In Australia, controversies under taxation law are regular and can arise on a variety of levels – federal, state or territory – concerning a myriad of taxes. Typically, disputes arise out of either a taxation assessment by the Australian Taxation Office (ATO) or a State authority which is litigated by the assessed party to contest the proposed tax liability, or out of the discovery by an authority that an amount due under a taxation or several taxation liabilities has not been paid and the liable party contests the imposition of the liability as invalid.

However, these disputes may touch on a variety of areas within law itself as each tax necessarily has regard to a specific subject matter. Thus, the instruments of taxation law hold potential to cross into many fields of expertise. Nevertheless, Part IVC of the Taxation Administration Act 1953 (Cth) demonstrates how taxpayers may object to liabilities imposed with regard to the substantive matter of the tax, but not the process by which taxation occurs.

There are several taxes that often give rise to controversies. However, the uniting thread in Australian taxation law is often the validity of the administrative application of those taxes and the subsequent imposition of a liability that is contested. This may occur for a plurality of reasons, including:

• a contested amount of tax imposed by an administrative authority;
• a challenge to the constitutional validity of the tax;
• contested attributions of a liability to an entity, or to which entities within a related group liability can be attributed; or
• whether the attempt to assess a liability was a genuine and accurate endeavour.

Some taxes stand out among others as particularly pernicious. The realm of income tax incorporates such taxes as capital gains tax and superannuation (similar to a 401(k)). The substantive matter of this area of taxation law is expansive. Disputes can arise from all the aforementioned areas and others, including whether certain exemptions apply, distinctions between types of income such as revenue or capital, and the determination of effective and legal minimisation in accordance with statute, rulings and common law. 

Tax controversies may be mitigated by ensuring compliance with tax obligations. From the taxpayer’s perspective, the best opportunity to minimise tax controversies is engaging tax professionals to ensure that all liabilities are met in a timely manner. Where there is confusion about a particular matter, or in a circumstance where the legislation and administrative materials do not clearly apply, confirmation can be sought from the ATO or State authority through letters and private rulings from the Commissioner of Taxation. These allow for greater access to accurate information and clarification during the front-end stages of tax planning and advisory services, and in many circumstances may result in the avoidance of a tax controversy before an authority intervenes in the matter.

Private ruling applications from the ATO are judgments by the Commissioner that relate to a specific set of legal circumstances on a matter of taxation. These applications can be made at any time without the need for a tax controversy to arise. Typically, the ATO will reply with a specific ruling 28 days after delivering the relevant materials and information. The response will detail the conclusion that is reached by the authority, the reasoning behind the decision, and how long the decision may be valid for. Crucially, the private ruling only applies to the applicant for a certain period of time and thus cannot be regarded as a formal public ruling nor a binding precedent in the future, particularly when aiming to renew the decision or re-confirm after a change in the law.

Australia has comprehensively implemented BEPS recommendations across Actions 2, 5, 6, 8–10, 13, 14 and 15, including hybrid mismatch rules, country-by-country reporting, and Pillar Two’s 15% global minimum tax for multinational enterprises (MNEs) with revenue exceeding EUR750 million. The Multilateral Instrument, in force from January 2019, has modified 35 of Australia’s tax treaties, introducing the principal purpose test, anti-avoidance provisions and mandatory binding arbitration, and improving both treaty integrity and dispute resolution.

These measures have had a dual impact on tax controversies. On one hand, enhanced frameworks and improved compliance tools have strengthened Australia’s tax system, with gross tax performance improving from 91% in 2010–11 to 93.5% in 2020–21. On the other hand, implementation has intensified ATO scrutiny of multinationals. The Tax Avoidance Taskforce, established in 2016 and funded through to 2028, has raised over AUD30 billion in liabilities since inception.

The boundary between legitimate tax minimisation and avoidance has narrowed considerably, generating increasingly complex disputes as community expectations around multinationals paying their “fair share” continue to grow.

Additional tax assessments may be deemed necessary where a tribunal or other administrative authority has remitted a matter to the Commissioner or relevant tax authority for reconsideration. The ability to contest tax assessments is outlined in 4.2 Procedure for Judicial Tax Litigation.

Moreover, taxation authorities insist that a party challenging an assessment pay the tax as if the assessment was correct. If the assessment is found to be objectionable, the amount may be remitted to the taxpayer in their tax return. Where the amount is not paid, corporations or individuals may face penalties of several units and a hefty general interest charge per day on the amount considered payable.

Tax audits are not necessarily likely for the average individual. However, the greater degree of risk that an individual or company is imputed to pose due to their nature as a high-income earner will increase the odds of an audit. To demonstrate this, out of 127 audits in FY2024–2025, 40 related to taxpayers in the top 100 of the Australian population and 62 related to the top 1,000.

The major rules regarding tax audits are that the taxation authority has near carte blanche to demand records from any time or almost any place. While it is a transparent process (the authority will tell you why they are conducting an audit), they also have discretion to broaden its scope. Ultimately, Australian authorities aim for a co-operative approach to minimise costs and disruption.

