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Submission No. 75 Back to full list of submissions
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Making Better Tax Law:

An Advisory Board on Tax Policy and Administration

 

Angela Ryan

Director – Taxation, ASCPA

April 1999

 

The ASCPA maintains copyright over this paper and its contents and any reproduction in full or in part needs to acknowledge the ASCPA as its source.

 

Table of Contents

Introduction

Executive Summary

1. Background

2. Why we need an Advisory Board

3. The role of the Advisory Board

4. The administrative arrangements for the Advisory Board 

Number of members
Public and private sector membership
Making appointments
Member skills
Member obligations
Possible sunset clause

5. Conclusion

Appendix 1: Overseas experience

Appointment and qualifications of US Board members
Ethical standards required of US Board members
The role and powers of the US Board
Overview of the US Board
Other jurisdictions

Appendix 2: The ATO Management Board

Introduction

As Australia’s leading accounting body, the Australian Society of Certified Practising Accountants (ASCPA) is working to ensure that we create a robust and fair tax system that will meet the needs of the country in the new millennium.

While there have been many calls for an Advisory Board to oversight the ATO, the rationale for establishing a Board, and the specific details of its functions and structure have not been developed.

The recommendations in this paper would, if implemented, provide for a Board that would be involved in every aspect of the development of tax law – from policy to legislation. In an environment of major tax upheaval, the establishment of such a Board is vital if the benefits of tax reform are to ultimately be delivered in practice.

Copies of this report are available from the ASCPA Internet site at www.cpaonline.com.au or by contacting Angela Ryan, ASCPA Director – Taxation on 03 9606 9830.

Acknowledgements

The ASCPA would like to acknowledge the valuable work of Professor Robin Woellner in preparing a first draft of this paper. In addition, we would like to thank our many Committee members who provided helpful input to this final document, including the members of our Taxation Centre of Excellence and the National Tax Practice Committee.

Executive Summary

This paper responds to the call for submissions from the RBT in relation to an Advisory Board to oversight the business tax system.

The recommendations in this paper would, if implemented, provide for a Board that would be involved in every aspect of the development of tax law – from policy to legislation. The aim is to get higher quality policy decisions that would be translated into clear and better legislation. Better legislation will, in turn, deliver more certainty, stability and consistency in tax law, and that will reduce compliance and administration costs. In an environment of major tax upheaval, such change is not only necessary, it is vital if the benefits of tax reform are to be delivered in practice.

The paper presents a strong case for the introduction of an Advisory Board to support the reforms proposed by the RBT concerning a forward work program for business taxation, and the establishment of integrated teams (incorporating officials from Treasury, Australian Tax Office and Office of Parliamentary Counsel).

The current processes for moving from tax policy to tax law remains largely haphazard. Despite a wide array of consultative groups, there is a strong perception that, aside from a few notable exceptions, the work of these groups is largely uncoordinated and leads to little effective change. The opportunities to consult on some important aspects of tax design are very limited, and the extent of consultation on any particular issue appears more a matter of chance than deliberate design.

Legislation is often introduced into Parliament with little or no consultation, and any amendments then have to be made through the resource-sapping (and often inappropriate) Parliamentary process. Many amendments are made "just in time" and there is little acknowledgement of the problems this creates for systems development or business planning and advice.

With all tax policy being turned into tax law in this way, the result is a poorly co-ordinated system that is subject to significant ongoing amendment. This in turn imposes inordinate administrative costs for the Government (including the call on Parliamentary and Ministerial time) and compliance costs. There must be a better way. An Advisory Board is not the whole answer, but it is certainly an essential element.

We see the prime functions of an Advisory Board to be:

  • To provide recommendations to the Treasurer on priorities and issues in relation to tax policy and tax legislation (where necessary on a confidential basis); and
  • To work with the integrated teams to ensure that the process of moving from tax policy to tax law includes effective and meaningful consultation with the private sector at the appropriate time.

The model we have set out for the Advisory Board is broader than that envisaged by the RBT in the following areas:

  • The Board should have a policy role, insofar as the Board would be able to provide comment to the Treasurer on the forward work program, and suggest policy issues to be included on that program;
  • The Board should be able to advise on tax matters beyond the scope of business taxation alone;
  • Subject to the Treasurer’s approval, the Board should be able to interact with the integrated teams in any way it felt appropriate to ensure smooth and effective tax policy and tax administration. This could include consulting with private sector groups, establishing specialist cells to assist in critiquing new tax legislation and the like; and
  • The existence of the Board, its functions and related administrative arrangements, should be enshrined in legislation.

