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Taxation Law - Voluntary Disclosure (OVDI) - Named or Un-Named (2)

Date: August 06, 2010

Authors: Frank Egan B.A., LL.B., A.C.L.A., F.T.I.A. (Notary)

When the overseas voluntary disclosure or initiative was originally announced and the forms which were available on the ATO website were produced they asked for more comprehensive material than those produced in April and following. In other words the earlier forms required more comprehensive information than the later ones signaling a change in direction by the ATO. We surmise that by the time April 2010 arrived the ATO was more concerned with hardline criminality than straight out tax fraud or tax evasion. That is a very different treatment or presentation was required later than that which was required earlier. In these circumstances the later the application the better it would be for the client(s) involved. Never rush any matter but particularly a tax matter as the consequences can be extremely serious.

In the past many offshore voluntary disclosures did not require commitment to a standard form although one was available. What was required was a full, frank and complete disclosure of all relevant material to the ATO which would assist with the identification of the money and assets and the quantification of any tax shortfall. Under the current OVDI any application not made on the forms provided by the ATO could technically be excluded from the benefits available under the initiative.   In addition there is a real distinction between a named and an un-named voluntary disclosure providing non-complying taxpayers with the opportunity to obtain guidance as to whether or not they are likely to be prosecuted.

Although in some cases this may prove beneficial to certain classes of taxpayer(s) it would appear to be of limited overall effect. Where there are non-complying taxpayer(s) and the amount of the tax shortfall is greater than $20,000 per year it would seem that this is of questionable benefit. The reason being that there is very little likelihood of any taxpayer who has omitted income of less than $20,000 per annum being involved in hardcore criminality and it is more than likely that these taxpayers belong to a class of persons who are more likely to approach the Tax Office direct. Essentially those taxpayers who are most at risk would appear to have been tax non-compliant for amounts of money far greater than $20,000 per annum and be engaged in activities of a nature which amount to hardline criminal activity and therefore may proceed on the basis of a no-named voluntary disclosure would seem to be of questionable benefit. It is suggested that these taxpayers need to seek professional advice from bona fide tax lawyers as their conduct might well amount to serious criminal activity placing them personally at risk. 

The trap with the no-named voluntary disclosure is that if a taxpayer(s) is involved in hardline criminal activity and this is not disclosed when making the un-named voluntary disclosure than this in no way binds the Tax Office with respect to their future conduct of the matter. Even if it was suggested that various individuals proceed by way of a no-named voluntary disclosure what is the benefit of this as all it does is delay the inevitable and the advice required can be readily sought from an independent legally qualified tax expert. It should not be forgotten that where advice is sought and every attempt is made to rewrite history this is fraud with significant danger as it compounds the nature of the conduct the subject of examination.

If you were to think about the tension which exists between an un-named and a named voluntary disclosure and if you were utilising the services of a tax practitioner who is not a bona vide tax lawyer then you have magnified your risk.  Problems arise from the very material provided which goes not only to the nature but to the substance of it. Everyone is aware that the same facts may lead to different conclusions unless the material provided is properly characterised so that the person making the voluntary disclosure may be in danger of losing the protection of the current initiative finding themselves the subject of intense investigation and enquiry all of which could have been avoided had the material been properly presented. What is often forgotten is that tax is a highly complicated area of the law and unless the person presenting the material is fully aware of the traps and pitfalls they are confronting it is highly likely the material presented will be misleading in both form and substance particularly where not all documents are available to explain what occurred.  Do not forget all taxpayers are required to keep proper records so that matters may be substantiated. How do you deal with this? The proper answer is not to be found in some professional publications. Experience provides the answer.

Remember, in some offshore voluntary disclosure cases they may be relatively simple such as a non-complying taxpayer with money or assets overseas without the involvement of a promoter(s). In contrast to this there may be money and assets overseas, the involvement of some professional and perhaps a promoter of some type of scheme or arrangement making the non-complying taxpayer’s behavior worthy of further enquiry and thus more likely to be criminal for example money laundering which is of prime interest to both the ATO and the CDPP presently. Do not forget that with Money Laundering the penalties are up to 20 years imprisonment for offences where the sum of money involved is up to $1M and up to 25 years imprisonment where the amount exceeds $1M. Only lawyers can advise clients about such matters and if other professionals do so then they are in breach of the law and their fees do not have to be paid amongst other things.

What is even more interesting is that many taxpayers have gotten themselves into more trouble because they haven’t taken the right advice yet when it comes to making an offshore voluntary disclosure under the current initiative some of them have sought fit to make their own OVDI application or have gone to the wrong class of professional(s) and even where they have sought legal advice they have gone to business and commercial lawyers who have no knowledge of tax or worse to criminal lawyers who are completely and utterly out of their depth in this area. Obviously there will be significant time delays because of the number of applications received by the ATO irrespective of who is involved but the greatest delays will be experienced where applications have been prepared by individual taxpayers or where they have retained the wrong professionals to attend to this highly complicated and exacting work. Not only is it the obvious traps and pitfalls of which taxpayers and their advisers need to be aware but those which are either not properly understood or identified as being relevant to the Tax Office or the authorities. How do you demonstrate good faith to the Tax Office when the materials presented are equivocal at best or the behavior/conduct/particular circumstances are incomplete or have not been properly characterized because the subject matter is not properly understood? The simple answer is you can’t if you don’t know or don’t have someone who knows what to do.

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