Nevertheless, authorities employ formal powers to enforce the audit and gather necessary information. Two of these powers are the notice powers and the access powers. The notice powers require information to be handed over as well as for the taxpayer to provide evidence or specific documentation. The access powers allow the authority to conduct investigations with full access to documentation, evidence, records, premises and taxpayer communications.

A tax audit from a relevant authority such as the ATO or Revenue NSW will typically occur as a result of a review where a more in-depth examination of source material is needed. Alternatively, an audit may arise from the authority’s own investigations where they suspect fraud or tax evasion or that a transaction is high risk. There is no set limit for the duration of an audit, though the authority has the incentive to complete the audit as soon as practicable. Therefore, depending on the complexity of the matter and the substance behind the matter, the audit may take a few weeks for simple matters or closer to 18 months for complex matters.

In Australia, where the statutory limitation period typically ranges from around four to seven years, an authority may be prevented from coming to a new conclusion from a completed audit. However, the ability to conduct an audit by an authority is not limited. As such, where there is substantial evidence likely demonstrating high-risk behaviour, a taxation authority may conduct an audit with regard to offences ordinarily barred by the statute of limitations.

The procedure for a tax audit begins with a phone call from the taxation authority to discuss:

• why the audit is occurring;
• the scope that the authority will limit itself to in the examination of source material;
• all relevant information and materials required;
• the estimate of the timeframe for the audit; and
• if necessary, the setting-up of a meeting, which may occur on the auditee’s premises or, increasingly, via audio-visual link.

Subsequently, the authority will send through relevant materials confirming that the audit is under way, and that which was discussed. Other factors may be made known, such as the research done by the authority to ascertain the risk, various methods by which information may be provided, including the computer-assisted verification system, and a plan for the management of the audit.

Special areas of attention in tax audits include:

• ensuring that all information is gathered in the required manner and delivered on time;
• understanding the full scope of the tax audit and the areas of focus;
• understanding the taxation authority’s powers such as the access and notice powers and their consequences; and
• identifying items of information that are not susceptible to being audited.

In recent years, taxation authorities such as the ATO have increased their focus on international tax issues with the rise in Australian taxpayers conducting international dealings and holding investments overseas, as well as international entities holding investments in Australia. As a result, powers at the federal level allow for the ATO to gather information about offshore dealings through Australian entities, exchanging information with authorities in other jurisdictions as part of mutual assistance procedures, information exchange agreements and double tax treaties, and issuing notices overseas. Additionally, the domestic powers of notice and access may be used to retrieve offshore information where an entity in Australia has control over documentation offshore.

The effects of this can be seen through various cross-border initiatives as Australia is a party to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, the Joint International Tax Shelter Information Centre, and the Organisation for Economic Co-operation and Development (OECD).

Strategic points to consider during tax audits are:

• co-operation with the relevant authorities;
• taking up dispute resolution as a faster, cheaper and more flexible alternative to litigation;
• identifying the focus of the audit and what materials the authority does not have access to; and
• ensuring compliance with requirements for the gathering of information by the authority.

Different to private ruling applications, the federal administrative claim phase in Australia primarily concerns Part IVC of the Taxation Administration Act 1953 (Cth) (TAA53). The legislation provides for a system by which the taxpayer may object to a tax decision by the ATO. As such, the “taxation objection” is reviewed by the Commissioner of Federal Taxation on the subject of a “taxation decision” as defined under Section 14ZQ of TAA53.

For a federal taxation objection, the Commissioner is obliged to review the decision and allow the objection in whole or in part, or dismiss the objection. The requirements for an objection as noted in TAA53 Section 14ZU are that it is lodged in an approved form, within the time limitations, and states the grounds of the objection in full detail. It is also a requirement to pay off the disputed tax. This may protect taxpayers from paying interest accrued daily in the event that their objection is not upheld. Furthermore, alternatives to objections such as reassessments are encouraged.

State objections are broadly similar. The difference is that time limits are shorter and approved forms are more specific as a result of particular state taxes.

With specific regard to the time limit for lodging federal objections, different periods may apply as per Section 14ZW. For income tax assessment objections, the time limit is two years for individuals. For more complex matters, including for non-individual entities, four years is the limit. Moreover, the objection must be received by the Commissioner within the time limit. Extensions of time may also be granted.

The time limit for state objections is narrower. For example. in New South Wales (NSW), the time limit is 60 days. However, if submitted within the time limit and 90 days have passed without being reviewed, the matter may be referred externally to the NSW Civil Administrations Tribunal or elevated to a court.

After receiving an unsatisfactory result from a federal taxation objection as outlined in 3.1 Administrative Claim Phase, the next stage is an appeal to the Administrative Review Tribunal on a review of the decision or application of law, or an appeal to the Federal Court of Australia on matters of law.