In relation to the appointment and structure of the Board we recommend the following:

  • The ATO Board would comprise 10 members, appointed by the Treasurer with the consent of Cabinet;
  • Membership would include the Commissioner of Taxation, the Head of the Treasury (or their designate); a representative from the Office of Parliamentary Counsel; the senior tax advisor from the Treasurer’s office (or Assistant Treasurer’s office); and six ‘private sector’ members;
  • A majority, but not all, private sector members would be appointed for their expertise in federal taxation laws. Members would not be chosen as representatives of particular bodies or groups, but rather on the basis of their skill or expertise in a relevant area;
  • Private sector members would be appointed on the basis of merit alone, and would be subject to stringent ethical obligations (in particular to avoid real or apparent conflicts of interest);
  • Private sector members would be appointed for five years, with a maximum appointment of two terms. They would be remunerated appropriately; and
  • The Board would be required to meet not less than six times per annum, and to table a report to Parliament on its activities each year.

We consider that such a Board, if properly funded, would go a long way to overcoming some of the problems with the existing consultative arrangements. It would play a key role in establishing a higher degree of trust in relations between taxpayers and the revenue authorities. It would also ensure the efficient use of public and private sector resources to deliver better tax policy and tax law for the benefit of the entire community.

1. Background

As part of its consultation in relation to business taxation, the RBT has called for submissions on the possible establishment of an Advisory Board to support the framework and processes outlined in its first report, A Strong Foundation. This call for submissions follows a number of suggestions made for some form of oversight of the ATO in Australia.

As far back as 1975, the Asprey Committee proposed an Independent Standing Committee which would "keep under constant review the working of the Act … [and] examine and report upon any amendments to the Act…". More recently, in 1991 the Coalition proposed in Fightback! that a Board of Directors be appointed to "develop (and subsequently to supervise) a strategy for more effective interaction between the ATO and the tax paying community". In 1993, the Joint Committee of Public Accounts recommended that the role of advisory committees be formalized and strengthened, and restructured so as to "play a positive role in … a revised administrative framework". In the 1996 Federal election, the Coalition proposed the creation of an Australian Taxation Advisory Council to "report annually to the Parliament on a range of issues including the performance of the ATO …".

Australia is not alone in this regard. As outlined in Appendix 1, a number of overseas jurisdictions have created Boards or other bodies to oversee their revenue authorities. However, with the suggestions in the RBT to reform the tax policy making and administrative processes, the debate is now over what sort of Board might oversight the whole tax policy and law making process.

In particular, the RBT notes that in the development of policy and the preparation of legislation, there is a lack of integration between the Treasury, the ATO and the Office of Parliamentary Counsel. The RBT suggests that closer integration would be desirable, with "integrated teams" involving representatives from all three agencies working together, with clear allocation of responsibility for developing policy, legislation and administration. It is also proposed that the Treasurer could approve and publish a forward work program on business tax issues. It is suggested that an Advisory Board could be established to support these processes.

The RBT suggests that the Advisory Board should:

  • focus on the overall performance of the business tax system, or alternatively be involved in progressing the work set out in the forward work program (including consultation processes);
  • report directly to the Treasurer;
  • provide advice, but not direction, to the three agencies represented on the integrated teams;
  • have the power to appoint specialist committees to advise on aspects of its responsibilities (possibly drawing on, or replacing in part, existing ATO consultative arrangements); and
  • be drawn entirely from the private sector, or alternatively include a minority of public sector members (particularly senior representatives from the three agencies).

We strongly support the establishment of an Advisory Board. The purpose of this paper is to assess these suggestions and develop further detail in relation to an Advisory Board.

2. Why we need an Advisory Board

The ATO has, in recent years, embraced change of various kinds, including modernization and technological innovation. One aspect of this changing culture has been an increased willingness to involve the private sector in the ATO decision-making process. This has included representation of private sector tax professionals and the community on the Rulings Panel, Consultative Committees and the like. The Government and the ATO have recognized the benefits to be obtained from private sector input.

Despite this progress, the ASCPA consider that a well structured, well resourced and well tasked Board would help overcome many of the problems with the existing consultative arrangements. The RBT itself appears to have this in mind, when it discusses the possibility of some of the Board’s functions allowing for a rationalisation and streamlining of existing ATO consultative arrangements.

Although the consultation mechanisms set up by the ATO are a welcome step in the right direction, the current processes in getting from tax policy to tax law remain largely haphazard. The opportunities to consult on the important aspects of tax design that do not fall directly to the ATO – relating to the roles of Treasury and OPC - are very limited. In addition, aside from a few notable exceptions, the extent of consultation on any particular issue appears more a matter of chance than deliberate design. There is a strong perception from all concerned that, despite the array of consultative groups, the efforts made rarely lead to effective change. There is a substantial call on private and public resources, with little benefit resulting.

