Your IndustryDec 22 2015

Australia ramps up focus on offshore tax evasion

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Australia ramps up focus on offshore tax evasion

The Australian Tax Office has said it is ramping up its focus on offshore tax evasion, in a bid to combat the problem which has seen the organisation obtain more than 5,000 client names from wealth management firms.

It has also compiled a list of 100 advisers and promoters operating globally that have a direct link with people who may have evaded taxes.

Earlier in December, the ATO visited seven adviser firms linked to offshore arrangements and contacted more than 100 parents who had school fees paid from overseas bank accounts.

The work follows its offshore disclosure initiative, Project DO IT: disclosure offshore income today.

“The net is closing for people who think they can avoid their Australian tax obligations by holding money and assets offshore,” ATO deputy commissioner Michael Cranston said.

“The intelligence picture we now have has been built from information taxpayers disclosed under Project DO IT about the adviser who put them into the offshore arrangements, data mining and client records seized from advisers in transit.”

“We’ll be visiting Australian advisers, including tax agents, legal advisers, financial institutions and stockbrokers to obtain their full client lists and identify those who have failed to come forward and clean up their tax arrangements under Project DO IT.”

The ATO will be working collaboratively with other tax administrations to undertake joint compliance action on advisers and taxpayers, in a new shift towards transparency.

Mr Cranston stated that the ATO has now shared the list of 100 advisers with nine key overseas tax administrations, requesting them to undertake an intelligence review of their operations in their countries.

Some of these offshore advisers are located in Jersey, Switzerland, Guernsey, British Virgin Islands and are associated with known institutions, as well as boutique and private banks.

Geraint Davies, managing director at Montfort International, explained that Australia is not alone in this work, as the UK government announced in the Autumn Statement that it is upping the ante on tax evasion. “If they conjoin their resources they could have a tax bonanza,” he added.

Since 2000, Australia has taken in approaching three million migrants, and that further research shows that 1.2 million residents of Australia were born in the UK, according to Mr Davies.

“We see it all the time. People are leaving UK without knowing what they face with the Australian tax man. They are oblivious to the fact and consequent implication that they have UK assets which are offshore Australia and often tax assessable in Australia.”

He added that it seems the ATO are just looking at the tip of the iceberg.

A spokesperson for HM Revenue and Customs said they could not comment directly on the ATO’s announcement, but did give an update on what it is doing to crackdown on offshore evasion and those who enable it.

“From 2016, new civil deterrents and sanctions, alongside the development of future measures, will see HMRC get even tougher on those intent on cheating the system,” said the spokesman.

“The current disclosure facilities close at the end of year. Once these close, you can still come forward, but the penalties will be tougher. Our message is clear, come forward now before we come for you.”

Frank Mulcahy, private wealth adviser at Australian firm Stanford Brown, said that tax compliance by expats on overseas assets has always been low, no matter where they are living.

“Given that tax offices worldwide traditionally did not have the power or systems to allow them to collect and share information, expats could with some confidence stay ‘silent’, knowing that the tax office in their resident country would not be aware of any overseas assets.

“The recent action by the ATO is not uncommon by a tax office post an amnesty. If you are part of a tax avoidance scheme with other investors and if the ATO identifies one member of the scheme, they then become aware of the scheme and shortly afterward contact the rest of the investors.

“In short, the increasing trend towards inter government data sharing agreements and availability of new technologies to tax offices to collect information, will mean that expats will need to become more tax compliant on their overseas assets and will not be able to rely on the traditional wall of silence approach.”

Stephen Sloane, managing director at Australian firm Link Wealth Group, said it is a relatively small component of advice over the year. “In general they are doing their best to avoid taxes where possible.

“Potentially there could be more and more regulation put down. We are nearly there in Australia. I think the ATO may increase supervision and checks.”

ruth.gillbe@ft.com