambers Westgarth

Level 32

1 Farrer Place

Sydney NSW 2000


Tel: +61 2 9210 6530

Mobile: +61 405 682 304



Jonathon is a partner at Corrs Chambers Westgarth, a leading Australian law firm with offices in Sydney, Melbourne, Brisbane and Perth.

He is a leader in the field of tax disputes with extensive knowledge and experience in managing tax audits, advising on the information gathering powers of tax authorities, objecting against assessments, appealing to courts and tribunals, and negotiating settlements, including by mediation.

Jonathon's experience includes a diverse range of income tax, goods and services tax, and stamp duty disputes. He has instructed senior counsel in hearings before the High Court of Australia, the Federal Court of Australia, the New South Wales Court of Appeal, the Supreme Court of New South Wales and the Administrative Appeals Tribunal.

In addition to advising on tax disputes, Jonathon specialises in corporate and international tax advisory work, with a focus on M&A, debt and equity capital raising, cross-border investment, and transactions in the energy and resources and real estate sectors. His tax advisory work is informed by his insights into how the Australian Taxation Office and the courts approach tax disputes.

Jonathon has been rated one of Australia's leading tax lawyers by clients and peers in a number of surveys including International Tax Review's World Tax 2011 and Legal Media Group's Guide to the World's Leading Tax Advisers. He also leads the Corrs team appointed to the Commonwealth Treasury's expert Tax Design Advisory Panel.

He is known for his work internationally and is a regular speaker at tax conferences. In 2010, Jonathon was a speaker on private equity at the IIR Private Equity and Tax Compliance Conference in Boston and on the minerals resource rent tax at the GIC China Outbound Investment and M&A Summit in Beijing. He also wrote the Australian chapter of the Euromoney Corporate Tax Handbook 2010.


Reynah Tang



Corrs Chambers Westgarth

Level 36

600 Bourke Street

Melbourne VIC 3000


Tel: +61 3 9672 3535

Mobile: +61 417 586 511



Reynah is a partner at Corrs Chambers Westgarth, a leading Australian law firm with offices in Sydney, Melbourne, Brisbane and Perth.

Reynah regularly assists clients in managing tax risk, including seeking private and class rulings from the Australian Taxation Office, and dealing with taxation controversies from review, through audit and into litigation. He recently acted as instructing solicitor for the taxpayer in Commissioner of Taxation v Ashwick (Qld) No 127 Pty Ltd [2011] FCAFC 49 and is advising AED Oil Limited in relation to a tax dispute referred to arbitration (AED Oil Limited v Puffin FPSO Limited (No 5) [2011] VSC 60).

In addition to tax disputes, Reynah's commercial sensibility, government insight and extensive experience have been invaluable in guiding clients in the manufacturing, infrastructure, and energy and resource sectors through complex mergers/acquisitions, public private partnerships, privatisations, corporate reorganisations, employee share and option schemes and capital raisings (debt/equity). Most recently, he advised Foster's Group on the demerger of its wine business and acted for the Queensland Government on the Gold Coast Rapid Transit project.

This extensive experience has been recognised in several industry guides both at home and abroad including International Tax Review, Asia Pacific Legal 500, Chambers Global Guide (Asia Pacific) and Best Lawyers Australia.

Reynah regularly publishes articles on tax and was joint author of the Australian chapter of "Transfer Pricing and Dispute Resolution" (International Bureau of Fiscal Documentation, 2011) and "To incorporate or not to incorporate, tax is the question" (Law Institute Journal, July 2011).

Reynah is a councillor and vice president of the Law Institute of Victoria and has recently been appointed to the Council of Legal Education. He is also member of the taxation committees of Infrastructure Partnerships Australia, the Law Council of Australia and the Law Institute of Victoria.


Larry Magid

Allens Arthur Robinson

Jim Momsen

Selbourne Chambers - 5th Floor

Mark Richmond SC

Wentworth Chambers - 11th Floor

Tony Slater QC

Ground Floor Wentworth Chambers

Brendan Sullivan SC

Wentworth Chambers - 10th Floor

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