Policy is often announced as a fait accompli ("legislation by press release" being one noteworthy shortcoming recognised by the RBT). Even if discussion is entered into at this stage, legislation is then often introduced into Parliament with little or no consultation, and any amendments then have to be made through the resource-sapping (and often inappropriate) Parliamentary process.

In the meantime, those dealing with the tax laws have to keep abreast of what is happening in an environment of massive change. Many amendments are made "just in time" and there is little acknowledgement of the problems this creates for systems development or business planning and advice.

With all tax policy being turned into tax law in this way, we end up with a poorly co-ordinated system that is subject to significant ongoing amendment. That imposes inordinate administrative costs for the Government (including the call on Parliamentary and Ministerial time) and compliance costs. There must be a better way. An Advisory Board is not the whole answer, but it is certainly a vital piece of the puzzle.

For a Board to be effective in addressing the shortcomings of the current consultative arrangements, it needs to have sufficient powers to address those shortcomings. As a result, it would need more wide-ranging powers than those envisaged in the proposals suggested in the RBT, for the following reasons:

  • Much "reform" appears to be driven by the need to close loopholes, curtail concessions and the like. While these things no doubt have their place, a Board could advise the Treasurer of other issues that it considers should be given priority – but which may not be seen as priority areas by the revenue authorities themselves. As one example, it may be that compliance cost saving measures may be given a higher priority if the Board could have some say in the forward work program;
  • One of the frustrations often voiced in the private sector is that the period for consultation on taxation matters comes too late – that input is often called for after the damage has been done. One of the strengths that a Board could bring to the tax process is to help identify potential difficulties and/or alternative solutions in areas where reform is being considered (even if that advice was given on a confidential basis). In that respect it should have a policy role;
  • While the RBT suggests that the Board could have its purview limited to business taxes (perhaps because of the restrictions in its own terms of reference), there seems to be no reason to limit its role in this way. Private sector involvement could prove just as beneficial in tax areas outside business taxation; and
  • We would envisage the Board being able to interact with the integrated team from the policy stage to the final legislative stage (and beyond, where amendments are required later). In this respect, the involvement of the Board may be more than the RBT envisaged. Our preference for this sort of interaction is to address two issues:
  • there is a growing concern that, while policy changes are announced and accepted, the legislation that follows (often with a long delay) may not reflect the policy announcement; and
  • unless the Board is involved as the legislation is being drafted there is a risk that consultation will come too late. It is much more difficult to make even the most sensible and necessary changes to legislation once it has been introduced to Parliament because of the pressures on Parliamentary time and the problems of Government’s needing to "save face". Voluminous amendments can be embarrassing and time consuming for all concerned; and
  • The existence of the Board, its functions and related administrative arrangements, should be enshrined in legislation.

Consistent with the sort of role envisaged in the RBT proposals, the following points are relevant:

  • There is a growing perception that the ATO and Treasury do not have enough understanding of the "real world" and, in business tax in particular, of the commercial realities that shape and drive the way business is done in Australia. In fulfilling its function, the Board should have a role in bringing such knowledge to the table, and being able to advise the Treasurer directly on such matters if it is considered there is a need to do so (on a confidential basis if necessary);
  • A Board comprising members with a variety of skills and expertise would provide a valuable source of expert advice for the integrated teams, and a wider range of inputs and perspectives than might otherwise be available to those teams. If the Board is able to interact with these teams, it might also overcome another major complaint often voiced about the current consultative processes. That is, the frustration in raising issues in one forum, only to be advised that they must be dealt with in another (this often arises where policy issues are raised at ATO consultative groups). Sometimes the overlap between "big p" policy, "small p" policy and pure administrative matters is blurred. Dealing with the integrated teams will overcome these boundary problems;
  • Private sector input would raise the credibility of the ATO by increasing its perceived sensitivity to current issues;
  • The ability of the Board to report directly to the Treasurer is applauded. If the Board is to "make a difference", it needs to be able to ensure that its advice is taken seriously and acted on – ie that the Board does not become a mere "paper tiger" giving the semblance of private sector involvement without the reality. The feeling of being seen but not heard is one of the frustrations often voiced in the current consultative forums; and
  • Busy, successful and high-profile private sector representatives - of the sort who would be most valuable on such a Board – would be more willing to give a significant portion of their time and energy to a Board if they felt that their advice was given a hearing at the highest level. As the RBT acknowledges, it is essential that Board members be effectively remunerated and supported. With such an approach, the Board’s role may be more successful than many of the current consultative forums that rely on voluntary, unpaid involvement.