For states, external reviews may be conducted by the state administrative tribunal and further referred to a state court. The option or choice of forum is significant as a court and a tribunal may not necessarily come to the same conclusion as the court is constrained to findings of legal error. Further, factors such as cost, delay, available information and judicial power may be pertinent considerations.

Tribunals

An administrative tribunal is placed in the position of an administrative authority with executive power such as the Commissioner of Taxation, and thus assumes the position’s executive and discretionary power. Following from an objection, an application for review may be made. Similarly to an objection, an application for review is made in writing within specified time limits.

Courts

A taxation authority’s decision regarding an objection may also be reviewed in the courts. At the federal level, an appeal against objection decisions may be brought directly to the Federal Court within 60 days of the decision in accordance with Section 14ZZN of TAA53.

At the state level, it is more typical to go through the respective administrative tribunal at first instance.

Tribunals

The process for reviews of objection decisions in tribunals begins with the application for review. To apply for a review, the applicant must meet requirements including:

• submitting a form or application in writing;
• applying within the typical time limit of 28 days from the decision;
• paying the fees for the tribunal; and
• dissatisfaction with the objection decision – not a purpose within the tribunal’s ordinary jurisdiction.

Upon a successful application, the matter may be reviewed before the tribunal. This requires a statement of details and argument within 60 days after the notice of application. Following this, the tribunal may be open to a hearing where, in the ordinary case, the taxpayer is to begin the proceedings with a burden of proof to rebut the presumption in favour of the Australian authority’s tax decision. This is done by demonstrating, for example, the correct amount that should be taxed on the balance of probabilities.

Subsequently, the typical hearing process is as follows:

• the taxpayer’s case is opened with an oral explanation;
• the Commissioner or relevant taxation authority may also be asked to open their case before evidence;
• the applicant presents written and oral evidence;
• the respondent may cross-examine witnesses and present their evidence;
• the applicant may cross-examine the respondent’s witnesses; and
• finally, submissions are made to the tribunal.

However, this is a loose recount of the procedure and may be subject to change upon varying circumstances between taxation authorities and individuals. In making its decision, a tribunal may exercise the powers and discretion of the relevant taxation authority as the tribunal reviews the process with which the authority concluded its assessment. Consequently, the authority is obligated to give effect to a tribunal’s decision within 60 days or be placed under judicial review by a court.

Courts – Original Jurisdiction

A tax dispute arrives at a court either at first instance to review an objection decision or from an administrative tribunal. For first-instance matters, a notice of appeal must be lodged within 60 days after receiving the notice of the objection decision.

For “appeals” from a tribunal to courts, the time limit for a notice of appeal is only 28 days from receiving the tribunal decision. Moreover, the notice of appeal requires specification of:

• the outcome of the decision sought to be varied;
• a proposed variation or relief from that outcome;
• the relevant questions of law for the court to determine;
• findings of fact for the court to make; and
• the grounds relied upon for the “appeal”.

The process for a court hearing at first instance is similar to that of a tribunal. Additionally, the presiding judicial officer has discretion over how the proceedings are conducted.

For an “appeal” from a tribunal, the process is more meticulous than a first-instance hearing. This is because the purpose of the proceedings is confined to the determination of questions of law and findings of fact.

Courts – On Appeal

Proceedings in an appellate court are not necessarily confined to questions of law, except as so limited at first instance. Instead, the appellate court may consider inferences and primary facts at first instance. However, the appellate court may take into account discretionary judgments at first instance, which are generally not to be interfered with unless beyond a satisfactory and reasonable judgment such as a mistake of law or fact.

The orders made by the appellate court have wide jurisdiction to vary, reverse or affirm the original judgment. An example of a common order made by an appellate court upon a successful appeal against the taxation authority may be the remittance of the objection decision back to the taxation authority for re-examination.

Orders made on appeal from a tribunal may similarly be wide – affirmation, reversal, variation. This includes the option for an appellate court to remit the matter for rehearing by a tribunal which may be differently constituted.

Appeals to the High Court require an application for special leave. 

Costs may also be rewarded for the successful party.

Tribunals

In a tribunal hearing, the rules of evidence are not binding in their decision but may still be applied to increase the likelihood of a persuasive and inerrant use of evidence. For example, due to the informal capacity of a tribunal, unsworn evidence may be produced through questioning by the tribunal. However, evidence that is subject to cross-examination and other forms of testing is likely to be more persuasive to a tribunal.

With modern advances in technology, evidence by telephone or video link may become more common. In this case, the particular relevance of the evidence is balanced by the tribunal with the ability of the evidence to be tested by sufficient cross-examination.

Courts

Owing to the nature of how tax disputes – primarily assessment disputes – arise, the need for discovery is lessened. It may be assumed that each party holds the relevant facts and evidence of the dispute to an appropriate level, having been through an objection decision and potentially a tribunal hearing.

