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

Photo: Getty Images
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The buck doesn't stop with Grant Shapps - and probably shouldn't stop with Lord Feldman, either

The question of "who knew what, and when?" shouldn't stop with the Conservative peer.

If Grant Shapps’ enforced resignation as a minister was intended to draw a line under the Mark Clarke affair, it has had the reverse effect. Attention is now shifting to Lord Feldman, who was joint chair during Shapps’  tenure at the top of CCHQ.  It is not just the allegations of sexual harrassment, bullying, and extortion against Mark Clarke, but the question of who knew what, and when.

Although Shapps’ resignation letter says that “the buck” stops with him, his allies are privately furious at his de facto sacking, and they are pointing the finger at Feldman. They point out that not only was Feldman the senior partner on paper, but when the rewards for the unexpected election victory were handed out, it was Feldman who was held up as the key man, while Shapps was given what they see as a relatively lowly position in the Department for International Development.  Yet Feldman is still in post while Shapps was effectively forced out by David Cameron. Once again, says one, “the PM’s mates are protected, the rest of us shafted”.

As Simon Walters reports in this morning’s Mail on Sunday, the focus is turning onto Feldman, while Paul Goodman, the editor of the influential grassroots website ConservativeHome has piled further pressure on the peer by calling for him to go.

But even Feldman’s resignation is unlikely to be the end of the matter. Although the scope of the allegations against Clarke were unknown to many, questions about his behaviour were widespread, and fears about the conduct of elections in the party’s youth wing are also longstanding. Shortly after the 2010 election, Conservative student activists told me they’d cheered when Sadiq Khan defeated Clarke in Tooting, while a group of Conservative staffers were said to be part of the “Six per cent club” – they wanted a swing big enough for a Tory majority, but too small for Clarke to win his seat. The viciousness of Conservative Future’s internal elections is sufficiently well-known, meanwhile, to be a repeated refrain among defenders of the notoriously opaque democratic process in Labour Students, with supporters of a one member one vote system asked if they would risk elections as vicious as those in their Tory equivalent.

Just as it seems unlikely that Feldman remained ignorant of allegations against Clarke if Shapps knew, it feels untenable to argue that Clarke’s defeat could be cheered by both student Conservatives and Tory staffers and the unpleasantness of the party’s internal election sufficiently well-known by its opponents, without coming across the desk of Conservative politicians above even the chair of CCHQ’s paygrade.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.