Tax Havens and Non-Compliance

Over recent years the Tax office has tightened up considerably on overseas arrangements and schemes which have been used to either secrete assets or hide income.  Normally the success of these arrangements relies upon concealment using any of a number of structures to prevent detection including the use of tax havens.  The Commissioner of Taxation has indicated, as have a number of very senior Australian Tax Office officials that tax haven entities which are either effectively controlled or directed will be the subject of intense ATO scrutiny.  There are a number of taskforces which have been set up to ensure this occurs.  Everyone would have heard of Project Wickenby and Gourdian by now.  Both have been highly successfully but are not all-encompassing.  This is why the new ATO tax haven initiative was set up to penetrate individual exclusive overseas arrangements which precluded the ATO from accessing additional income not disclosed by taxpayers on which the vast majority do not pay tax. 

Current initiatives include money laundering, counter-terrorism, security and proceeds of crime addressing all types of personal and business arrangements in an endeavour to deal with these issues to prevent revenue leakage.  Of course if money or assets are concealed overseas it is extremely likely that the taxpayer benefiting from these arrangements/schemes will be subject to primary tax, interest or penalties.  Australian citizens may be subject to Australian income tax even where they live overseas.  Tax may be payable at full marginal rates and interest (GIC) at the time of writing was 14.15% compound with penalties being attracted as either civil, administrative or criminal sanctions.  An example of administrative penalties are punitive interest rates imposed on any tax shortfall including capital gains.

Although the Commissioner announced an initiative on 18/7/08 asking non-complying taxpayers to disclose the extent of any overseas tax non-compliance they were not knocked over in the rush.  Many taxpayers have made a conscious decision to run deep, destroy linkage documents and pretend that they will not be detected.  Although this strategy is unavailable we certainly do not countenance it as the personal, monetary and criminal consequences are such that where a non-complying taxpayer is discovered/detected they will be prosecuted to the full extent of the law where there is a significant degree of criminality disclosed.  Many non-compliant taxpayers do not believe they are involved in tax evasion but tax avoidance and certainly not criminal tax fraud.  They are naïve preferring to rely upon the advice provided by any number of tax haven promoters and others who have a vested interest in maintaining the status quo.  The vast majority of these promoters have relied upon introductions flowing from accountants, business or financial advisers and to a much lesser extent lawyers.

The interesting thing is that either because of misguided loyalty to this class of individuals or otherwise they maintain silence.  In all of these matters taxpayer co-operation with the ATO is essential and to be a non-complying less than fully co-operative taxpayer is an extremely unwise choice.  What most non-complying taxpayers forget is that they need to provide absolute co-operation and assistance to the ATO to mitigate the extent of any criminal conduct in which they are involved, after all unless they can point to the involvement of others then the only party to the arrangement is the taxpayer.  Although a full and frank disclosure needs to be made admissions need to be kept to the minimum to limit the seriousness of any criminal conduct.  To this end you need to obtain competent tax advice from LAC Lawyers.