The primary form of written evidence in tax litigation is by affidavit. Witnesses are commonly used to give either a detailed clarification or an expert opinion on matters of fact. There will typically be a deadline by which affidavits are to be submitted. This allows for each party to examine whether cross-examination of a deponent may be necessary.

Tribunals

See 4.2 Procedure for Judicial Tax Litigation.

Courts

Similarly to tribunals, the taxpayer has the burden of proof to demonstrate that the assumption to favour the taxation authority’s decision or assessment is invalid by providing the correct amount that is liable to be taxed.

Strategic options in judicial tax litigation include the timing of the introduction of documents and evidence, the ability to resolve the matter through deals or offers of compromise with the relevant tax authority, and the use of expert evidence.

Expert evidence in particular is useful to establish technical or specialist knowledge favourable to one’s case. Expert evidence is viewed differently from other forms of evidence such as witness statements and affidavits. The role of an expert is to provide an independent professional judgement advising the court on how particular factors are to be interpreted. For example, in Australia the mining industry is a technical and complex field for taxation which benefits from the strategic use of expert evidence to demonstrate matters of fact in a specialised area.

An expert may be used to provide:

• educated opinions adduced from facts;
• meanings of technical concepts; and
• observations requiring expert knowledge.

The increase in international treaties and obligations as seen in 2.5 Impact of Rules Concerning Cross-Border Exchanges of Information and Mutual Assistance Between Tax Authorities on Tax Audits has led to an uptick in consideration of international sources in Australian taxation jurisprudence. Especially where issues of construction arise with regard to treaties, OECD models and, to a lesser extent, foreign case law are considered. Academic articles also prove a useful tool in appreciating certain legal circumstances regarding international taxation law. However, depending on the judicial officer presiding, their utility in court may vary.

The system for appeals is outlined below.

Having received an unsatisfactory objection decision, a taxpayer may appeal to an administrative tribunal or the Federal Court (or Supreme Court for state taxes) at first instance.

From a tribunal, an appeal may be made to the Federal Court (or Supreme Court for state taxes) on a question of law.

From the Federal Court, at first instance or on appeal, an appeal may be made to the Full Court of the Federal Court. In the case of state taxes, the appeal is made to the relevant state’s Court of Appeal.

Subsequently, an appeal may be made to the High Court provided that an application for special leave to appeal has been successfully made.

Additional information regarding appeals is as follows.

• An appeal made to a court does not confer the discretionary abilities of the Commissioner onto the court as it does to a tribunal. An appeal to a court is to determine a question of law.
• Owing to the nature of the time limit of an appeal – typically either 28 days or 60 days – an appeal can usually only be made once to a particular court or authority within that time period.

See 4.2 Procedure for Judicial Tax Litigation for a brief outline of the appeals process.

For state litigation, the appeals process works through their respective courts and tribunals in a similar way.

The constitution of a tribunal is determined by the President of the tribunal, including how many tribunal members preside. A party to the proceeding may write to a tribunal to suggest that a tribunal with knowledge and expertise of the specific area of law be constituted for the matter. This request is to be lodged with a tribunal at the time that parties are to present a hearing certificate, with reasoning to support this suggestion.

Tribunal decisions are largely made with an appreciation of the formal rules of court and of evidence; however, they may deviate where necessary, as a tribunal is not bound by law as is a judicial body. Instead, the tribunal acts in the position of the Commissioner or relevant taxation authority to decide an equitable and reasonable resolution, including remittance to the taxation authority for reconsideration, as noted in 4.2 Procedure for Judicial Tax Litigation. 

In a similar way, the Chief Justice of a court may designate the appropriate resources and judicial officers to each matter. These decisions are bound by the law. The purpose of the court in taxation litigation is to determine a question of law, as noted in 4.2 Procedure for Judicial Tax Litigation. 

Where disputes cannot be resolved directly with the relevant taxation authority, the processes of alternative dispute resolution (ADR) such as mediation and arbitration are considered a more cost-effective and faster alternative than formal administrative claims or judicial litigation. As a result, authorities such as the ATO are open to exploring these options. While the authority may be petitioned to seek resolutions through these opportunities, ultimately the decision to do so rests with the authority.

The common modes of ADR are mediation, arbitration and conciliation.

Conciliation is the use of one or more professional practitioners who aim to guide constructive discussion towards a compromise that can be agreed upon by both parties.

Arbitration is the use of one or more professional practitioners to act informally in a quasi-judicial capacity where both parties agree that the arbitrator’s decision is binding and enforceable through an arbitration award.

Mediation is the use of an independent third party to objectively mediate, regulate or effectively manage a discussion with the aim of a resolution without providing an opinion of their own.

As such, these methods may be more beneficial than ordinary means of dispute resolution and may lead to a less expensive and faster compromise.

