The ATO has announced that it is developing a “Reportable Tax Position’” schedule to the 2012 company tax return. According to the ATO a reportable tax position is a position that has not been otherwise adequately disclosed to the Commissioner and is any of the following:
- A material position that is ‘not more likely to be correct than incorrect’
- A position in respect of which uncertainty about taxes payable or recoverable is recognized and/or disclosed in the taxpayer’s or a related party’s financial statements
- A position in respect of a reportable transaction.
A reportable transaction is defined as a transaction where more than $200 million of income is recognized but only 50% of it is treated as assessable income and there is a change to the effective ownership or control of an entity (or entities), business (businesses) or asset (or assets).
The proposed schedule resembles the financial statement requirements contained in FIN 48 (Accounting for uncertainty in income taxes) introduced in the United States in 2006. The most significant difference between the U.S position and RTP is that the former requires inclusion of specified details of uncertain positions in tax in the financial statement itself. This could be improved disclosure to shareholders as well as to the tax authorities. By contrast, RTP is only for the eyes of the ATO.
According to FIN 48 an enterprise is obliged to recognize the ‘financial statement effects’ of a tax position when it more likely that not, based on the technical merits, that the position will be sustained upon examination by authorities will full knowledge of the surrounding facts. The term ‘more likely than not’ means a likelihood of more than 50 %. There is a lot of probability calculation to be made by corporate taxpayers?
Will the Reportable tax position schedule prove to be a roadmap to positions of tax uncertainty in the minds of the taxpayers? Will disclosure of taxpayer’s position on a tax issue have a good chance of being considered as a ‘reasonably arguable position’?