Chapter 3 - International evidence gathering
Chapter 3 - International evidence gathering
This information forms part of the publication Access and information gathering manual version 1/2010, which was updated on 18 February 2010. For a list of changes to Chapter 3, refer to the Appendix.
3.1.1. As more individual and business taxpayers become involved in international dealings and investments, the ATO is increasingly focusing on international tax issues 1.
3.1.2. The fact that information or documents relevant to a taxpayer are located offshore, should not deter tax officers from undertaking an information gathering exercise. However, the decision of which approach to use requires consideration of a number of factors, such as enforcement of the approach, the timeliness of the information being provided, and sanctions for non-compliance that could impact on the potential for success of the exercise.
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The approaches discussed in this chapter should only be used for tax compliance purposes. If you are investigating the matter for possible offences, you may be able to use other options, such as search warrants and assistance from the Federal Police or Interpol.
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3.1.3. Also, in some situations, information obtained for criminal investigation purposes must not be used by tax officers for assessment purposes. An example of this prohibition is information obtained under the Mutual Assistance in Criminal Matters Act 1987. If you require additional information, you should contact Legal Services Branch before attempting to acquire the information
3.2.1. When deciding which information gathering approach is appropriate and most likely to provide a positive result in the circumstances, you need to consider the limitations inherent in the different options.
3.2.2. Tax officers need to understand how the different options operate and interact with each other. Tax officers undertaking international information gathering should consult with an officer in International Strategy and Operations in National Office and a local access specialist. You should refer to PS LA 2006/9 for additional information on matters to be referred to International Strategy and Operations.
3.2.3. If the information and/or documents are available in Australia, or if the documents are within the custody or control of a taxpayer, you should consider using sections 263 or 264 of the Income Tax Assessment Act 1936 (ITAA 1936) - or similar provisions under other tax laws such as sections 353-15 and 353-10 of Schedule 1 of the Taxation Administration Act 1953 (TAA) - prior to using international information gathering provisions. The decision of which provision to use first will depend on the particular facts and circumstances of the case.
Exchange of information
There are two mechanisms for exchanging tax information with other jurisdictions. These are:
- The EOI Article in our various Double Tax Agreements (DTAs) with other countries.
- Tax Information Exchange Agreements (TIEAs) that we have signed with a number of offshore jurisdictions.
3.2.4. The exchange of information (EOI) procedures can provide an effective mechanism for collecting information and documents held in foreign jurisdictions. However, it is limited to jurisdictions that have a tax treaty with Australia. It is dependent on the cooperation of other tax administrations to collect information, and there are restrictions on the use of information and documents once they are received.
The EOI Article in our DTAs is generally limited to income tax, petroleum resource rent tax and fringe benefits tax. However, it covers a number of different types of exchanges - specific, spontaneous and automatic.
TIEA exchanges are limited to specific enquiries, on a particular taxpayer, with jurisdictions that have a TIEA with Australia. However, they can cover a wider range of taxes - both direct and indirect taxes - including the goods and services tax.
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In this chapter the term 'tax treaty' encompasses all international agreements adopted by the International Tax Agreements Act 1953 and other legislation.
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3.2.5. You may also consider using a notice issued under section 264A of the ITAA 1936 to gather offshore information. Section 264A notices are not limited to situations where no EOI procedure is available (where the information is located in a jurisdiction that does not have a DTA or TIEA with Australia), or where the exchange mechanism in a DTA or TIEA may not prove to be a viable option (for example, where restrictions on access to bank information impede a timely exchange). However, non-compliance consequences are limited to evidentiary sanctions.
Using domestic powers for gathering offshore information
3.2.6. These three procedures (section 264A, the exchange mechanism in the DTAs and TIEAs) represent the primary methods available for collecting taxpayer-related information and documents located offshore. However, domestic powers in the tax laws (such as requirements to lodge returns, furnish information, attend and give evidence, and produce documents) may have additional operation in some circumstances. International information may be obtained under access powers by accessing electronically in very limited circumstances. The domestic powers are particularly relevant in indirect tax cases as section 264A only applies to the assessment of direct taxes. Where you seek to collect information relevant to indirect taxes - for example, GST - the approaches available are limited.
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In deciding whether to use a domestic or international-evidence gathering power, officers should consider whether there is a domestic taxpayer who may have control over documents held offshore. If that is the case, domestic evidence gathering powers should be given preference.
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The informal approach
3.2.7. The ATO policy of obtaining information and/or documents is generally to use the informal approach in the first instance. This policy applies equally to international information gathering. For a detailed discussion of the informal approach and the circumstances when it is not usual, refer to Chapter 1 and Chapter 2.