While we consider these compelling reasons to set up a Board, we also recognise that there are some real constraints on the powers of the Board that must be accommodated if setting it up is to appeal to the Government and the Parliament more generally:

  • The potential for conflict of interest is a real issue. The greater the powers of private sector members, the greater the potential for conflicts of interest to arise. Indeed, Ferris observed in relation to the Oversight Board in the US, that the predominance of private sector membership was seen as potentially putting "the fox … in charge of the henhouse"; and
  • The Government obviously has concerns about the extent to which it cedes power over its revenue source. In relation to the US Oversight Board, the Treasury Department argued that an independent Oversight Board would remove the IRS from executive branch oversight. Certainly this could be a problem if the Board had a controlling or directing role, though it would not seem to be a significant problem if the Board has a merely advisory function. The issue also drew comment from Deputy Secretary Summers, who suggested that as 95% of the US Federal Government’s revenue flowed through the IRS, the government "can’t afford to experiment with responsibility, nor place it under the jurisdiction of part-time managers."

We believe that these concerns can be adequately addressed in the way that the Board is set up. This is discussed in Section 4.

3. The role of the Advisory Board

The role and function of Advisory Boards typically falls into two distinct camps, suggesting the following broad alternatives for Australia:

  • A Board that oversights the administration, financing and resource allocation of the revenue authority itself. For example, this would involve reviewing the annual budget allocation, the work program, administration and management of the integrated teams; or
  • A Board that participates in the work of the integrated teams, perhaps as part of the consultation process, or in commenting on the success of that work and/or how it could be improved.

As is apparent in the discussion of the need for a Board in the previous section, we consider that the functions of the Board should be focussed much more on the latter than the former role. Although resourcing has been an issue (perhaps most notably in relation to pressures on the OPC which may have caused some of the poor drafting of legislation in recent years), it is more participation in the law making process that has been at the centre of calls for a Board. Certainly, the Board should not be excluded from commenting on administration and budgets, but this should not be the key focus of the work of the Board.

In any case, the ATO already has a Management Board to undertake the sort of functions envisaged under the first alternative. Although it is an entirely "internally" staffed Board (no private sector participation), we would not see private sector involvement on that Board as a priority, though it could be considered separately in the future (Appendix 2 sets out the details of the Management Board).

It is clear that we envisage a broad role for the Advisory Board. It should have the opportunity to interact with the integrated teams, report directly to the Treasurer when it deems appropriate, and take a "hands on" role in terms of advice and suggestions relating to the forward work program and in overseeing the development of tax policy through to tax law. Where major changes are envisaged, it should be involved in the consultation process. It should have the power to work alongside the integrated teams (much as the private sector members are involved in the Ralph review), but the Board should also have the power to report directly on issues to the Treasurer.

It should be made clear that we do not consider it appropriate for the Board to have certain powers, and in this our views accord with those of the RBT:

  • The Board should not be empowered to give binding directions to the agencies, or the heads of those agencies (in any case, there may be a Constitutional constraint on binding the actions of the Commissioner of Taxation);
  • The Board should not be empowered to make resourcing or personnel/management decisions in relation to the three agencies, or to interfere in the day to day management of the tax system. For example, the Board should not be given power to appoint the Commissioner of Taxation, though it could usefully make recommendations on this and related matters to the Treasurer; and
  • The Board should not be involved in ATO law enforcement activities, specific ATO procurement activities, or specific taxpayer cases (including compliance activities involving specific taxpayers).

Whatever the scope of the Board’s powers, the Board and its functions should be written expressly into the legislation, as is currently the case with the Administrative Appeals Tribunal, Hardship Board, and similar bodies. Such issues should be dealt with clearly and expressly, and must not be left to inference.

4. Administrative arrangements for the Advisory Board

Having established the case for establishing a Board, and setting out the functions it would perform, consideration needs to be given as to how Board appointments would be made.

The credibility of the Board is crucial to its successful operation. The criteria for membership must be considered carefully to ensure that there is no impression (or reality) of political partisanship. The way members are chosen, and the conditions of appointment will also be important in establishing credibility.

Key questions include:

  • The optimal number of Board members;
  • The mix of public and private representatives;
  • Who appoints Board members;
  • The criteria for appointment (ie the skills which members should have);
  • The term of appointment (including the frequency of meetings); and
  • The obligations placed on members.

Number of members

The optimal number of members needs to take into account that if the Board is too large, it will become unwieldy. In this regard, it can be noted that some of the existing consultative forums appear to suffer from having too many people involved. On the other hand, it would need a reasonable number of members in order to obtain the desirable range of skills and perspectives.

In balancing these issues, it seems that a membership of around 10 members would be appropriate.

Public and private sector membership

A related question is the desirable balance on the Board between public and private sector members, which the RBT also raises as a concern. In the American context, Morgan Kinghorn suggested that the IRS had not brought in enough external people, and the Tax Executives Institute agreed that the majority of members should be "external" and not members of the IRS or Treasury.

