ATO appeals FOI order relating to transfer pricing audit
Though the tribunal disagreed with the taxpayer’s claim that the ATO had engaged with legal counsel merely to ‘attract privilege,’ it did strike down certain LPP claims.
In a decision handed down in February, the Administrative Appeals Tribunal ordered the ATO to produce certain documents it had claimed freedom of information (FOI) exemptions over.
An ATO spokesperson has confirmed to Accounting Times the Commissioner has appealed to the Federal Court for review of the Tribunal's decision. The notice of appeal was filed on 8 March.
The applicant, Alcoa, accused the ATO of strategically engaging with legal counsel specifically to attract legal professional privilege (LPP) – a form of behaviour the ATO has long criticised taxpayers for engaging in.
Though the AAT did not agree the ATO had done so, it did strike down several FOI exemptions invoked by the Tax Office.
In 2019, the ATO issued a Statement of Audit Position (SOAP) to Alcoa, which claimed its cross-border supply of alumina from 1989 to 2009 was not arm’s length dealings for the transfer pricing rules under the Income Tax Assessment Act.
Accordingly, the ATO adjusted Alcoa’s taxable income, resulting in a total tax shortfall of $214,109,234. Alcoa disputed the findings, claiming it owed no additional taxes and has brought several applications to the AAT.
In this case, Alcoa brought an appeal to the AAT in response to the ATO’s refusal to provide certain documents that fell within the scope of a FOI request made by Alcoa in April 2020.
Among the terms of its FOI request, Alcoa requested documents relating to the ATO’s communication with experts involved in drafting the SOAP documents “created, obtained or modified” by the ATO’s Tax Counsel Network and more.
An earlier decision of the AAT resulted in certain withheld documents, or parts of documents, being released to Alcoa, however, Alcoa requested the AAT review the ATO’s decision to withhold the remaining documents.
The ATO claimed the remaining documents were exempt pursuant to several provisions of the Freedom of Information Act, including those relating to LPP, secrecy, trade secrets, and personal privacy.
Concerning the LPP exemptions, AAT deputy president Peter Britten-Jones largely agreed with the ATO that the documents in question had been prepared “for the dominant purpose” of obtaining legal advice.
Alcoa had claimed the documents had been prepared not for that purpose, but for an administrative, fact-finding purpose relating to the audit.
Deputy President Britten-Jones ruled, however, that the ATO had created the documents within the remit of its legal discussions with the Australian Government Solicitor (AGS), with whom it had engaged in anticipation of legal challenges relating to its SOAP.
In upholding the LPP exemption, the Tribunal cited a common law principle that the “concept of legal advice is fairly wide.”
Alcoa claimed the AGS was “acting as a mere conduit for the ATO and that the communications were being ‘routed’ through the AGS so as to attract privilege.”
That said, the tribunal found that the ATO had impliedly waived the LPP exemption for certain documents as it had acted in a manner inconsistent with the “maintenance of the confidentiality.”
For instance, the Commissioner disclosed the substance of certain reports to Alcoa, which the Tribunal considered inconsistent with confidentiality. That said, the Tribunal did uphold the LPP exemptions of certain other documents.
The ATO has in the past criticised taxpayers for inappropriately invoking LPP to prevent the disclosure of relevant information.
“Reckless LPP claims over non-privileged documents unduly hinder ATO investigations and lead to extended disputes over information gathering, instead of focusing on the resolution of the substantive issue,” it wrote in a 2022 website update.
That year, the Tax Office released its final LPP Protocol which laid out the approach it recommended taxpayers employ in making LPP claims.
Many accused the draft protocol of going too far in requiring taxpayers to prove the legitimacy of their LPP claims.
While the final version maintained the ATO’s right to “request details of LPP claims,” it said it had acted on many of the consultation recommendations.
“Whilst we respect and accept appropriate claims, we require sufficient information to be able to decide whether to accept, review, or challenge a claim of LPP,” said deputy commissioner Rebecca Saint.
The Tribunal rejected the ATO’s claim that certain documents were exempt under the ‘trade secret’ provisions of the Freedom of Information Act, partly on the basis that the commercial value of the relevant information would not be destroyed or diminished by its release.
On the other hand, it agreed the publication of certain personal information of experts approached but not ultimately engaged by the ATO – which it had redacted – would be contrary to the public interest in privacy.
It also found that the ATO was justified in refusing to share certain information it had claimed was outside the scope of the FOI request.
