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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Could Jeremy Corbyn still be excluded from the leadership race? The High Court will rule today

Labour donor Michael Foster has applied for a judgement. 

If you thought Labour's National Executive Committee's decision to let Jeremy Corbyn automatically run again for leader was the end of it, think again. 

Today, the High Court will decide whether the NEC made the right judgement - or if Corbyn should have been forced to seek nominations from 51 MPs, which would effectively block him from the ballot.

The legal challenge is brought by Michael Foster, a Labour donor and former parliamentary candidate. Corbyn is listed as one of the defendants.

Before the NEC decision, both Corbyn's team and the rebel MPs sought legal advice.

Foster has maintained he is simply seeking the views of experts. 

Nevertheless, he has clashed with Corbyn before. He heckled the Labour leader, whose party has been racked with anti-Semitism scandals, at a Labour Friends of Israel event in September 2015, where he demanded: "Say the word Israel."

But should the judge decide in favour of Foster, would the Labour leadership challenge really be over?

Dr Peter Catterall, a reader in history at Westminster University and a specialist in opposition studies, doesn't think so. He said: "The Labour party is a private institution, so unless they are actually breaking the law, it seems to me it is about how you interpret the rules of the party."

Corbyn's bid to be personally mentioned on the ballot paper was a smart move, he said, and the High Court's decision is unlikely to heal wounds.

 "You have to ask yourself, what is the point of doing this? What does success look like?" he said. "Will it simply reinforce the idea that Mr Corbyn is being made a martyr by people who are out to get him?"