We have suggested that the Board should play quite an active role in the work of the integrated teams. As a result, it would seem highly beneficial to have representatives from the three agencies on the Board. This should help the free-flow of information between the Board and the agencies, and may also go a long way to engendering a greater sense of trust between the revenue authorities and the private sector – something that must underpin successful consultation.

The mixed membership of the Board may also assist in ensuring that constraints facing officials are factored in to the work and recommendations of the Board. That is, just as private sector interests have complained that officials do not understand how business operates, it is important that private sector interests have an understanding of how government operates. This suggests that having members from both the public and private sector would present the best alternative.

In light of the above considerations, the membership of the Advisory Board might comprise:

  • the Commissioner of Taxation (for the duration of that appointment);
  • the Head of the Treasury (or their designate);
  • a representative from OPC;
  • the senior tax advisor from the Treasurer’s office (or Assistant Treasurer’s office); and
  • six "private sector" members.

There may be a concern that if the Board wishes to make recommendations to the Treasurer, that public sector members may find they are called on to approve advice that is in conflict with advice they have given in their official capacity. To avoid such difficulties, any advice from the Board to the Treasurer should be from the private sector members only. This would obviously not preclude officials commenting on that advice, but it would give the private sector members a freer hand, and would also allow free and frank advice from officials.

That said, it should be stated expressly in the relevant legislation that individual Board members would have no power to take action binding the Board. All decisions and actions would be by and through the Board as a body – the only exception being in relation to advice to the Treasurer as just described.

Making appointments

In looking at how the private sector members might be appointed, the Treasurer should have responsibility for making appointments, subject to Cabinet approval. The relevant legislation should expressly provide that private sector members must be selected on the basis of merit alone, and "without regard to political affiliation".

As a further protection from potential politicisation, it would be desirable to stipulate in the legislation that a Board member may not be removed from their position except:

  • for proven "cause" (such as demonstrated incompetence, or persistent non-attendance to their duties – including attendance at Board meetings); and
  • by means of a transparent and public procedure.

It is therefore suggested that Australia should not adopt the US approach, which permits the President to remove at will a private sector member from the IRS Board.

As a further aid to transparency, the fact of a private member’s appointment and the reasons for the appointment (in sufficient detail to provide useful information to interested parties) should be published within 7 days of the appointment.

In relation to the term of appointment, it would be desirable for members to serve a term which is on the one hand long enough to enable them to develop a "feel" for their role, and to feel a healthy independence from the politicians who may have appointed them. On the other hand, the positions clearly should not be permanent.

We suggest that private sector members serve for a term of five years, with the possibility of a single reappointment for a further term of five years. This would mean that the appointments of Board members and the Commissioner would overlap, rather than spanning the same period. This might help reduce the risk of "group think" developing, while still providing a substantial period for members to develop a familiarity with their role and environment, and a good working relationship with the integrated teams and members of the three agencies.

The initial appointments could be "staggered", with three members being appointed for an initial term of three years, and the remaining three for the full term of five years. This would ensure members’ terms terminated at different times. If a sunset clause were introduced (see below) appointments need to be subject to that clause.

Member skills

Given the suggested role for the Board of active participation in the policy and law making process, it would be necessary to ensure that at least a significant number of the members had the appropriate technical tax expertise. This would suggest that members should be drawn from the tax professions - that is, tax accountants, tax lawyers, tax agents and academics with relevant expertise. However, it would not be desirable to have all members drawn from the tax professions. It would be important to also select members who could bring to the Board a knowledge of customer service (including the needs and concerns of business and other taxpayers), and possibly managerial and systems experience.

It follows from this that private sector members should be selected on the basis of their knowledge and expertise, rather than as representatives of particular groups or organisations. Selecting on this basis, rather than on sectoral representation, may also facilitate the private sector members taking the national interest perspective. We agree with the RBT suggestion that this is an essential ingredient for an effective Advisory Board.

Having members chosen for their individual skills and expertise may also assist in reducing any competitive rivalries that may impede effective consultation involving sectoral representation. In that regard, if the Board were to consult with individuals or representatives on a one-on-one rather than a group basis, it may also provide more effective outcomes from that consultation than the existing, group based, approach.

Member obligations

The legislation should require Board members to attend to their obligations skilfully and diligently - perhaps using wording analogous to that applying to company directors under sec.232 of the Corporations Law. Such obligations would include regular attendance at, and participation in, Board meetings. The Board must meet regularly enough to effectively undertake its role, without meeting so often that it becomes counter-productive, particularly bearing in mind the other potential calls on the time of private sector members. It is suggested that requiring the Board to meet 6 times per annum, with power in the Chair to convene additional meetings as required, probably strikes an appropriate balance between competing needs.