3.2.8. Where you are uncertain about how to proceed, discuss the options with a local access specialist.
3.3.1. Offshore information notices are provided for in section 264A of the ITAA 1936.
3.3.2. Subsection 264A(1) provides that if the Commissioner has reason to believe that information from a source outside Australia or documents outside Australia are relevant to the assessment of a taxpayer, whether or not the information is within the knowledge of that taxpayer or the documents are in that taxpayer's custody or control, an offshore information notice may be served on the taxpayer, requesting they, within the period and the manner specified in the notice:
- give the relevant information to the Commissioner
- produce the relevant documents to the Commissioner, or
- make copies of the relevant documents and produce those copies to the Commissioner.
Approach aimed at the timely provision of necessary information
3.3.3. Section 264A came into force in 1991. The following quote is taken from the second reading of the Bill 2 that introduced section 264A:
… The approach adopted … is aimed at ensuring the timely provision of all the information and documents necessary for the Commissioner to get the full and correct picture of the transactions being examined. …
3.3.4. The words 'ensuring the timely provision of information and documents necessary' places a charge on the ATO to issue the requests, not only when the use of s264A is clearly necessary, but also at the earliest possible point in the review - not as a method of last resort. Therefore, timeliness is a joint responsibility to be shared equally by the ATO and the taxpayer - that is:
- the Commissioner should issue the section 264A notice at the earliest possible point in the review, and
- the taxpayer must satisfy the request within the 90 day statutory timeframe.
Offshore information notices and section 264 notices
3.3.5. In F.H Faulding & Co v Federal Commissioner of Taxation 3 (Faulding) the court discussed the similarities between section 264 notices and offshore information notices. The Court said 4:
Both sections are designed to enable the Commissioner to obtain information and documents to make an assessment of the liability of a taxpayer to tax. Accordingly, it is the decisions of the High Court dealing with notices under section 264 of the Act which are of greatest assistance in determining questions of content and form of notices under section 264A.
3.3.6. However, offshore information notices can be distinguished from the notices discussed in Chapter 2 in several respects.
Who the notice is addressed to
3.3.7. Unlike section 264 notices which can be addressed either to the taxpayer or to third parties, an offshore information notice can only be served on a taxpayer. That taxpayer is requested to produce documents or information listed in the notice.
What documents and information can be sought?
3.3.8. The domestic notice provisions only operate in relation to documents that are within the custody or under the control of the person - he or she cannot be required to seek out other documents. In contrast, an offshore information notice can request the taxpayer to obtain the information, documents or copies and give them to the Commissioner, notwithstanding that the information is not within the taxpayer's knowledge or the documents are not within the taxpayer's custody or under his control.
Who the notice is addressed to
3.3.9. Notices under section 264 are enforceable statutory obligations with penalties for non-compliance. On the other hand, an offshore information notice is framed as a 'request' to the taxpayer to provide the information and/or documents, and non-compliance leads only to an evidentiary sanction. The evidentiary sanction is discussed further below.
Seeking copies of documents to be made
3.3.10. A request under section 264A can be for copies of documents whereas a section 264 notice requiring copies would be invalid.
3.4.1. Under subsection 264A(1) of the ITAA 1936, an offshore information notice can only be issued if the Commissioner has reason to believe that sources of information or documents relevant to the assessment of a taxpayer are located (whether exclusively or otherwise) outside Australia.
The Commissioner
3.4.2. The Commissioner, a delegate of the Commissioner, or an authorised officer of the delegate, is entitled to reach the state of belief specified.
Reason to believe
3.4.3. It is important:
- that the Commissioner (or delegate or authorised officer) actually hold the relevant belief, and
- that there is an objective reason for that belief.
Subject of the belief
3.4.4. The Commissioner (or delegate or authorised officer) must have reason to believe two things about the information or documents sought:
- that they are relevant to the assessment of the taxpayer, and
- that they are available from a source outside Australia.
Information or documents are relevant to the assessment of a taxpayer
3.4.5. The Commissioner (or delegate or authorised officer) must have reason to believe that the information and documents sought relate to the assessment of the taxpayer. This element was examined in the Full Federal Court decision of FCT v Pilnara Pty Ltd 5 (Pilnara). Although the Full Federal Court decision found in favour of the taxpayer, comments in the decision underline the value of offshore information notices as an information gathering tool and the need for tax officers to take care in drafting these notices.
3.4.6. Taking a more expansive view of the test for relevance in offshore information notices than in the decision at first instance, their Honours in the Full Federal Court held that:
All that the section requires is that the information and documents sought are relevant to the assessment of a taxpayer that is to say, in the words of the primary judge, 'the whole process of ascertaining the amount of taxable income'.
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The information or documents sought in the notice must, on an objective standard, be relevant to the assessment of the taxpayer, and care must be taken when drafting a 264A notice to ensure that all documents and information sought meet this criterion.
