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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Find the EU renegotiation demands dull? Me too – but they are important

It's an old trick: smother anything in enough jargon and you can avoid being held accountable for it.

I don’t know about you, but I found the details of Britain’s European Union renegotiation demands quite hard to read. Literally. My eye kept gliding past them, in an endless quest for something more interesting in the paragraph ahead. It was as if the word “subsidiarity” had been smeared in grease. I haven’t felt tedium quite like this since I read The Lord of the Rings and found I slid straight past anything written in italics, reasoning that it was probably another interminable Elvish poem. (“The wind was in his flowing hair/The foam about him shone;/Afar they saw him strong and fair/Go riding like a swan.”)

Anyone who writes about politics encounters this; I call it Subclause Syndrome. Smother anything in enough jargon, whirr enough footnotes into the air, and you have a very effective shield for protecting yourself from accountability – better even than gutting the Freedom of Information laws, although the government seems quite keen on that, too. No wonder so much of our political conversation ends up being about personality: if we can’t hope to master all the technicalities, the next best thing is to trust the person to whom we have delegated that job.

Anyway, after 15 cups of coffee, three ice-bucket challenges and a bottle of poppers I borrowed from a Tory MP, I finally made it through. I didn’t feel much more enlightened, though, because there were notable omissions – no mention, thankfully, of rolling back employment protections – and elsewhere there was a touching faith in the power of adding “language” to official documents.

One thing did stand out, however. For months, we have been told that it is a terrible problem that migrants from Europe are sending child benefit to their families back home. In future, the amount that can be claimed will start at zero and it will reach full whack only after four years of working in Britain. Even better, to reduce the alleged “pull factor” of our generous in-work benefits regime, the child benefit rate will be paid on a ratio calculated according to average wages in the home country.

What a waste of time. At the moment, only £30m in child benefit is sent out of the country each year: quite a large sum if you’re doing a whip round for a retirement gift for a colleague, but basically a rounding error in the Department for Work and Pensions budget.

Only 20,000 workers, and 34,000 children, are involved. And yet, apparently, this makes it worth introducing 28 different rates of child benefit to be administered by the DWP. We are given to understand that Iain Duncan Smith thinks this is barmy – and this is a man optimistic enough about his department’s computer systems to predict in 2013 that 4.46 million people would be claiming Universal Credit by now*.

David Cameron’s renegotiation package was comprised exclusively of what Doctor Who fans call handwavium – a magic substance with no obvious physical attributes, which nonetheless helpfully advances the plot. In this case, the renegotiation covers up the fact that the Prime Minister always wanted to argue to stay in Europe, but needed a handy fig leaf to do so.

Brace yourself for a sentence you might not read again in the New Statesman, but this makes me feel sorry for Chris Grayling. He and other Outers in the cabinet have to wait at least two weeks for Cameron to get the demands signed off; all the while, Cameron can subtly make the case for staying in Europe, while they are bound to keep quiet because of collective responsibility.

When that stricture lifts, the high-ranking Eurosceptics will at last be free to make the case they have been sitting on for years. I have three strong beliefs about what will happen next. First, that everyone confidently predicting a paralysing civil war in the Tory ranks is doing so more in hope than expectation. Some on the left feel that if Labour is going to be divided over Trident, it is only fair that the Tories be split down the middle, too. They forget that power, and patronage, are strong solvents: there has already been much muttering about low-level blackmail from the high command, with MPs warned about the dire influence of disloyalty on their career prospects.

Second, the Europe campaign will feature large doses of both sides solemnly advising the other that they need to make “a positive case”. This will be roundly ignored. The Remain team will run a fear campaign based on job losses, access to the single market and “losing our seat at the table”; Leave will run a fear campaign based on the steady advance of whatever collective noun for migrants sounds just the right side of racist. (Current favourite: “hordes”.)

Third, the number of Britons making a decision based on a complete understanding of the renegotiation, and the future terms of our membership, will be vanishingly small. It is simply impossible to read about subsidiarity for more than an hour without lapsing into a coma.

Yet, funnily enough, this isn’t necessarily a bad thing. Just as the absurd complexity of policy frees us to talk instead about character, so the onset of Subclause Syndrome in the EU debate will allow us to ask ourselves a more profound, defining question: what kind of country do we want Britain to be? Polling suggests that very few of us see ourselves as “European” rather than Scottish, or British, but are we a country that feels open and looks outwards, or one that thinks this is the best it’s going to get, and we need to protect what we have? That’s more vital than any subclause. l

* For those of you keeping score at home, Universal Credit is now allegedly going to be implemented by 2021. Incidentally, George Osborne has recently discovered that it’s a great source of handwavium; tax credit cuts have been postponed because UC will render such huge savings that they aren’t needed.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle