Tax Commissioner Chris Jordan AO FAICD is spearheading an Australian Tax Office drive to simplify its internal processes and interaction with taxpayers. He believes directors have an important role to play in managing tax risk.
Australian Commissioner of Taxation Chris Jordan AO FAICD has had experience as a tax professional, a regulator, an adviser to Labor and Coalition governments, plus 20 years with big four accountant KPMG. The first outsider (not a public servant) to run the ATO in its 100-year history, Jordan draws on all of these experiences as he continues to reshape the ATO and its relationship with taxpayers.
“I’ve also been fortunate to have a number of roles that have allowed me to see the policy side a bit, and the broader picture of tax, and to be able to move away from just the technical aspects of tax,” says Jordan, who began his career as a NSW policeman. He saw that when trying to explain technical details of parts of the tax system to people that “you’ve lost them in the first sentence”.
Jordan wants to work with large taxpayers and trust them to do the right thing, rather than follow them up with audits and fines — and he wants to earn the trust and confidence of the broader community that large corporates are paying their share. He believes directors have an important role to play in monitoring their organisation’s tax risk, just as they would understand other risks.
Central to this cooperative approach is the ATO’s Justified Trust program, based on a concept developed by the Organisation for Economic Cooperation and Development (OECD). The ATO works one-on-one with Australia’s largest 100 business taxpayers and examines their processes, procedures, transactions and governance to gain assurance that they are paying the correct amount of tax. The approach is a major shift from the ATO’s previous approach, with its focus on the revenue it could yield from audits.
“We’ve moved right away from that — to be preventative rather than corrective,” says Jordan, adding there is no point in doing a three- or four-year audit, then coming back a couple of years later and starting the process all over again.
“The best dollar to raise is a dollar that’s put in the tax return and this trust program enables us to tell the community we have assurance around the largest corporations, particularly Australian-based multinationals.”
The approach appears to be paying dividends. Among Australia’s top 100 companies, the number achieving high assurance has risen from six per cent in 2019 to 49 per cent in 2021 — and 82 per cent of companies have achieved high or medium assurance. The ATO now plans to roll out the approach to Australia’s largest 1000 groups.
Companies that achieve high assurance will have less and less to do with the tax office over time, because the ATO will trust them, says Jordan. “We’ll still be asking you what you’re doing, but we will trust you. We know your governance. We know the board. We know the senior executives’ attitudes. We know the processes you’ve got in place. We know what disputes we’ve had in the past and we know the willingness to work through trusting environment issues. It’s not to say we won’t have disputes but, over time, your compliance cost of tax will reduce because we’ve gone through all this effort.”
Reinventing the ATO
Jordan left the NSW Police to study commerce and law at UNSW and Sydney University, before joining accounting firm Arthur Andersen where he worked in the tax area. A move to Marwick Mitchell & Co (later KPMG) gained him a secondment to then opposition leader John Howard’s office and then to chairing the New Tax System Advisory Board (1999–2001) when Howard won government. He travelled the country helping businesses to understand their obligations under the recently-introduced Goods and Services Tax (GST).
After a 12-year stint in the sales and client role of chair of KPMG NSW, Jordan hit the firm’s then retirement age of 58. He joined the ATO as commissioner a year later, in January 2013.
“Acting as a chair of a major consulting firm where I dealt with CEOs, chairs, board directors and CFOs, I got a better understanding of what drove their actions or interests,” he says, adding that his broader view of tax has helped him challenge the popular conviction that tax practitioners are often highly intelligent, but far too attached to their own views on tax and why they’re correct.
Jordan looks at the economic result of a structure or a transaction and asks if it makes sense. “When you tell me you’ve got to put a complex diagram on a whiteboard to explain why one company owns another, you’ve sort of lost it from the beginning,” he says, noting directors need to do the same. Previously, he says, the board would get a report telling them the tax director says everything is OK and would happily leave it at that. That lack of interest in tax has changed because of growing community interest in seeing that corporates have paid their fair share of tax. Compliance with tax has now become somewhat of a badge of honour for large corporates, with several publishing their ATO rating showing they have high assurance.
Jordan was given a mandate to change the organisation from then Treasurer Wayne Swan and Treasury Secretary Martin Parkinson PSM, who believed the ATO had become detached from taxpayers and too black-and-white rigid. The result was a reinvention program to shed the ATO of excessive bureaucratic processes that were either self-imposed or came about after implementing recommendations from various reviews — and to do away with tens of thousands of pages of guidance.
“It was my strong belief that if I was asking the staff at the ATO to have a more client-centric, empathetic view of taxpayers, it was more difficult to do if they themselves were bound up in tick- the-box bureaucratic processes that made change very difficult to do,” says Jordan. The ATO also went deep into its market segments — large corporates, small businesses, individuals — to understand better what they wanted from the tax office.
A matter of trust
The program was the 2021 vision and now that it’s largely achieved, Jordan — whose initial term has been extended to 2024 — is working on a new program to build trust and confidence in the ATO. The aim is to instil trust of people in the ATO that it will do the right thing and confidence that it will take firm action against people who are not doing the right thing.
Trust and confidence are central to closing the tax gap — the difference between the amount of tax the ATO collects and what it would have collected if every taxpayer was fully compliant with tax law. The only jurisdiction to publish tax gap analysis, the ATO’s latest research shows that for 2018–19, it received $428b — 92.7 per cent of the total amount of tax it would collect if everyone was fully compliant with tax law.
“That’s why, at the upper levels of corporates, it’s important for us to take that trust and confidence of the community to say we know they are doing the right thing, because we’ve got such strong and close engagement with them,” says Jordan.
The Tax Commissioner wants large corporates to de-risk major transactions by engaging early with the ATO, and adds that if companies can’t tell their stakeholders what the tax implications of a transaction are then they’re not doing the right thing. The ATO can turn around these decisions very quickly, he says. When looking at a transaction, the ATO considers the broader implications of the transaction, and whether the result the company puts forward for tax assessment measures up to the commercial results, or if the accounts show a profit or capital gains, but not taxable, income.
Jordan also expects boards to answer these questions and understand the risk posture of an organisation. However, he says he still hears from board members who tell him they had just assumed their company was OK and didn’t know it was acquiring high levels of risk.
But this doesn’t mean the ATO is prepared to cede the technical ground and Jordan is at pains to point out that the its cooperative approach doesn’t mean the tax office will be soft. He reprises some of his infamous 2016 address to a Senate estimates committee, when he said he has run out of patience with multinational companies using “over-the-top excuses” to “string along” the tax department and “game the system”. “We’re not going to be just too flexible in terms of deadlines being missed all the time for the provision of information. We’re not just going to accept assertions because there’s a lengthy report by multiple experts that says this should be the result,” he says. “We will analyse it. We have the capability now to do that in a very strong way and we will use our resources to also get our own expert reports on these matters.”
Jordan says he is not one to let disputes linger. The ATO had a long-running dispute with BHP over transfer pricing via its Singapore commodities marketing hub — resolved when the mining giant paid an additional $529m in taxes for 2003–18. The fact that the two were in dispute doesn’t make BHP a bad taxpayer — they just took a different view to the ATO — and it is now one of the most tax-transparent of Australia’s large companies, he says.
Privacy provisions stop the ATO from publishing the outcomes of tax dispute settlements, but the tax office would like companies to publish the results, again to help instil confidence in the tax system, and to then move on.
Jordan accepts that the ATO and corporates will continue to have disputes about tax, but wants them to “knowingly” have a dispute after they’ve consulted with the ATO, particularly where the legislation won’t deal specifically with an issue. The ATO provides practical compliance guidelines and tells corporates that if they take a particular course, they are “swimming between the flags”. “That way, a company can take the risk, knowing they’re going to have a dispute with us,” says Jordan.
This approach applies where the economy has run ahead of legislation — in some cases, 30–40 years old, yet dealing with developments such as the gig economy and growing tech industries. The ATO also publishes its views on complex matters that the legislation doesn’t deal with.
Jordan wants to make the ATO a streamlined, integrated and truly data-driven organisation. In particular, the ATO will invest in data feeds to help taxpayers. For instance, it is now getting data from all the crypto exchanges in Australia and has sent thousands of “nudges” to taxpayers to remind them they didn’t include crypto profits in their latest tax returns.
