Dealing with tax avoidance: why Australians do it better than the Brits

"Australia is a highly tax compliant country."

The Public Accounts Committee said last month that the UK should look to the Australian model for tackling tax avoidance. Paul Stacey, head of tax policy at the Institute of Chartered Accountants Australia, explains how their system works.

The importance of a good tax system design to sustain government revenues has always been apparent. For many nations, the continuing weakness in revenues following the global financial crisis has made this priority even clearer. In this climate, differing approaches to tax avoidance have become a focal point for discussion, and in the United Kingdom and Australia, this is no exception.

Both nations continue to grapple with issues of design, in both tax law and tax administration, on how best to limit the impact of tax avoidance on revenue collection.

In the United Kingdom, the House of Commons Committee of Public Accounts report on Tax avoidance: tackling marketing avoidance schemes "encourage[d] HRMC to look seriously at whether [the Australian approach] could be effective in the UK."

Jennie Granger, HMRC’s current director general of enforcement & compliance and a former Australian Tax Office (ATO) deputy commissioner, in evidence to the committee, ascribed Australia’s success in dealing with mass marketed tax avoidance schemes to product rulings and the promoter penalty legislation, both of which she said worked well.

The Australian approach to mass marketed or retail tax avoidance schemes thus comprises, from a tax system design perspective, two parts – one part a tax administration solution, the other a tax law design solution.

The first part is product rulings which the ATO first started issuing in 1998. The genius of this idea is that it embedded the idea of an ATO sign off into the marketing of these retail tax schemes. This changed market and investor practice - put simply, if a scheme lacked ATO sign off it became much harder to market.

This change in market behaviour meant that, in turn, that the ATO could choke off supply at the source by issuing a negative product ruling for those schemes which it regarded as offensive. Investors could also rely on the product ruling when self assessing their tax position.

However, the success of the promoter penalty rules – the tax law solution, which came into effect on 6 April 2006 – is less evident. There has only been one case to date, which the ATO convincingly lost.

Granger suggested much of the success of these rules lay in "enforceable undertakings" entered into with advisors which restrict their conduct. But these enforceable undertakings are, by their nature, confidential and hence their existence, or not, will be unknown externally. Nor does the ATO publicly disclose the number of these agreements signed. The success of this part of the Australian solution remains unclear and is not communicated to the public.

Moreover, it should be remembered that Australia is a highly tax compliant country. Its tax collection system is a self-assessment model under which taxpayers assess their own tax liabilities and then remit these to the ATO. That model is bolstered by various withholding measures which limit the opportunity to avoid remitting tax.

The ATO is well resourced, well motivated, and equipped with extensive legal powers. For example, Australia has had a tax general anti-avoidance rule for over 30 years and, as long ago as December 1996, the High Court dismissed the relevance of the Duke of Westminster principle to Australia as merely the ‘muffled echoes of old arguments concerning other legislation’.

In these circumstances tax avoidance is at the margins of Australian economic activity, rather than front and foremost of mind.

This article first appeared on economia

Photograph: Getty Images

Paul Stacey FCA is head of tax policy at the Institute of Chartered Accountants Australia

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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

***

Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.