Taxation Law - Global Transparency: High Net Wealth Individuals, Tax Information Exchange Agreements and Multinationals: Country by Country Reporting - Part 1
Author(s):Tony Anamourlis B.A., LL.B., MTaxLaw, GradDipLegPrac, SJD Candidate (La Trobe); ATIA
Publish Date: January 18, 2010
Other articles in this series
Introduction
Recent attention by the media and statements by the Australian Tax Office (“ATO”) concerning Project Wickenby has raised questions of the scope of tax avoidance by taxpayers who use offshore tax havens. It also raises questions as to how the ATO is able to obtain information of transactions located in offshore jurisdictions and especially tax havens. One of the main concerns is related to the issue as to what amount of tax has been avoided by the use of tax havens. This is a difficult question to answer due to transactions or activities being undertaken in offshore tax havens where the ATO has restrictions on the access to relevant information in order to determine the nature and extent of anti avoidance activity.
Offshore information notices issued pursuant to Section 264A of the Income Tax Assessment Act 1936 (“ITAA36”) may seem an attractive option as a means of seeking offshore information in relation to a taxpayer’s affairs. However the practical reality is that the section is very limited in obtaining information in jurisdictions where privacy laws and banking secrecy laws prevent such access. Moreover where there is an absence of a “Tax Information Exchange Agreement” (“TIEA”) between the overseas tax haven and Australia this makes the task more difficult. Australia currently has in place seven Tax Information Exchange Agreements. In this respect to further strengthen the fight against tax evasion and anti avoidance activity, the UK government has now called for Country by Country Reporting, and if and when it is implemented, will have a significant impact on Multinational companies in Australia.
The paper will firstly examine what Tax Information Exchange Agreements are and what they are intended for in Australia and secondly examine the role and relevance on Country by Country reporting it will have on Australian Multinationals. However, it is useful to give an account of the Australian Tax Office’ position as to why the ATO considers that Tax Information Exchange Agreements are so important and then examine the importance of Tax Information Exchange Agreements and further outline the importance this will have with respect to Country by Country reporting.
Project Wickenby
In this context it is useful to understand why Project Wickenby was established to tackle tax avoidance and the use of tax havens. In 2006 a task force was established as part of Project Wickenby. It was established to investigate internationally promoted tax arrangements that involved tax avoidance or tax evasion. It was also established to examine large scale money laundering. The funding for the project was $300 million. An important feature of the task force was that it combined many government agencies. They were the:
- Australian Tax Office
- Australian Crime Commission
- Australian Securities and Investments Commission
- Commonwealth Director of Public Prosecutions.
The reason for the establishment of the combined task force was a result of an investigation into the tax affairs of a taxpayer who was linked to tax schemes with over $ 250 million in deductions. Of some consequence was the fact the individual had links to an offshore Accounting firm. Upon further investigation it was revealed that there were over 300 names linked to this offshore accounting firm. In many ways the discovery of this taxpayer and the offshore links was a formal revelation and a catalyst to set up the task force.
In a recent ATO report “Working together to combat tax haven abuse”[1] the ATO indicated that Project Wickenby had raised $ 265 million in liabilities and collected more than $ 84 million. . The report indicated that the Australian tax Office is expanding their work in the area especially by means of stronger co-operation with other tax authorities and international jurisdictions... Some of the countries are: USA, UK, Canada and New Zealand.
As indicated above, one of the major difficulties in tackling tax avoidance and tracking down taxpayers who are involved with illegal activities, conducted in Tax Havens, is obtaining relevant information to issue an appropriate notice of assessment or amended assessment.
In another report by the ATO “Tax havens and Tax Administration”[2] it was indicated that:
“Laws that strictly protect a bank’s secrecy or restrict administrative practices prevent tax administrations from scrutinising arrangements and inhibit the exchange of information from other countries” p7:
Therefore it seems that the difficulty faced by the ATO, or other taxing authorities, in obtaining relevant information from overseas countries and taxing jurisdictions poses a significant issue in the campaign against tax avoidance. For this reason the role of TIEA’s is important.
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[2]Tax Havens and Tax Administration ATO December 2008
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