Prompting taxpayers with nudges draws on behavioural economics and the idea that it’s better to get someone to do the right thing up front rather than chase them and have an argument later. The ATO is extending the approach to claims for work-related expenses, comparing an individual’s occupation and income level to people with similar jobs and incomes, and asking if they really want to claim that much?
While the ATO is trying to simplify its internal processes and the way it deals with taxpayers, Jordan says taxation, by its very nature, will always be complex, because commerce and international transactions are complex and new business models are springing up all the time.
Nonetheless, he says Australia’s tax system has complexities some overseas jurisdictions don’t — such as the fringe benefits tax, capital gains tax and taxation of financial arrangements regimes, which are “classic examples of overreach” because they try to chase down “every little thing”.
“Why don’t we just stick with the big-picture stuff?” he asks. “I like simple things rather than overcomplicating.”
Some 2.7 million Australians will be required to apply for a director ID in the coming months in a bid to stop fraudulent company director registrations and illegal phoenixing, but Tax Commissioner Chris Jordan AO FAICD has bigger ambitions.
A director ID is a 15-digit identifier given to a director (or someone who intends to become a director) who has verified their identity with the Australian Business Registry Service (ABRS). When fully established, the ABRS will bring together the Australian Business Register (ABR) and more than 30 Australian Securities and Investments Commission (ASIC) registers in one place. “It will be a fundamentally good part of infrastructure for our economy going forward,” says Jordan.
The registration program began in November last year and 280,000 directors registered in the first few weeks. “The response has been overwhelmingly positive,” says Jordan. “We’re very happy with the rate of registration so far.”
The director ID aims to overcome “the very light regulation” of who can be a director of a company. Jordan contrasts this with requirements in the Netherlands, where he had experience as a tax practitioner 25 years ago. Then it took about three months to become the director of a Dutch company and applicants had to undergo a police interview.
In Australia, individuals can be put down as company directors without their knowledge and there are still Mickey Mouses and Donald Ducks recorded as company directors on the ABR, says Jordan. The lax regulation has also helped illegal phoenixers who have been known to stand outside a Centrelink office offering $500 or $1000 for someone to sign a form and provide their name and address.
The ATO isn’t focused on the top 100, or even top 1000, companies, but the requirement is mandatory for all directors. Prospective directors will be required to have a myGovID, which has strong identification verification requirements and is linked to other government services.
“You’ll have a unique ID number that will stay with you as a director for life that hopefully will be able to facilitate movement around directors,” says Jordan.
The value of the new regime — beyond registering people — will be in the analytics it can provide. The ATO is building up a list of the attributes of different types of directors and cross-reference the director IDs with other information it has about individuals to check registrations. “Does it look like you’re a director appointed to a construction company that’s just done a $100m development when you’re on Centrelink benefits? Does it look like you’re a director if you’re a student or on an international student visa? Do you look like a director if you own no assets and have no real estate?” asks Jordan.
Requiring people to register for a myGov ID before they can apply for a directorship, in turn makes them aware of other government services for businesses, and its requirements of businesses.
It will be particularly useful for small businesses. In the past, someone setting up a small business such as a cafe would have to go to ASIC to register the business name, with all the form-filling that requires. They would then have to go to the ATO to get an Australian Business Number (ABN) and GST registration number. Now there will be a central point for all of the business, tax and corporate law registrations. Importantly, regulators will know what sort of business someone is starting up and in which state and council area, and can point them in the right direction for help.
“There’s all sorts of assistance for small businesses, but then you’ve got to know where to go,” says Jordan. “My vision is to have a door that you open and here are the health regulations you need to meet, here are the local council regulations about the seats or tables you can put outside on the footpath, here are your workers’ comp issues, here’s the Fair Work Ombudsman and your awards.”
He hopes it will help to stem the high failure rate of new businesses in the first two years after founding.
“I want to have a system that addresses all these other things so that people know they’re meeting their requirements, they’re paying the right amount of money, they’re meeting the obligations, not just in tax and super, but right across the board,” says Jordan. “That will be a tremendous boost to the economy.”
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