Targeting tax crime: a whole-of-government approach - July 2009

G20 targets abusive use of tax havens

Despite the efforts of governments around the world, a number of tax havens conceal artificial financial arrangements and the individuals or companies that use them. The burden of the revenue lost falls on honest taxpayers and the community as a whole.

Assistant Commissioner for International Relations at the ATO, Malcolm Allen said the Organisation for Economic Cooperation and Development (OECD) has championed a global effort to fight tax crime for a number of years.

The Internationally Agreed Tax Standard, developed by the OECD and endorsed by both the UN and G20 finance ministers in 2009, means countries must share tax information for administration and enforcement regardless of domestic tax laws or bank secrecy. It also provides for safeguards to protect the confidentiality of this information.

'Despite this, our tax system is still vulnerable to the use of tax havens. The ongoing Wickenby investigations, prosecutions and reports in the media of tax avoidance by customers of certain overseas banks, indicates there is still much to be done', he said.

The G20 meeting in March 2009 responded to sustained pressure from the international community and the financial crisis with stronger initiatives to combat tax crime. These included recommendations to make it more expensive to deal with 'uncooperative' nations as well as sanctions such as reducing the flow of aid money to them.

Following this meeting, the OECD published a report on the progress of implementing the Internationally Agreed Tax Standard. It also included a commitment to work with all relevant countries to bring about the swift and effective implementation of the Standard. The OECD report also highlights a 'grey list' of countries that have signed up to key standards of taxation and banking openness but have not yet fully implemented them.

Switzerland has committed to exchange information on suspected cases of tax evasion where requests are 'specific and justified'. Singapore, Hong Kong and China also endorsed OECD principles for transparency and the exchange of information and have agreed to implement new laws during 2009.

Meanwhile Costa Rica, Malaysia, Philippines and Uruguay have been reclassified as 'jurisdictions that have committed to the Standard, but have not yet substantially implemented it'.

Tax Commissioners also focused on these issues at the May 2009 meeting of the OECD Forum on Tax Administration. Their communiqué highlighted their resolve to continue to work together to 'share information and expertise on measures to enable revenue bodies to prevent non-compliance using offshore arrangements, including voluntary compliance strategies.'

Malcolm Allen says the OECD and the G20 group are taking action to address secrecy, poor information sharing, tax havens and money laundering.

'They are closing the net on countries that continue to facilitate the abuse of tax systems.

'The progress achieved in the past six months is significant and will contribute greatly to minimising opportunities for Australians to engage in tax crime globally, which deprives other Australians of vital tax revenue', he said.

'The challenge, for those countries committed to improving transparency and information sharing, is to do so swiftly and effectively.

'Many will need to implement new laws or change existing ones and establish specific bilateral or multilateral agreements to enable information to be effectively exchanged.'

Mr Allen says the ATO is ready to help.

'Over the past four years we've signed tax information exchange agreements with six jurisdictions previously considered to be tax havens, namely Antigua and Barbuda, Bermuda, the British Virgin Islands, the Isle of Mann, the Netherland Antilles and Jersey.

'We anticipate that current negotiations will see further agreements finalised before the end of 2009.'

However he warns that coordinated international efforts will be needed to curtail the use of tax havens and reduce opportunities for tax crime.

For more information about tax havens read our story Federal budget targets tax havens.

Implementation of internationally agreed tax standard¹

Progress at 13 July 2009

Jurisdictions that have substantially implemented the Internationally Agreed Tax Standard.

Argentina	Hungary	Poland
Australia	Iceland	Portugal
Bahrain	Ireland	Russian Federation
Barbados	Isle of Man	Seychelles
Bermuda	Italy	Slovak Republic
Canada	Japan	South Africa
China2	Jersey	Spain
Cyprus	Korea	Sweden
Czech Republic	Luxembourg	Turkey
Denmark	Malta	United Arab Emirates
Finland	Mauritius	United Kingdom
France	Mexico	United States
Germany	Netherlands	US Virgin Islands
Greece	New Zealand
Guernsey	Norway

Jurisdictions that have committed to the Internationally Agreed Tax Standards, but have not yet substantially implemented it - tax havens³.

Andorra	Marshall Islands
Anguilla	Monaco
Antigua and Barbuda	Montserrat
Aruba	Nauru
Bahamas	Netherland Antilles
Belize	Niue
British Virginia Islands	Panama
Cayman Islands4	St Kitts and Nevis
Cook Islands	St Lucia
Dominica	St Vincent and Grenadines
Gibraltar	Samoa
Liberia	Turks and Caicos Islands
Liechtenstein	Vanuatu

Jurisdictions that have committed to the International Agreed Tax Standards, but have not yet substantially implemented it - other financial centres.

Austria5

Belgium 5

Brunei

Chile

Costa Rica

Guatemala

Malaysia

Philippines

Singapore

Switzerland 5

Uruguay

Source: A progress report on the jurisdictions surveyed by the OECD Global Forum internationally agreed tax standards.

Fighting crime overseas

The dynamic nature of the global environment requires a range of responses to help fight tax crime overseas, according to the ATO's Assistant Commissioner for Serious Non-Compliance, Michael O'Neill.

'Factors such as expanded international trade, enhanced communications and increased travel have seen a substantial increase in the movement of money overseas in the past decade', he said.

'Much of this money is related to legitimate business and trade, or travel and tourism activities. But some of it is not legitimate, with sophisticated business models set up - often through organised criminal networks - to avoid the Australian tax system.'

A recent investigation found Australian taxpayers used Vanuatu-based schemes to avoid paying tax. The offenders applied false invoicing between a Vanuatu entity and an Australian entity that resulted in over-claiming of tax deductions.

Through the use of predictive analytics, the ATO and agency partners apply similar attributes to this system to a wide range of taxpayers and advisers. The aim is to identify similar activity for further investigation.

To date, some 90 audits have been conducted based on these investigations, which have recovered more than $100 million in deductions. Charges of tax fraud and money laundering have also been laid against several offenders, including taxpayers, scheme promoters and intermediaries.