The process of ADR may be initiated either by an agreement by the parties on their own or by a mandate from the court. In the former case, the settlement of tax disputes by ADR is often proposed by the taxpayer and accepted by the tax authority at its discretion. If the tax authority has agreed to go through an ADR process, there must be an agreement on which mode of ADR will be used and that the decision of the ADR is enforceable – that is, each party will keep to the obligations arising from it. In this way, the parties may reach a compromise through mediation or conciliation, or have an arbitrator determine a suitable path forward that is legally binding.

The result of an ADR method varies in degrees by the extent of the determination that the independent third-party mediator, conciliator or arbitrator is afforded. As a result, the determination may lead to a more party-led compromise accepting the circumstances of a taxpayer and at the discretion of the authority, allowing a reduction in the assessed amount payable, interest or penalties. Alternatively, the reduction may come about as a decision made more by the arbitrator or guided by the conciliator.

The processes of private ruling applications or letters of comfort serve to avoid disputes before they arise and seek confirmation on the legality of a taxation practice or discretion ex gratia to waive an obligation. This is discussed further in 1.3 Avoidance of Tax Controversies.

These approaches may be effective with comprehensive evidence and demonstration of a taxpayer’s contribution to Australia or a particular state. Nevertheless, the decision still rests with the Commissioner or relevant authority at their discretion. Without the same rules of precedents and the unique powers conferred on the authority, these rulings may not be predictable and could lead to further disputes.

ADR may be used for a variety of different matters depending on the taxpayer, the nature of the claim, the value of the claim and the type of tax involved. Typically, this will arise from a disputed tax assessment, and ADR is chosen as an efficient and versatile option to deal with lower-cost matters in a quicker period. However, that does not preclude the use of ADR from more complex matters, although it may prolong the dispute litigation if an unsatisfactory result is reached.

Depending on the method of ADR used, the pathways to disputing the result differ from non-binding renegotiation where mediation or conciliation ends in the room between the parties to binding arbitral awards.

The process for appealing arbitration proceedings is more difficult as the grounds of appeal typically rely on a procedural issue as opposed to a reconsideration of the issues in the case. Moreover, this comes with the strict time limit of 28 days to appeal. Appeals to courts on specific grounds of a legal issue may also be difficult where both parties agree on the issue or there is procedural unfairness. Renegotiating mediation or conciliation is also unlikely to go over well in a tax dispute with an authority.

ADR provides an opportunity for taxation authorities to pursue a co-operative approach where indirect or international tax is in dispute with an Australian entity. Ultimately, this may lead to a better, discretionary outcome as the process of ADR is less adversarial as a judicial alternative, and propounds a peaceful compromise between the parties. Taxation authorities such as the ATO have a variety of mechanisms to facilitate this co-operative approach, such as the Mutual Agreement Procedure, aiming to relieve double taxation arising from transfer pricing adjustments, or Advance Pricing Agreements, creating a preventative measure through negotiation with authorities as to how transfer pricing and double taxation may operate in future.

The regular methods of ADR still apply as an effective means to resolve disputes, and the preference for necessary arbitration is rising internationally.

There are several purposes of a tax assessment, including assessing the risk concerning an individual or company of tax fraud or evasion, investigating the flow of income through different entities, and identifying any outlying taxation obligations. As such, the employment of these assessments in identifying criminal behaviour or other tax infringements is necessary to ascertain evidence of that behaviour. Typically, an assessment may be made with regard to a specific tax return within a financial year that leads to the suspicion of incorrect payment of tax obligations.

Where taxes are inadvertently not paid as a result of a genuine honest mistake or a misconception about an obligation, the immediate response of the taxation authority is not to hold the behaviour as criminal but rather to walk through the controversy with the party so that the taxpayer may pay what is owed. However, this may incur specific penalties for late obligations as well as interest charges additional to the payment of the full amount owed.

Taxation crimes occur where a taxpayer deliberately avoids taxation through a lack of disclosure, using complex offshore secrecy agreements, or falsely claiming deductions and returns. The first thing is to establish that these acts are deliberate and not by mistake, which is often evident by the means through which the crime is conducted. Subsequently, the matter may be referred to the Director of Public Prosecutions for criminal proceedings.

The core difference between the administrative and criminal processes is the intention behind the failure to pay a taxation obligation.

The first object is to establish whether an assessment or objection decision is legally valid; depending on that, the deliberate non-payment may not be considered criminal behaviour as there was no such tax obligation in the first instance. However, where the assessment is valid and demonstrates evidence towards a criminal act, proceedings to prosecute the offence may ensue.

The second object is to address the administrative infringement or criminal prosecution contingent upon the found-valid assessment. The ability to prove that the behaviour was not a deliberate avoidance of taxation obligations varies in degree by the complexity of the behaviour or the imputed obviousness of the purpose of the behaviour. A relevant authority is only likely to pursue criminal prosecution where it is assured that its case will be accurate and/or the sum of tax payable is substantial. With the recent increase in the criminalisation of tax offences from fraud to promoting tax schemes and underpayment of employees, authorities have demonstrated that it is not just individuals on their own being targeted but individual directors and members who are responsible for the behaviour of large corporations as well.

