The Australian Taxation Office cut more deals in the 2015-16 financial year, but the dollar value of those settlements dived, largely because a backlog of old disputes with companies have come to an end.
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The ATO has warned settlements will substantially rise again next financial year as the agency and companies negotiate in the aftermath of the federal government's tougher anti-avoidance laws.
"In 2016-17, we expect to issue a higher than usual level of extremely large ($100 million plus) amended assessments as a number of significant matters come to completion, particularly relating to e-commerce, trading hubs and related party financing," Deputy Commissioner Jeremy Hirschhorn told Fairfax Media.
"Some of these matters may flow through to settlements, but most likely in the 2017-18 and following years."
Figures obtained by Fairfax Media show across all taxpayer groups, the ATO settled on 1362 cases – almost one-third more (31 per cent) than the previous year.
But the dollar value of the amount settled across all taxpayers – that is the variance between the original tax assessment and the amount the ATO eventually collected from the taxpayer – dived from $3.5 billion to $886 million.
This was mainly due to fewer deals being cut with large business, where the number of settlements dropped from 81 to 27, and the variance dollar value fell from $2.7 billion in 2014-15 to $343 million in 2015-16.
The large business market includes companies with turnover ranging from $250 million to Australia's largest companies.
One big case can distort the total
"One big case can distort a whole year's results," Mr Hirschhorn said , adding that the previous year there were more deals cut with companies mainly because there had been a backlog of older cases that had been resolved.
These included a number of cases that were related to the ATO's amnesty for people with offshore assets and income.
"In the 2015-16 year, the large market settlement numbers were distorted by one extremely large settlement – of more than $500 million – where the taxpayer effectively conceded their position, which means that the raw variation percentage appears unusually low," he said.
The amount of deals cut with high-wealth individuals also fell, but not the dollar value. The number of HWIs it cut deals with dropped from 90 to 78, but the dollar value of the amount settled went up from $140 million to $215 million
Tax Commissioner Chris Jordan in February stated the ATO would take more companies to court in the coming year, rather than settling cases with the top end of town.
Mr Hirschhorn said when it came to litigation the ATO would focus on the "most strategic cases". He said the ATO's settlement policy had been "rewritten and simplified to maximise the chance that appropriate cases are resolved without resort to litigation".
Other avenues to handle disputes
Aside from settlements there are other avenues to handle disputes.
Across all taxpayer groups litigation fell from 750 cases in 2014-15 to 480 in 2015-16.
There were 111 cases that were handled through alternative dispute resolution processes (compared to 156 the year before), and 14 independent reviews of large businesses who were hit with audits.
Disputes on hand took an average of 138 days to resolve.
The ATO offers "independent reviews" of companies facing audits. Debbie Hastings, who heads the ATO's review and dispute resolution area, said this had contributed to the resolution of those disputes, earlier in the dispute process.
"We have had 36 independent reviews since July 2013, and so far only one has proceeded to litigation," she said.
In the SME area, the number of settlements jumped from 112 to 298, but the dollar amount fell from $152 million to $129 million.
Ms Hastings said the ATO was using in-house facilitation which had helped in earlier settlements being reached in the micro business, small business and individual markets, and that this had contributed to the large reduction in litigation proceeding to the Administrative and Appeals Tribunal.
She said in 2015-16 the AAT received 396 applications, down from 533 in 2014-15 and 922 in 2013-14.
The ATO's latest settlement figures, which have been provided to Fairfax Media, were not included in its 2016 annual report.
