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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Meet the man forcing the Government to reveal its plans for Brexit

Grahame Pigney hopes to "peel away" the secrecy of negotiations. 

Not so long ago, the UK Government was blissfully unaware of Grahame Pigney, a British man living in semi-retirement, in France. But then came Brexit. 

Pigney, who had been campaigning for Britain to stay in the EU, was devastated. But after a few days, he picked himself up and started monitoring the news. He was alarmed to discover the Government thought it could trigger Article 50 without the express permission of Parliament. 

He wasn’t alone. Gina Miller, an investor, was equally incensed and decided to take the Government to court. Pigney (pictured below) set up a crowdfunding campaign to support the case, The People’s Challenge. So far, the campaign has raised more than £100,000. 

This week, the campaign scored its first major victory, when a judge overruled the Government’s attempts to keep its legal defence secret. The case itself will be held in October. 

At a time when the minister for Brexit, David Davis, can only say it means “leaving the EU”, the defence sheds some light on the Government’s thinking. 

For example, it is clear that despite suggestions that Article 50 will be triggered in early 2017, the Government could be easily persuaded to shift the date: 

"The appropriate point at which to issue the notification under Article 50 is a matter of high, if not the highest, policy; a polycentric decision based upon a multitude of domestic and foreign policy and political concerns for which the expertise of Ministers and their officials are particularly well suited an the Courts ill-suited.”

It is also, despite Theresa May’s trips to Scotland, not a power that the Government is willing to share. In response to Pigney’s argument that triggering Article 50 without parliamentary approval impinges on Scotland’s separate body of law, it stated bluntly: “The conduct of foreign relations is a matter expressly reserved such that the devolved legislatures have no competence over it.”

Although Pigney is one of the millions of expats left in jeopardy by Brexit, he tells The Staggers he is not worried about his family. 

Instead, he says it is a matter of principle, because Parliament should be sovereign: “I am not a quitter.” 

While Davis argues he cannot reveal any information about Brexit negotiations without jeopardising them, Pigney thinks the Brexiteers simply “haven’t got anything”. 

A former union negotiator, he understands why Davis doesn’t want to reveal the details, but finds the idea of not even discussing the final goals is baffling: “When I was a union member, we wouldn’t tell them how everything was going but you did agree what the targets were that you were going for.”

He said: “The significance of what happened is we were able to peel away a layer of Government secrecy. One of the things that has characterised this Government is they want to keep everything secret.”