As mentioned previously, the initiation of a process may begin with the identification of a discrepancy in an assessment or tax return for a particular financial year or a string of financial years. Following this investigation, the relevant taxation authority may contact the taxpayer and seek multiple courses of action: summary penalties, audits, objection decisions, litigation.

After contacting the taxpayer, and depending on the nature of the matter, the proceedings may begin to deal with the issue of infringements beyond simply paying a summary penalty or interest.

Depending on the jurisdiction, the different cases determining the legality of an assessment and the finding of a tax crime or administrative infringement may differ. This is principally as, for federal-level taxation such as income tax (the most common to cause infringements), appeals of objection decisions and matters of an authority’s validity in its actions are typically determined at the Federal Court level or by the Administrative Review Tribunal (at first instance), while criminal matters prosecuted by the Commonwealth Director of Public Prosecutions are often conducted through the state judicature.

Fine reductions are possible where a taxpayer voluntarily discloses relevant information without the exercise of an authority, through audits or investigations as well as paying the amount upfront. Fines, penalties, interest and other charges are the result of the taxation failure, and by law are valid penalties to enforce. However, a reduction may apply where particular circumstances are met, at the discretion of the authority, though this is not guaranteed.

Authorities such as the ATO are most likely to reduce or waive penalties where there is a valid reason for the mistake by an inadvertent error or other exceptional circumstances. If a voluntary disclosure is made regarding a genuine mistake, a reduction will generally apply, though the voluntary disclosure may still be subject to penalties where it contains false or misleading information. Ultimately, the discretionary reduction may vary in degree with regard to the basis and reasonable grounding of the taxpayer’s case, the accurate and careful conveyance of information, and the level of compliance and co-operation with the authority. Voluntary disclosure before investigation may lead to as much as an 80% reduction in penalties.

To prevent trial, it is possible in some cases to pay the outstanding obligations, including interest and penalties, where an agreement is entered into with the authority. Summary prosecutions are typical enforcements of taxation obligations without the lengthy trial process. Secondly, where the circumstances mentioned in 7.5 Possibility of Fine Reductions are demonstrated, the authority is more likely to explore different options on how best to meet the obligation requirements.

Appeals are possible where contesting the grounds of a legal issue such as an error in law or a procedural issue. This moves through the state judicature (as typical of most criminal proceedings) and may ultimately land in the highest appellate jurisdiction, the High Court.

Transactions and operations in Australia that are in contravention of rules such as the general anti-avoidance rule (GAAR), the specific anti-avoidance rule (SAAR), the multinational anti-avoidance rule (MAAL) and diverted profits tax are typically the recipients of the harshest penalties. While these may lead to more lengthy and consequential proceedings, typically they are resolved by hefty fines and penalties.        

Double taxation agreements (DTAs) are formal bilateral treaties with other countries formed with the aim of preventing double taxation and fiscal evasion. Australia has tax treaties with over 40 other jurisdictions.

The functions of these tax treaties are to:

• reduce overlapping taxation;
• allocate taxation rights;
• provide avenues for dispute resolution; and
• prevent tax evasion.

As a result, they operate to the effect that countries agree how a resident is to be taxed and what ways their taxation may be limited – for example, by residency status. Furthermore, businesses that demonstrate a permanent presence in Australia through business activities and employment may be taxed with regard to Australian law, and only that which is attributable to the DTA jurisdiction may be taxed by that jurisdiction. These treaties are dynamic as changes may be made swiftly through the Multilateral Instrument. 

Australia uses an extension to its GAAR known as the multinational anti-avoidance law. This serves to regulate taxation for multinational enterprises and counters the offshoring of taxation obligations through multinational corporations avoiding a permanent establishment in Australia, whereby their profits would no longer be taxable in Australia.

This initiative has resulted in Australian taxation authorities targeting large corporations within the scope of the law, entering into compliance agreements with the large multinationals. Consequently, this has mitigated some of the erosion of the Australian tax base. Nevertheless, the GAAR and SAAR come into effect only when within the Australian jurisdiction, and some DTAs allow for cross-border conciliation.

International transfer pricing adjustments have been challenged under domestic courts, typically at the federal level as well as the state level. These challenges may occur over the different concepts of transfer pricing, including the assessment of arm’s length involvement, comparing multinationals to independent businesses, record-keeping, the degree to which profit shifting occurs, and risk assessments and audits.

Advance pricing arrangements in Australia are common forms of compliance that facilitate co-operative, predictable and mutually beneficial taxation plans, providing future stability. These typically cover a period of three to five years where cross-border dealings occur between entities. A bilateral arrangement may be held between Australia’s competent authority and the competent authority of a tax treaty partner country to confirm an agreement on the pricing in advance for the transactions.

