The changing face of tax crime and the ATO's influence on tax history
Michael D'Ascenzo, former ATO Commissioner, is recognised internationally for his expertise in tax and superannuation administration, governance and law. With 35 years experience at the ATO he initiated many advances, including tackling abusive tax schemes to make the system fairer and more certain for taxpayers. Michael offers his perspective on the changing face of tax crime from the bottom of the harbour schemes to Project Wickenby and the ATO's response.
Tax crime is nothing new. Former ATO Commissioner, Trevor Boucher said, 'all countries must face the prospect that some taxpayers will seek by means that they hope or believe to be legal, to escape tax that the country's tax law required to be paid'.
I know this sentiment all too well as I spent the first ten years at the ATO fighting the blatant, artificial and contrived paper schemes of the late 1970s and early 1980s, including the colloquially termed 'bottom of the harbour schemes'.
In the 1990s, mass-marketed schemes emerged with similar features to the paper schemes. Mum and Dad type investors were claiming aggregate deductions totalling more than $1 billion. Unfortunately, as these schemes were based on elusory tax deductions, these investments ultimately turned sour, hurting many of the people who were duped into them.
This century globalisation, sophisticated technology and the economic climate have proved an environment for new schemes to develop, namely offshore structures and complex arrangements. These are much less obvious than earlier schemes - even to experienced investors.
Needless to say the types of schemes, the participants and the environment have all changed over the past 40 years. What's remained constant is the threat these schemes pose to the community's confidence in the integrity of the tax system. The ATO has remained vigilant against this behaviour, and its response has been influential in shaping Australia's tax and economic history.
Two legislative changes lead the way towards re-balancing the community's perception of a fair, accountable and transparent tax administration. In 1980, the Tax Crime Act put an end to the paper schemes.
John Howard was treasurer at the time and said, 'the extremely serious nature of the problem and the threat to revenue collections that it poses - and which existing law is inadequate to cope with - require that an adequate remedy be found and found urgently'.
A few years later in 1982, the Taxation Unpaid Company Tax Assessment Act was introduced allowing the ATO to recover the lost revenue from bottom of the harbour schemes.
To support these legislative changes and rectify the imbalance of the risk falling solely on investors, the promoter penalty laws were introduced in 2006 making scheme promoters also at risk financially.
In addition to these changes, the ATO introduced other initiatives and used these to tailor its approach to provide early warning to the community about existing or emerging schemes. Some of these initiatives include targeted communication campaigns, taxpayer alerts, public and private rulings, publications and media releases. The aim being to make it as easy as possible for all Australians to understand and fulfil their tax responsibilities.
Something else that has changed nationally and internationally is the ATO's involvement in law enforcement. It seems a logical progression since tax evasion and organised crime generally go hand-in-hand. The Roman philosopher and statesman Seneca said, 'who profits by a crime commits it'. He also said, 'he who does not prevent a crime encourages it'. The ATO plays an important role as the connection between criminals and their finances makes them vulnerable to revenue agencies.
This philosophy was formally put into effect in Australia in 1985, when the ATO was able to disclose information to the National Crimes Authority (the precursor to the Australian Crime Commission). A few years later in 1989, the ATO was allowed to share information about serious offences with law enforcement bodies.
This type of cooperation has been fundamental in changing how the ATO operates in the tax crime space. The ATO is part of the Commonwealth Organised Crime Strategic Framework and Fusion Capability. Working cooperatively like this, we can use each agency's powers and responsibilities to maximum effect. Fusion is a perfect example as it provides a real-time national criminal intelligence picture.
Cooperation has also been fundamental with the ATO's participation in cross-agency initiatives, such as Project Wickenby, Task Force Galilee and the Criminal Asset Confiscation Taskforce, as well as increased data matching and the use of sophisticated analytics. Project Wickenby has been effective in not only changing tax evasion and avoidance behaviours, but has become a model for how to operate an effective task force.
For those who try to evade tax, the ATO message is simple, 'it's only a matter of time before you are caught'. Strategies for deterring, detecting and dealing with those that are deliberately non-compliant are firmly entrenched in the ATO's work. They've helped Australians value their tax and super systems as a community asset, especially compared to the late 1990s. Today, most Australian citizens recognise that paying tax buys them the society we live in.
Ultimately the work the ATO does, together with its government partners, exists to protect the wellbeing of Australians and create a level playing field. It supports and protects Australians.