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3.4.7. However, a taxpayer can refuse to give information or produce documents that are subject to legal professional privilege (discussed in Chapter 6), or the accountant's concession (discussed in Chapter 7) or are corporate board documents on tax compliance risk.
3.4.8. If claims are made to withhold information or documents on any of these grounds, you should follow the procedures in the above Chapters and Chapter 2.
3.4.9. A taxpayer cannot claim the privilege against self-incrimination in response to a notice issued under section 264A 6.
Relevant information or documents are outside Australia
3.4.10. The Commissioner (or a delegate or authorised officer) must have reason to believe 7:
- that the documents are outside of Australia (whether or not copies or the originals are in Australia), and
- that the requested information is either:
- within the knowledge of a person outside Australia (whether or not exclusively within the knowledge of that person)
- recorded in documents outside Australia (whether exclusively or not), or
- kept by means of a mechanical, electronic or other device outside Australia (whether exclusively or not).
3.4.11. A reasonable belief in the existence of the information or documents does not mean that you have to believe that each item of information or each document exists. The types of information or particular documents sought would be expected to exist if the foreign law of the jurisdiction was similar to Australian law. In this regard, the Full Federal Court in Pilnara held 'objectively speaking, the information or documents are such as would be expected to exist'.
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This element does not impose an onus to prove that the information and documents sought are actually held offshore, as all that is required is a reasonable belief that they are held offshore. Reasonable belief might merely be the commonsense knowledge that certain documents are likely to exist as a result of a business transaction.
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Challenging decisions to issue notices
3.4.12. Taxpayers can challenge the decision to issue a notice through the Administrative Decisions (Judicial Review) Act 1977 (AD(JR) Act. One basis for challenge is that there are no reasonable grounds for believing that relevant information and/or documents are held outside Australia. Therefore, in considering whether to issue an offshore information notice, you should consider whether you can objectively state the reasons behind requesting particular information and documents and set those reasons out in the statement of reasons for issuing the notice (see discussion below). This obligation should not be regarded as overly onerous - for example, it could be assumed that where a taxpayer has a bank account located in a foreign jurisdiction, there may be financial statements relating to that account indicating deposits and withdrawals from the account.
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Where a tax officer can objectively establish a reason for believing that the information or documents would more likely than not exist in the foreign jurisdiction, and that the type of information requested would be relevant to the assessment of the taxpayer, that taxpayer can be sent an offshore information notice.
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3.5.1. Where the circumstances set out in subsection 264A(1) exist to allow an offshore information notice to be issued, the Commissioner may, by notice in writing served on the taxpayer, request the taxpayer to give the information, to produce the documents, or to make and produce copies of documents, to the Commissioner:
- within the period specified in the notice, and
- in the manner specified in the notice.
The Commissioner
3.5.2. The Commissioner, a delegate of the Commissioner, or an authorised officer of the delegate, is entitled to send or execute the notice.
Notice to be writing and served on the taxpayer
3.5.3. The notice must be in writing, and has to be served on the taxpayer. There are several methods of service. These are discussed in Part 2.5 of Chapter 2. The taxpayer will collect the information or documents and provide these to the ATO. In most cases, the identification of the relevant taxpayer will be a simple matter.
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It is very important to choose the correct taxpayer(s) because the evidentiary sanction provided for in section 264A(10) only operates in respect of that taxpayer's tax appeals, and not any other taxpayer's tax appeals.
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Identifying the taxpayer
3.5.4. Where a tax officer cannot identify the correct taxpayer with certainty, the submission must demonstrate that the tax officer had considered the issue, weighed the competing factors thoroughly and determined who to serve with the notice. If there is any suggestion that the decision has been arrived at capriciously or unreasonably, a court could hold that the notice is invalid - see also discussion of similar issues in FCT v Prestige Motors Pty Ltd 8.
Subsidiary members of consolidated groups
3.5.5. Difficulties about identifying a taxpayer could arise in relation to entities that are subsidiary members of consolidated groups. Under the single entity rule (section 701-1 of the Income Tax Assessment Act 1997), the subsidiary members of a consolidated group are taken for certain purposes to be part of the head company of the group rather than separate entities during the period that the consolidated group is in existence. This could mean that the relevant taxpayer is the head company during this period. In these situations, tax officers may need to seek the advice from an access specialist or the appropriate centre of expertise to determine which entity should appropriately be served with an offshore information notice.
Trust arrangements
3.5.6. Particular care needs to be taken in relation to trust arrangements where the taxpayer could, in some circumstances, be the trustee, and in other circumstances, a beneficiary. For this reason, the application of the provisions of Division 6 in Part III of the ITAA 1936 may need to be considered and reflected in any submission or statement of reasons prepared for the purposes of issuing an offshore information notice.
3.5.7. Moreover, as noted in Pilnara, it is imperative that the Commissioner should be:
…giving consideration to documents already in Australia, that is without issuing an offshore information notice. Given the potential effort and expense in complying with an offshore information notice (and the evidentiary exclusion for even involuntary non-compliance), it is not asking too much to expect the Commissioner to resolve that question before issuing a s 264A notice, perhaps by calling for documents within Australia, if not already to hand, or perhaps by obtaining them pursuant to a notice issued under s 264.
3.5.8. Therefore, when documents such as trustee resolutions are not available, you should use the domestic powers to obtain the necessary information and documents.
Notice is a request
3.5.9. An offshore information notice is a request, not a demand or requirement. Under an offshore information notice, a taxpayer is asked to provide information or documents.
Specifying the information and documents to be given
3.5.10. The information and documents should be specified with care, always bearing in mind the requirement for a reasonable objective belief that they are relevant to the assessment of the taxpayer and available from a source outside Australia, and the precise nature of the evidentiary sanction (discussed below).
Period to be specified in the notice
3.5.11. Subsection 264A(2) provides that the period specified in the offshore information notice must end 90 days after the date of service of the notice. However, under subsection 264A(3), the taxpayer may apply for an extension of time to comply with the notice. The application must be made prior to the date for compliance. If the taxpayer makes such an application and the Commissioner does not reply within time, there is a deemed extension of time under subsection 264A(4).
Notice to specify the manner of provision
3.5.12. The notice should clearly state the form in which the requested information and documents are to be provided to the ATO. For example, copies or original documents may be requested. It is also important to state clearly the address where the requested information and documents are to be delivered and a contact officer to whom the material may be sent.
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If information is held by means of mechanical, electronic or other device, the appropriate way to seek it is as information under paragraph 264A(1)(c) rather than as a document under 264A(1)(d) or copy of a document or under 264A(1)(e) 9.
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3.6.1. A request under section 264A must be by notice in writing - refer to PS LA 2002/10 for more information on signing and executing documents. In Faulding, it was held that there was no requirement that the Deputy Commissioner in whose name the notice was issued should have personally authorised the issue of the notice or even have any knowledge of that notice.
3.6.2 The notice should include the following details:
- the legislative provision under which it is issued
- the name of the taxpayer
- the address for service of the taxpayer
- the date of issue
- identification of each assessment of the taxpayer to which the information and documents are said to be relevant 10
- specification of the information to be given, the documents to be produced and the documents to be copied and produced
- the details of how to comply (for example, the period for compliance, the name(s) of the officer(s) and address to which the information, documents and copies are to be sent, and any other requirement as to the manner in which compliance is required), and
- the consequences of failure to comply.
3.6.3. A covering letter will accompany the notice, providing details such as the names of contact officers in order to help the taxpayer when responding to the notice.
3.6.4. Pro-forma notices can be used when drafting offshore information notices.
3.7.1. Where the taxpayer has refused or failed to provide information or a document as requested, that information or document (or secondary evidence of the document) is inadmissible without the Commissioner's consent, in any (Court or tribunal) proceedings disputing the taxpayer's assessment 11.
3.7.2. There are no penalties or criminal sanctions for not complying with a notice issued under section 264A as there may be for failure to comply with a notice issued under section 264. In the case of non-compliance with a notice issued under section 264A, there is only the evidentiary sanction, described above.
3.7.3. The notice must advise the taxpayer the effect of non-compliance with the request 12.
Appendix
Revisions to Chapter 3 - International information gathering
1. The references to ss 65 and 66 TAA (GST previous access and information gathering powers) in Paragraph 3.2.3 have been amended to s353-15 and s353-10 of Schedule 1 of the TAA as a result of amendments to the legislation.
2. Paragraphs 3.2.4, 3.2.5, 3.2.6 have been revised to include discussion of tax information exchange agreements.
Footnotes
1 Compliance program 2005-06
2 Compliance program 2005-06
3 F.H Faulding & Co Ltd. v F.C of T 94 ATC 4867
4 at page 4910
5 99 ATC 4668
6 De Vonk
7 See subsections 264A(1)(a) and (b).
8 (1994) 181 CLR 1.
9 Under section 25 of the Acts Intepretation Act 1901, documents include material held in electronic form subject the contrary intention being shown. That contrary intention appears to be shown in 264A(1)(a)(ii) and (iii) - see also 264A(23).
10 FC of T v Pilnara Pty Ltd (1999) 99 ATC 5,343, at 5,355.
11 See subsection 264A (10).
12 Subsection 264A (19) provides that an offshore information notice must set out the effect of the evidentiary sanction contained in subsection 264A (10).
Last Modified: Monday, 29 March 2010
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