A multilateral arrangement may also involve the taxpayers in the determination of the pricing arrangement. A unilateral arrangement is held between the taxpayer and the Australian authority (typically the ATO), which means that the other tax treaty partner country is not involved and thus double taxation may arise. Ultimately, this provides an opportunity to avoid disputes or controversies and operate in a predictable and legal manner.

The process for applying for an advance pricing arrangement requires preliminary discussions in the early engagement stage before moving on to the application stage. Subsequently, the application involves the disclosure of all intended and actual conditions and factors that would arise about the pricing agreement, with supporting documentation. The application will then be processed, and after approval will be monitored for compliance. This process may differ in length and detail depending on the type of arrangement and relevant parties.

The most common issues of cross-border litigation are withholding taxes, permanent establishments, and transfer pricing. These are often disputes with high-value claim amounts from large multinational enterprises seeking to expand or trade in the Australian market. While the latter two issues arise occasionally, withholding taxes such as the foreign resident capital gains withholding tax and PAYG withholding tend to be more common.

Litigation can be mitigated by pursuing agreements as mentioned elsewhere in 8. Cross-Border Tax Disputes and ensuring compliance with the requirements of each country’s tax obligations. While companies have been able to mitigate litigation through various agreements and compliance, there is an increasing number of individuals being litigated by Australian authorities such as the Australian Securities and Investments Commission (ASIC) and the ATO with regard to foreign resident obligations.

No information is available on this topic for this jurisdiction.

No information is available on this topic for this jurisdiction.

No information is available on this topic for this jurisdiction.

No information is available on this topic for this jurisdiction.

Part VI of the MLI addresses the process of arbitration, giving countries the right to choose arbitration as the primary form of dispute resolution for covered tax agreements under Article 18. Adopting this Article, the MLI modifies many of Australia’s tax treaties resulting in mandatory binding arbitration. Consequently, arbitration clauses exist within DTAs in line with the MLI. 

While broadly adopting the MLI and modifying many of its tax treaties to do so, Australia’s stance on arbitration still provides a few minor limitations. Primarily, disputes that have a decision from a court or administrative tribunal may not be eligible for arbitration and will cause existing arbitration processes to cease. Secondly, breaches of confidentiality by taxpayers or advisers will terminate the arbitration. Thirdly, disputes regarding Part IVA of ITAA36 or Section 67 of the Fringe Benefits Tax Assessment Act (FBTAA) are excluded from the scope of arbitration. Finally, a treaty partner’s own limitations as per Article 28(2)(a) of the MLI also determine the scope of what matters are eligible for arbitration. 

The first type of arbitration, final offer arbitration (also known as “baseball arbitration”), is the common standard for adversarial common law systems that best simulates judicature without the necessary expense and time, and provides greater confidentiality. This requires each competent authority to present an effective resolution whereby an arbitrator or a panel of arbitrators will determine the most appropriate option in line with treaty obligations and the law of the jurisdiction.

The second type of arbitration, independent opinion arbitration, follows more closely with the civil law method of inquiry, whereby the arbitration panel is provided with all necessary information to formulate a decision. Consequently, the panel uses its expertise, knowledge of the law, and experience in arbitration to determine which resolution would be best for the parties involved. Currently, Japan and Malta are the only jurisdictions to agree to this form of arbitration with Australia.

The application of these types of arbitration provides a definitive and perhaps more timely means of resolution between competent authorities.

As demonstrated in 10.3 Application of Baseball Arbitration or the Independent Opinion Procedure, the MLI has had a significant impact on the increasing rise in international arbitration with respect to Australian CTAs and DTAs. Arbitration may result from a discrepancy in a mutual agreement procedure where a roadblock forms. As such, this becomes a useful tool to resolve unresolved issues.

In some cases, these types of procedures, now entrenched in Australian law by the adoption of the MLI, have been used for some time prior to its internationally recognised incorporation into standard practices regarding DTAs.

For example, some of Australia’s tax treaty partner countries such as Switzerland and Germany agreed to use arbitration as a form of dispute resolution before the MLI was adopted. Nevertheless, Australia’s agreement with the MLI is demonstrated strongly by its acceptance of many provisions without reservation.

The OECD Pillars One and Two involve nexus and profit allocation rules and the global minimum tax. The first pillar targets large multinationals, requiring them to pay tax where their customers and users are located. This establishes tax bases in the markets that taxpayers engage in, not just their places of permanent establishment. Different percentages of profit are allocated between jurisdictions accounting for amounts A and B.

The second pillar demonstrates an agreement on a tax rate of 15% as a minimum across jurisdictions, requiring top-up taxes where that threshold is not reached. Owing to the application of the pillar to groups above EUR750 million in revenue annually, this is more relevant to a greater number of applicable enterprises. 

The method of arbitration may be strategically chosen for its confidential nature. Arbitration decisions are not published or openly acknowledged to the extent of formal judicial litigation, and therefore present a discrete option in managing unresolved disputes.

