Project DO IT may be over, but it's not too late to come forward

26 May 2016

BDO Australia |
Carlo Moretti, Partner, Tax |

The net is tightening on people who avoid paying tax. Project DO IT may have finished, but why is it still important for people to approach the ATO?

Despite the conclusion of Project DO IT in late 2015, there is still the opportunity for taxpayers to address any actions that could be considered tax avoidance by the Australian Taxation Office (ATO). A recent Tax Seminar hosted by BDO in Sydney revealed that the ATO wants to create a tax environment that espouses transparency, so taxpayers looking to bring their offshore accounts into line can approach the organisation with confidence.

With a number of domestic and international agencies creating stronger partnerships to crack down on tax avoidance, taxpayers should approach the ATO before they are caught. The recent Panama Papers scandal proves that it's not just regulatory bodies that people have to worry about when avoiding their tax obligations. Because of this, it's never been as essential for taxpayers to review the legality of any offshore transactions.

What was Project DO IT?

In 2014, the ATO launched Project DO IT in an effort to tackle international tax avoidance. The project attempted to incentivise taxpayers with illegal offshore accounts to redress these issues and come forward. To encourage this behaviour, the ATO did not impose the usual financial and non-financial penalties associated with such tax problems.

The initiative specifically targeted taxpayers with undeclared offshore accounts or those who regularly profit from international affairs that aren't taxed correctly.

Those who brought forward their concerns and rejoined Australia's tax system were only required to pay what they would have owed in the first place, with the only additional charges covering interest on the income. However, the penalty is capped at 10 per cent of the tax shortfall, reducing the cost in an attempt to make the offer more attractive.

Now that Project DO IT is over, taxpayers that continue to pursue tax avoidance schemes are potentially subjecting themselves to further investigation, especially as international partnerships and increased domestic collaboration continue to prove effective.

How international collaboration is targeting tax avoidance

As the recent Panama Papers revealed, tax avoidance is a global issue. But it is uniting various organisations and countries to collaboratively reduce the amount that goes unreported and undiscovered.

Australia is part of a multi-lateral agreement, which means it has much greater powers than it used to when it comes to reclaiming tax debts or pursuing people who have left the country. The partnership spans across more than 90 countries and represents the extent of the international commitment to cracking down on tax avoidance. With Project DO IT concluding in December 2015, initiatives such as these pose even more of a threat to people who still avoid their tax obligations. 

The partnership means that Australia doesn't always have to pursue owed tax on its own, a process that can be extremely difficult in foreign markets. Now, other countries can go after these unpaid taxes, seize assets and investigate fleeing taxpayers on behalf of Australia.

While some countries will still have their own tax agreements as well, the multi-lateral framework provides a consistent structure for these conversations to take place, and strengthens their collective ability to go after people avoiding tax.

Domestic taskforces to target tax avoidance

Internal organisations have also turned their attention to people avoiding tax and profiting from offshore accounts and assets. With Project Wickenby considered a success, the framework has been transplanted onto a new agreement that unites a number of domestic authorities, including the ATO, the Australian Crime Commission, AUSTRAC and more. Dubbed the Serious Financial Crimes Taskforce, the united front intends for tax avoidance to be a major part of the infringements it investigates.

The partnership is formed according to the idea that a collaborative approach is much more valuable and provides far better results than these organisations could achieve on their own. With a significant amount of funding dedicated to these causes in the latest Federal Budget, the government has reinforced the idea that it is willing to take a stand against tax avoidance.

Why should taxpayers approach the ATO?

Along with the fact that multinational and domestic partnerships are increasing their focus on tax avoidance, taxpayers have a number of other reasons to approach the ATO themselves. The reality, as confirmed by the Panama Papers, is that people who dodge their tax obligations are no longer safe. On top of this, organisations such as the ATO would prefer people to come forward so they can better understand the reasons they avoid paying tax in the first place and what some of the warning signs are.

The financial penalties for those who are caught out are incredibly severe, which was why Project DO IT was such a significant opportunity for people around Australia. These can be as much as 75 per cent of the unpaid tax, which can then be added to with compound interest.

In many cases, criminal prosecution may follow as well. However, the ATO has assured taxpayers who still persist with undeclared offshore earnings that those who voluntarily come forward will be granted significantly lessened penalties in comparison to what they would be subjected to if they're caught. While the penalties are unlikely to be reduced as far as what they were while project DO IT was underway, they will be notably less than if they are caught by domestic or international authorities.

Put simply, the net is closing, and the more people continue to avoid paying tax, the more likely they are to be picked up by the authorities. The ATO even published a list of things that catch its attention when investigating potential tax fraud, indicating the organisation is aware of many common techniques for avoiding paying tax.

Despite these growing pressures and the end of Project DO IT, the ATO is still willing to accept voluntary admissions of tax avoidance, especially if people do this through the services of a trusted advisor.