Tax avoidance is under the spotlight thanks to recent events. What does this mean for Australian taxpayers as a global crackdown gets underway?
Global tax concerns have recently come under the spotlight, leading the Turnbull government to turn its attention to multinational tax avoidance. With the Australian Taxation Office (ATO) and the world's media both investigating how organisations and countries approach these compliance issues, businesses need to be well aware of the their legal obligations and whether or not they may need to alter the way they operate.
An increased focus on global tax is not only directed at companies, as high-wealth individuals and their actions will also be under the ATO's spotlight. The recent seminar BDO hosted in Sydney was a chance for Michael Cranston, Deputy Commissioner of Taxation, Private Groups and HWI, Jeffrey McAlister, Assistant Commissioner, Professor Gordon Cooper, and myself, to address these issues and what organisations and individuals need to keep in mind as the regulatory landscape shifts. There were a number of key takeaways from the event, including implications for cross-border transactions, the increasing severity of penalties and the behaviours and actions most likely to attract ATO attention.
What does the ‘Google Tax’ mean for taxpayers?
Australia's ‘Google Tax’ is beginning to take effect, with the multinational anti-avoidance laws (MAAL) acting as the first introduction to these. The legislation is directed at large corporations that are deemed to have a physical presence in Australia. This aims to encourage them to approach the ATO to discuss their transfer pricing concerns within a formal structure.
Organisations caught directing profits overseas will be subjected to a 40 per cent penalty tax rate, which will hopefully incentivise them to open a dialogue with the ATO rather than engage in tax avoidance.
ATO focuses on ‘the big end of town’
International events such as the Panama Papers scandal have reinforced the need for institutions like the ATO to pursue actions that indicate potential tax-avoiding behaviour.
To crack down on global arbitrage, the ATO will take a stronger stance on cross-border mismatches. This aligns with other initiatives such as voluntary tax transparency cards, which gives taxpayers the chance to take control of their own destiny and declare their actions, rather than wait for the ATO to begin their investigation. They're also trying to make the whistleblowing process better, as these actions can lead the organisation to those that are avoiding tax obligations.
Ultimately, the ATO wishes to work with taxpayers through these changes to ensure they have certainty and stability for the future.
Tax a key focus for joint taskforces
During the seminar, it came out that the majority of incidents the Serious Financial Crimes Taskforce investigates are related to tax avoidance. The organisation deals with a wide range of infringements, such as fraud and identity crime, collaborating with other parties such as the ATO, Australian Crime Commission and AUSTRAC.
The latest incarnation of the taskforce is a continuation of work done by Project Wickenby. The framework used on the project was deemed successful enough to influence this new taskforce, as the reason it was so effective was due to inter-agency collaboration.
Despite the effectiveness of these collaborative forces, the key takeaway was still that the ATO and other agencies would rather taxpayers came forward with confidence. The ATO reinforced the idea that they are willing to have these discussions with people as an alternative to having to chase them down.
International collaboration shapes tax collection
The collaboration to crackdown on tax avoidance is not just limited to within Australia. Along with a number of domestic parties joining forces, Australia has committed to multi-lateral agreements with a range of different countries as well. More than 90 nations signed up to these agreements in an effort to make the process of collecting taxes hidden in other jurisdictions easier and less time consuming.
Put simply, countries included in the agreement can chase outstanding tax debts for each other. It's a powerful tool designed to enable access to overseas assets or to chase taxpayers who have fled the country. The other benefit to the agreement is that it provides a common framework for these alliances, ensuring consistency and stability across the various exchanges of information.
What does the ATO look for?
While the ATO is encouraging taxpayers to come forward and attempting to better support whistleblowers, these strategies aren't enough on their own to ensure the ATO keeps on top of all cases of tax avoidance. During the seminar, a few of the key indicators that suggest people may be hiding tax were revealed.
One of the major concerns relates to Capital Gains Tax valuations and concessions, including the way people access these, especially in the case of major losses that could be exaggerated or inaccurate.
It was also revealed at the seminar that one of the more concerning issues involved research and development tax incentives, especially where people take an aggressive stance on such initiatives but access them incorrectly.
Some other taxpayers have arrangements set up which allows them to unlawfully access profits associated with private companies. The law that governs these interactions is Division 7A. Again, if the ATO notices these events occurring, it's likely to investigate further.
Whether undertaken by large private groups or wealthy individuals, these actions are coming under increased scrutiny. People who may be engaging in these activities should take advantage of the ATO's desire to talk through these issues with people, rather than continuing with them until they get caught.
The ATO wants to avoid labelling these actions as high risk, and would rather consider them to be those that need to be better understood.
BDO's recent tax seminar noted that while the regulatory environment is changing, with organisations such as the ATO and its international counterparts doubling down on tax avoidance, there is room for more transparency in regards to these issues. For business owners unaware of what their obligations are or whether they are still compliant, it's important they consult advisers such as BDO.