As a result, the awards and consequences of the arbitration are kept private, demonstrating that it is a special agreement between tax treaty partner countries and the taxpayer. However, where a party fails to comply with arbitration and subsequently ends up in court, the matter may become public.

In international arbitration, confidentiality often looks like an obligation not to disclose any information about proceedings to third parties. This includes:

• names;
• submissions;
• evidence; and
• arbitral awards.

Typically, some parts of the arbitration proceedings may be made public by both parties providing consent that either the award or the decision be publicised. This may especially happen in instances where there is a matter of public interest.

The most common legal instruments to settle cross-border tax disputes are mutual agreement procedures followed by the Multilateral Instrument used to mandate binding arbitration over a DTA. Where a dispute arises because of a discrepancy in international transactions or operations that may incur double taxation obligations such as transfer pricing, Australian jurisdictions follow the mutual agreement procedure.

For transfer pricing matters, where an advance pricing arrangement (as discussed in 8.4 Unilateral/Bilateral Advance Pricing Agreements) was not agreed upon, which would have acted as a preventative measure against tax controversies, the mutual agreement procedure allows for tax treaty partner countries’ competent authorities to reach an agreement on allocating taxable items between jurisdictions. If a solution still cannot be reached, a subsequent arbitration as per the MLI may occur to settle the dispute. 

The involvement of independent professionals is typically imperative. There has been an increase in tax agents providing assistance to taxpayers; however, the use of legally qualified tax professionals can offer additional strategic avenues to resolving a dispute expediently.

ATO and State Taxation Authorities

There are no fees associated with an application for a private ruling or lodging an objection to a decision by a taxation authority.

State Tribunals – NSW

At the state level, using NSW as an example, NCAT’s Administrative and Equal Opportunity Division reviews decisions made by Revenue NSW.

Costs for an administrative review by one tribunal member are as follows:

• standard – NZD127;
• corporate – NZD254; and
• reduced fee – NZD32.

Costs for an administrative review by two or more members are as follows:

• standard - NZD264;
• corporate - NZD528; and
• reduced fee - NZD66.

In other states, the fees for state administrative tribunal review decisions vary widely. The fees below are for taxpayers who are natural persons – for corporations, the fee is doubled:

• Victoria – NZD753.10;
• Queensland – NZD392.40;
• South Australia – NZD90;
• Western Australia – NZD0 (Schedule 7);
• ACT – NZD428; and
• Tasmania – NZD114.60.

Additional charges include service fees, an application for costs after the final decision, application for rehearing, or reopening an order for enforcement reasons.

Federal Tribunal – Administrative Review Tribunal

The fees for an administrative review of an ATO decision are as follows:

• standard - NZD1,148;
• reduced fee - NZD114; and
• small business - NZD616.

Costs for court hearings at state level vary widely between states and at federal level. Typically, first-instance court fees start at roughly NZD10,000 (for a natural person) and increase at an increasing rate with reference to the amount of time, judges, paperwork and evidence. This is not inclusive of legal fees for solicitors and counsel.

Both the taxpayer and tax authority are responsible for their costs. However, the court, upon its final decision, has the jurisdiction to make orders regarding costs. This often results in the successful party being awarded costs, meaning that the opposing party is required to cover the successful party’s and their own costs. Providing a successful outcome, this presents the best situation for an individual taxpayer.

The taxpayer can claim the amount paid in tax from the taxation authority where it is subsequently found that the tax ought not to have been paid. 

Costs of ADR such as mediation and arbitration vary depending on complexity, duration and the independent practitioner. Typically, these methods are regarded as cheaper, more flexible and less formal, but still legally binding.

A few ATO statistics in recent years include the following:

• as of 1 July 2025, 127 audits were in progress;
• in the financial year 2024–25, 369 summary prosecutions for tax offences were conducted, resulting in 343 convictions;
• in the financial year 2024–25, 43 criminal tax prosecutions resulted in 38 convictions; and 
• in the financial year 2024–25, 18 cases were settled.

Statistics vary at the state level. For example, in the financial year 2024–2025, 12,779 compliance investigations were completed in Victoria.

While information concerning active cases and the tax dealt with are not publicly available in detail, the ATO has provided that, out of the 127 audits conducted last year, 40 related to taxpayers in the top 100 high net worth Australians, 116 audits involved income tax, and the audits involved 96 different economic groups.

The party that succeeds most often is the relevant taxation authority, as not only does it have the resources and support of the state but is also unlikely to pursue a matter that did not have a legitimate basis for prosecution or litigation. The most compelling statistic to evidence this is 2025’s 369 summary tax prosecutions, resulting in 343 convictions. This equates to approximately 93% of summary tax prosecutions ending with the ATO as the successful party.

In summary, the guidelines to follow for tax controversies are:

• pay off the tax before proceeding;
• choose whether tribunals or the courts would better the case given their distinct powers;
• utilise expert evidence; and
• aim to settle through an offer of compromise.