In mine tax tangle? Help (or not) is at hand

THE complexity of Labor's mining tax forced Treasury's boffins to yell for help from consultants, who explained it with "noodle nation" diagrams.

THE complexity of Labor's mining tax forced Treasury's brightest boffins to yell for help from consultants, who explained it with seven tangled "noodle nation" diagrams.

The whiteboard diagrams, reminiscent of the "knowledge nation" diagrams that troubled Labor a decade ago, illustrate the bureaucratic pain behind the budget gain from the minerals resource rent tax.

Confidential documents obtained under Freedom of Information laws reveal a brainstorming frenzy as the Australian Taxation Office staff gathered to mull over their problem. "How will we stop ourselves getting bogged down?" the ATO experts said at one point at workshops held late last year to devise the best ways to ensure compliance with the tax.

GRAPHIC: Swan's definitive MRRT explanation?

In one attempt at a solution, the ATO workshops agreed to develop a narrative to tell a "holistic and coherent story" about mining tax compliance as they seemed to doubt whether people really understood the tax.

The whiteboard scrawls warned of the "compliance burden" and emphasised the need for a "strategy for dealing with complexity" as the officials linked the issues with questions of trust and competence.

While the Gillard government legislated the tax early last year, mining industry executives and tax advisers are still holding working group sessions with the ATO to discuss the practical application of the new rules.

Wayne Swan's office was adamant last night that the whiteboard diagrams were no reflection on the complexity of the Treasurer's major reform. Others would agree, given that former Treasury secretary Ken Henry described a precursor to the resource rent tax as an "elegant" design as well as a worthwhile reform.

Yet the unexpected release of the whiteboard markings sent the ATO into damage control last night - possibly after communications with the Treasurer's office - as the agency's media team expressed concern about how the diagrams might be interpreted.

"Those whiteboards are not about how the ATO sees the MRRT operating or functioning," said an ATO spokeswoman.

"They were part of a brainstorming exercise as part of a workshop."

The workshops were co-ordinated by consulting firm Hoffmann Donohue, whose consultant Julia Donohue would not comment. The ATO said workshops were often used to plan changes like new taxes.

"We design the implementation of new tax law to make it as easy as possible for taxpayers to comply," a spokeswoman said.

"We regularly run workshops to plan the most effective way to implement changes. This can involve external facilitators."

In a lesson for any officials worried about FOI disclosures, the tax workshop stored all the whiteboard ideas in an electronic format, creating a store of documents to be found by others later.

The workshop documents were obtained under FOI by Liberal frontbencher Jamie Briggs, who cited them as proof of the flaws in the mining tax design.

"Julia Gillard's mining tax is so bad even the tax office can't understand how to apply it," Mr Briggs said. "The simple answer for this tax is to abolish it and that is what we will do if we are elected."

Mr Swan's spokeswoman defended the tax on the grounds that it was developed with "an extensive process of consultation" with industry as well as an agreement with mining companies.

"The design of the MRRT reduces taxpayer compliance cost for low-profit miners who don't expect to pay tax," she said.

"In fact, small miners who don't expect to pay MRRT ever don't even have to lodge a return. Miners with an accounting profit under $75 million don't need to lodge a return."

Still, even the canniest tax professionals acknowledge the mining tax is far from simple.

KPMG resource tax partner James Macky said the mining tax included aspects of valuation, transfer pricing and income tax and was "very, very complex" for companies.

"The calculation of the tax is straightforward but applying it to the real world is full of complexity," Mr Macky told The Australian.

The KPMG partner said the ATO would have to understand the circumstances of each individual mining operation to be sure of how to apply the tax to real-world situations.

Association of Mining and Exploration Companies chief executive Simon Bennison said an ATO and industry working group set up in 2011 was still going and there seemed no end in sight to its work.

"The MRRT is of such a complex nature that even the accounting firms that are advising the companies are still working through the details," said Mr Bennison.

BDO tax principal Tim Elliott said there was "quite a lot" to the mining tax design.