The Chair should be elected for a two-year term by the private sector members.

The quorum for Board meetings would be five members, with decisions taken by a majority vote of those members present and voting. In appropriate circumstances, Board meetings could be conducted through the use of appropriate technology, though at least four of the Board meetings each year would be required to be conducted with a quorum of members present in person.

Board meetings would ordinarily be held in private, but would be open to the public if the Chair so directs. The Board would be required to table annually a report to Parliament on its activities each year, but would be permitted to edit the report to take account of confidentiality considerations.

It would be appropriate, indeed essential, to impose strict ethical obligations on Board members – particularly in relation to a Board members’ access to confidential tax information, and prevention of conflicts of interest. It would be essential to ensure that taxpayers and the general public could be confident that members of the Board would not obtain an unfair advantage from their position, and could not access confidential tax information for any purpose other than legitimate Board business.

As a result, failure to disclose a significant conflict of interest should be a ground for removal of a Board member, without prejudice to any other liability to which they might be subject.

In addition, any private sector member would be precluded from representing any party – whether or not for compensation – in relation to any matter before the Board, ATO or Treasury, or in any AAT or Court proceeding with respect to such matters. Private sector members would generally not be precluded from sharing in compensation from representation of clients by a third party. This would only arise if the matter was one in which the private member had been personally and substantially involved. These obligations and restrictions would apply to private sector members for 12 months following termination of their appointment.

Private sector members would be required to file a financial disclosure report annually and upon termination of their appointment.

There should be no power to waive these ethical obligations.

If the public is to have increased confidence in an Advisory Board, there must be openness and transparency in the Board’s operations – within the constraints of taxpayer and organizational confidentiality. At the same time, there may be occasions on which the Board considers it would like to make confidential recommendations to the Treasurer.

Accordingly, the approach should generally be to release all recommendations of the Board to public scrutiny. However, there should be scope to withhold some information from public view, to ensure this does not effectively gag the Board altogether.

Possible sunset clause

Finally, the Government may consider that establishing an Advisory Board is entering into relatively uncharted and potentially dangerous waters. There may be an additional level of comfort for the Government in establishing the Board if the legislation imposed a sunset clause. Such a clause could call for a thorough review of the Board and its processes, and a requirement that Parliament expressly seek continuation of a Board after, say, a period of three years.

5. Conclusion

This paper presents a strong case for the introduction of an Advisory Board to support the reforms proposed by the RBT concerning a forward work program for business taxation, and the establishment of integrated teams (incorporating officials from Treasury, ATO and OPC).

We see the prime functions of an Advisory Board to be:

  • To provide recommendations to the Treasurer on priorities and issues in relation to tax policy and tax legislation (where necessary on a confidential basis); and
  • To work with the integrated teams to ensure that the process of moving from tax policy to tax law includes effective and meaningful consultation with the private sector at the most appropriate time.

These prime functions would not rule out the Board being able to present advice and recommendations on other matters that fell within the purview of tax policy and administration.

The model we have set out for the Advisory Board is broader than that envisaged by the RBT in the following areas:

  • The Board should have a policy role, insofar as the Board would be able to provide comment to the Treasurer on the forward work program, and suggest policy issues to be included on that program;
  • The Board should be able to advise on tax matters beyond the scope of business taxation alone;
  • Subject to the Treasurer’s approval, the Board should be able to interact with the integrated teams in any way it felt appropriate to ensure smooth and effective tax policy and tax administration. This could include consulting with private sector groups, establishing specialist cells to assist in critiquing new tax legislation and the like.

In relation to the appointment and structure of the Board we recommend the following:

  • The ATO Board would comprise 10 members, appointed by the Treasurer with the consent of Cabinet;
  • Membership would include the Commissioner of Taxation, the Head of the Treasury (or their designate); a representative from the Office of Parliamentary Counsel; the senior tax advisor from the Treasurer’s office (or Assistant Treasurer’s office); and six ‘private sector’ members;
  • A majority, but not all, private sector members would be appointed for their expertise in federal taxation laws. Members would not be chosen as representatives of particular bodies or groups, but rather on the basis of their skill or expertise in a relevant area;
  • Private sector members would be appointed on the basis of merit alone, without regard to any political affiliation or views held or expressed. The appointment of a private sector member would be terminable only for a demonstrated serious breach of their duties or obligations;
  • Private sector members would be subject to stringent ethical obligations (in particular to avoid real or apparent conflicts of interest, to observe confidentiality obligations, and to access tax-related information only for proper purposes related directly to their work on the Board);
  • The term of a private member’s appointment would be for a period of five years from the date of appointment, with members eligible to be re-appointed once only for a second five-year term (with some possible variation for the initial appointments);
  • Private sector members would be remunerated at an appropriate rate, with a loading paid to the Chair of the Board; and
  • The Board would be required to meet not less than six times per annum, but could meet more often as required by the Chair (who would be elected by the private sector members for a two-year term). The Board would be required to table annually a report to Parliament on its activities each year.

