Tax havens and tax administration

Overview

Most transactions between Australia and tax havens are lawful international dealings (in the sense that they take advantage of, among other things, the tax benefits available in those jurisdictions) and not attempts to evade or avoid tax payable in Australia.

Tax havens seek to attract international trade and investment by establishing financial, legal and tax systems that may be beneficial to some activities. Modern communication methods, the internet and people's mobility have made it easier for financial services to be provided from previously remote locations.

The systems that may make tax havens attractive for legitimate purposes can also be used in arrangements designed to evade or avoid paying tax elsewhere, or for other criminal pursuits. Some unscrupulous people try to exploit these systems to evade Australian tax.

Abusive use of tax havens is a problem for many countries. However, our analysis of Australia's situation suggests that the risk of abusive transactions with tax havens may not be as great as other countries but has increased, particularly among individuals and small businesses.

While Australia's revenue is at risk, those who participate in abusive tax haven arrangements also run risks. Some participants lack financial awareness and - through poor or unethical advice, lack of knowledge or wishful thinking - may believe that an abusive arrangement is legitimate.

Our advice to these people is:

• be wary of secrecy - any arrangement that involves concealment should be treated with suspicion
• check before you invest - in particular, get independent advice from a professional who has no connection to the arrangement.

To help people avoid becoming entangled in abusive tax haven arrangements, we issue alerts on our website about some emerging schemes we are concerned about and we explain risky arrangements in publications such as this one. We seek community input to whatever we are doing and publicise our priorities each year in our compliance program. For example, our Compliance program 2007-08 highlights the abusive use of tax havens as a key focus area.

The important thing for people already involved in abusive arrangements is that they come to us before we approach them. Taxpayers who voluntarily disclose their situation may have their tax penalties waived or substantially reduced and, for all but a very few, the matter can be put to rest. The tax law in relation to penalties is less flexible once we begin investigating a case. However, even then the tax law gives some concession to people who cooperate and seek to correct their tax arrangements.

As for promoters, the new 'promoter penalty' laws have increased our power to deal with those who promote abusive arrangements and include substantial monetary penalties.

We use a wide range of intelligence and techniques to identify abusive arrangements. An important source of information is the Australian Transaction Reports and Analysis Centre (AUSTRAC), which monitors international transactions in the financial system.

We also have access to information from financial institutions, as well as transaction data for credit and debit cards that have been issued offshore and used in Australia. We receive intelligence from the public, tax professionals, other Australian agencies and international tax administrations.

Our capability to investigate tax haven arrangements has been expanded and we are not working alone. We have a dedicated offshore compliance program, and where we suspect significant tax evasion or criminal activities, we collaborate with law enforcement agencies on joint investigations. The best known of these is Project Wickenby, a multi-agency taskforce established in 2004 to address abusive international tax arrangements more systematically, by linking taxpayers, promoters and the various havens. These strategies enhance community confidence in our ability to deter, detect and deal with those who use international structures to hide their assets or income.

We also cooperate with other countries on emerging schemes and develop joint response strategies. Under our international tax treaties, we share information about taxpayers engaged in abusive arrangements.