Taxation Law - Taxation Disputes

Over recent years there has been an alarming increase in taxation disputes involving all types of tax non-compliance. Where tax non-compliance is involved it can be managed as follows:

1. Taxpayers voluntarily decide to come forward to the ATO without prompting or where a letter is received from the ATO indicating there may be some aspects of their affairs which may require attention; or,
2. Where enquiries, reviews, audits, requests for information, notices, search warrants, detections leading to prompted voluntary disclosures or investigations are accepted as a taxation risk.

Tax is all about the collection of revenue for and on behalf of the central government by the ATO. Despite this some taxpayers are firmly of the view that “they will never catch me” and that attitude was shared by every single taxpayer up until the time they were detected or discovered sometimes with calamitous results. The ATO is committed to the collection of revenue and will use all resources at its disposal to do so.

Tax is all about managing risk. You either pay it, partly pay it or don’t pay it. Where it is either under-paid or not paid for whatever reason then the taxpayer runs the risk of being detected and involved in a taxation dispute. A taxation dispute involves either money or property which the ATO seeks to recover which is disputed either in whole or in part by the taxpayer who may rely upon a number of mechanisms in an endeavour to defeat, reduce or delay the payment of the monies so claimed. This may involve objections, court proceedings, appeals and perhaps submissions to the GAAR (Part IVA) panel. 

In essence the distinction between these two areas is manifest. In the first category you are directly engaging with the Tax Office whereas in the second you are in an adversarial position facing far greater uncertainty as to outcomes and the ability to control time, resources and your overall costs. Neither area is cheap but you can easily expand millions of dollars on litigation as against the first. Litigation starts in the civil jurisdiction and often ends up in the criminal court. For example, where a taxpayer has engaged in tax evasion then all you need to have is a bank account through which money passes as the proceed or instrument of crime of which you were aware and they have you, perhaps, for up to 25 years depending on the amount of money involved.

This raises the question where taxpayers, whether individuals or corporates, believe they are tax-non-compliant, wouldn’t they be far better off making a voluntary disclosure rather than being detected and having the Tax Office come after them? The issues have always been the same, where there has been tax evasion the ATO is at liberty to take whatever steps are necessary to recover the outstanding tax together with penalties and interest. In addition they are entitled to refer matters to the Australian Federal Police and the CDPP where they involve a significant degree of criminality so that a public statement is made about general deterrence in tax cases. What this says is this - where co-operation and assistance are lacking then the final outcome is not only uncertain, ruinously expensive and punitive but highly likely to involve a custodial term as a reward for all the effort. 

Unfortunately, most taxation lawyers and other tax advisers understand very little about voluntary disclosure many of whom are learning on the client’s time whilst the client’s liberty is at risk. What many practitioners overlook or sometimes fail to understand fail to understand is that even when you are dealing with a business the company directors can be criminally charged and if found guilty sent to gaol, as in the Ronan case. Company directors do not avoid civil and criminal liability simply by relying on the Corporations Act 2001. The TAA 1953 firmly fixes them with civil liability and thereafter the criminal law takes over. In a recent case involving both civil and criminal liability legal fees of approximately $17M were charged with figures far in excess of this being commonplace in much large litigation.

All taxation disputes are all about managing taxation risks and no client should allow their affairs to get so much out of control that instead of seeking advice and taking proper steps to manage the risk they wait until they are detected putting themselves in the worst possible position to achieve a good outcome. There is no doubt that voluntary disclosure has its problems and it is always best that it be unprompted to mitigate against referral. Prompted voluntary disclosures have a downside, particularly where the taxpayer has been so badly advised that they wait until they receive search warrants and are raided by the AFP to secure evidence. There have been a number of recent cases where taxpayers in these circumstances have received gaol terms. The problem is not that it’s a prompted voluntary disclosure but rather through either deleteriousness or bad advice the ATO and other supporting agencies perceive the taxpayer’s lack of assistance and co-operation as either playing for time trying to hide assets or making attempts to flee the jurisdiction.

It is this commentator’s view that there are very few taxation disputes which justify matters being taken to tribunals or courts whether at first instance or on appeal, to obtain a satisfactory outcome. In all these cases no-one is a winner given the vicissitudes associated with litigation and the time and resources which are eaten up by them. It is also worthy of note that where the ATO engages in or is engaged by a taxpayer in taxation litigation they win over 98% of all such cases. Obviously any taxpayer who wishes to engage the ATO on this basis must have an exceptional appetite for risk, enjoy pain and uncertainty together with the prospect of spending a considerable amount of time at Her Majesty’s pleasure. Engagement of this type is to be avoided at all costs as it is far better to have a say in controlling the outcome rather than being run over by a steamroller unless you are one of the fortunate few who fit within the 2% category. 

The management of all taxation disputes requires not only co-operation and assistance but candor, accepting proper advice, being sensible while seeking to negotiate the best possible outcome in difficult circumstances. To put matters succinctly 98% of all matters based on the ATO’s win/lose rate should be voluntarily disclosed and only 2% should be litigated. Furthermore what is of even greater interest is that the majority of taxation lawyers and advisers are ill-prepared to deal with voluntary disclosures as they  have little or no experience of it. Their websites say it all. They either don’t mention voluntary disclosure or if they do it hardly receives any attention because their primary focus lies elsewhere.  For competent professional advice and assistance on any taxation matter or dispute contact Frank Egan of LAC Lawyers on (02) 9904 6800.