We consider that such a Board, if properly funded, would go a long way to overcoming some of the problems with the existing consultative arrangements. It would play a key role in establishing a higher degree of trust in relations between taxpayers and the revenue authorities. It would also ensure the efficient use of public and private sector resources to deliver better tax policy and tax law for the benefit of the entire community.

Appendix 1: Overseas experience

A number of overseas jurisdictions have created bodies to oversee their Revenue authorities. This Appendix reports in detail on the US experience, as well as providing some information in respect of other jurisdictions.

The American Internal Revenue Service Restructuring and Reform Act 1998 came into effect on 22 July 1998. The passage of the Act followed a year-long investigation by the National Commission on the Restructuring of the Internal Revenue Service, with the Act receiving almost unanimous support in the House of Representatives and Senate.

The Act appears to have been a response to a perception that the IRS was in a state of crisis, and required fundamental surgery to regain public confidence. The National Commission’s 1997 Report was strongly critical of the IRS’ management weaknesses, querying particularly "whether tax lawyers should be running an organization as complex as the IRS". The existing IRS Management Board and the Commissioner’s Advisory Panel were seen as inadequate to achieve this.

Under the US Act, the key elements of the Oversight Board are:

Appointment and qualifications of US Board members

The Senate version of the Restructuring Act creates an Oversight Board of 9 members, of whom 6 are titled "private-life" members from the private sector, appointed to what are effectively part-time positions by the President on the advice and consent of the Senate and ordinarily treated, for purposes of ethical obligations, as "special government employees". The predominance of private sector members on the Board may be seen as a step towards "privatization" of the Board and thus ultimately the IRS. The other members of the Board are the Secretary of the Treasury (or their designate), a representative of an organization representing a substantial number of IRS employees, and the IRS Commissioner.

Under the Act, the private-life members must be appointed "without regard to political affiliation", based on their expertise in one or more of:

  • Management of large service organizations;
  • Customer service;
  • The federal tax laws, including administration and compliance;
  • Information technology;
  • Organization development; and
  • The needs and concerns of taxpayers and small business.

It is clear from the areas of desirable expertise listed that taxation expertise is only one of the areas sought – considerable emphasis is placed on general management and related expertise. That is, the emphasis is on management of the IRS as a large, complex organization.

It is seen as important to ensure that private sector members’ access to confidential tax-related information be carefully limited. Accordingly, Board members will only receive confidential return information in reports from the Treasury Inspector General for Tax Administration or the Commissioner, and this information will not include taxpayer or employer identification data.

Ethical standards required of US Board members

All Board members are required to avoid real or apparent conflicts of interest. The scope of the requirements varies according to the "category" of employment, but for present purposes the most interesting are those imposed on private-life members. In general, private-life members will be "special government employees" (that is, persons appointed to temporary duties on a full-time or intermittent basis for a period not to exceed 130 days in any period of 365 consecutive days).

In addition to the usual restrictions, such employees cannot without Presidential waiver, represent any party in relation to any matter:

  • in relation to a specific party in which the Board member has had substantial personal participation, or – if they have served more than 60 days during the preceding year – any matter pending in the agency in which they are serving; or
  • before the Board or the IRS, any tax-related matter before the Treasury Department, or any court proceeding concerning such matters.

These restrictions will generally continue to apply for one year after the private life member’s employment ceases.

The efficacy of these "conflict of interest" provisions may prove crucial to the Board’s success – any suggestion that IRS activities could be "manipulated" by the private sector members would seriously undermine the Board’s credibility and effectiveness.

All Board members above specified pay grades are generally also required to file a public financial disclosure report annually and on termination of employment.

A private-life member is appointed for five years, and cannot serve more than two terms. The chair of the Board must be a private-life member, elected by the Board for a two-year term. Members are paid certain expenses, plus remuneration of US$30,000 pa, with the Chair receiving US$50,000 pa. The President is able to remove such members from the Board at will.

The role and powers of the US Board

The role of the Board is one of "governance rather than management" - to oversee the IRS in the "administration, management, conduct, direction, and supervision of the execution and application of the internal revenue laws or related statutes…". The Board is expressly precluded from exercising any responsibility or authority in relation to the development or formulation of the Federal tax policy, specific law enforcement activities (such as compliance activities including criminal investigations, examinations and collection activities), or specific activities of the IRS delegated to IRS employees pursuant to delegation orders (such as procurement and selection of successful tenderers).

The Oversight Board does not have power to operate as a replacement for IRS line managers, or to become involved in the day-to-day management of the IRS. Accordingly, it does not have legal authority to direct the Commissioner to take particular action in specific cases - its function is rather the development and oversight of the agency’s strategic plans and analogous functions.

In addition to its general role, the Board is given specific responsibility to:

  • review and approve strategic plans of the IRS;
  • review the operational functions of the IRS (including plans for modernization, and outsourcing, training and education);
  • provide for review of the selection and evaluation of the Commissioner of the IRS (who reports to the Secretary of the Treasury); and compensation of senior managers;
  • review and approve the Commissioner’s plans for major reorganization of the IRS;
  • review and approve the IRS annual budget request prepared by the Commissioner, and ensure that it supports the IRS’s strategic plans; and
  • review operations of the IRS to ensure the proper treatment of taxpayers.

The Board is required to:

  • meet regularly – as determined by the Chair, but at least quarterly. The quorum required for the Board to conduct business is a majority of members (5), with decisions by majority of those present and voting. Board meetings can be private, and are not subject to public disclosure laws; and
  • provide annually to the President and various House and Senate Committees a report on its work. In addition, the Board must report if the IRS does not address problems identified by the Board.

Overview of the US Board

The Act reflects the view that the Board should be "more than just advisory" - a policy-level body establishing and monitoring the achievement of objectives, but not intended to replace line-management within the IRS, nor be concerned with day to day decision-making within the IRS. In particular, the Board is expressly denied authority to deal with individual cases.

It is too early to judge the success or failure of the Oversight Board, though it seems to have met the expectations of many commentators. Nevertheless, there are doubters. Morrison, for example, argues that "aside from the question of whether it makes sense to allow civilians to tell federal officials how to do their jobs", it is unclear how the Board will fit between the IRS and Treasury, and in particular that the boundaries between areas of "tax policy" and individual cases, which the Board is prohibited from dealing with, and its main area of responsibility (maintaining oversight of administration and management of the IRS in the administration of the tax laws) are porous and unclear. He goes on, "the lines between where it can and cannot act are ill-defined" and there will be "many areas of great significance where its role is uncertain."

A point stressed by commentators in relation to the Board was the importance of the criteria for membership and the selection process in protecting the Board’s credibility by avoiding any suggestion that membership could be seen as a "political plum" for government appointees. In addition, due account needs to be given to the risks posed by appointment of private sector persons (particularly tax professionals) to positions of power in relation to the revenue authority.

Other jurisdictions

A number of other jurisdictions have developed structures incorporating an "oversight" Board or its equivalent.

The Canadian government began in 1996 a process of restructuring its tax administration aimed at establishing a Canada Customs and Revenue Agency with a Board including the Commissioner, but with a majority of the15 members directors from the private sector and appointed by the Provinces.

Under the proposed legislation, the Board cannot give the Commissioner directions in relation to delegated powers or functions or the administration or enforcement of the legislation, but the Minister may intervene in management decisions where the decision involves public policy issues or might materially affect public finance.

In Holland, the Corporate Board of the Dutch Tax and Customs Administration – with the Director-General as a member – controls policy-making and the formulation of general policy, with day-to-day matters being dealt with at the local divisional level.

In New Zealand, there is a much more consultation on tax policy and tax legislation, and a structured approach that is applied to all tax changes in a uniform and consistent way. There is no oversight Board as such, but there is much more consultation in tax policy and law development. We intend to look at this structured approach in a separate submission.

Appendix 2: The ATO Management Board

The ATO has moved to establish a Commissioner’s Advisory Panel, and a Management Board to provide "key policy direction". The ATO Management Board’s role is to:

  • Set strategic directions for the ATO;
  • Approve the key modernization and other initiative investments;
  • Establish high level measure of performance;
  • Establish "Board Policy";
  • Monitor achievement; and
  • Initiate corrective action as required.

Membership of the Board is "internal", with membership comprising the Commissioner and Second Commissioners, three National Program Managers, two Deputy Commissioners and a Public Sector Union representative.

The Board is "assisted" by subcommittees on Audits and Security, HRM, Finance and Resources, and Business Systems, and its decisions "generally reflect high level corporate policy statements". Because the Management Board membership is wholly "internal", there could be scope for an external body to be set up in order to provide a greater range of inputs to the ATO.

Whether these internal bodies have proven effective is an issue that would require detailed investigation and analysis of results achieved and perspectives both within and outside the ATO. We have not addressed this issue in the paper, and do not consider it a priority over establishing a separate Advisory Board.