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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Russian pools, despatches from the Pole, and disagreeing with my son Boris on Brexit

My week, from Moscow to Westminster Hour.

With the weather in Moscow last week warm, if not balmy, I thought about taking a dip in the vast heated open-air swimming pool that I remembered from a previous visit. My Russian host shook his head. “That would have been the great Moskva Pool. Stalin actually tore down the Cathedral of Christ the Saviour to make way for it. But, after perestroika, they filled in the pool and rebuilt the church!” So I didn’t have my open-air swim, though I did visit the cathedral instead.

In the evening, spiritually if not physically refreshed, I addressed a gathering of Russian businessmen and bankers who were keen to learn what impact Brexit might have on the London property and investment scene, the UK being a prime destination for their money. We met in the old Ukraina Hotel, now splendidly refurbished and relaunched as the Radisson Royal, Moscow. A Rolls-Royce Silver Wraith was parked in the foyer, a snip at £150,000. “There is a great democratic debate going on in Britain at the moment,” I told my audience. “The issues are finely balanced. I’m for staying in. But on 23 June, the British people, not the politicians, not the tycoons, nor the lobbyists, will decide.”

I noted some uneasy laughter at this point. Russia’s fledgling democracy probably still has some way to go before matters of such moment are left to the people.

 

Culture club

I spent the next afternoon in the Tretyakov Gallery. A rich businessman, Pavel Tretyakov, collected thousands of items of Russian art (mainly icons and paintings) and donated both them and his magnificent house to the state in 1892. Over time, the state has added many more artefacts, including some from the vast storerooms of the Hermitage Museum in St Petersburg.

My guide, Tatiana Gubanova, a senior curator, had recently organised the loan of several items from the Tretyakov to London’s National Portrait Gallery, where they are currently still on display in the splendid “Russia and the Arts” exhibition. She said that she was looking forward to returning to London next year: “The Royal Academy is planning a special exhibition to celebrate the 100th anniversary of the Russian Revolution.” Whatever happens at the political level, it is good to know that our cultural links with Russia are still flourishing.

 

Heading south

Just before I left for Moscow, I attended ­Adrian Camrose’s funeral in St Bride’s Church, off Fleet Street. The scion of a great newspaper family, Adrian made his mark as the Daily Telegraph’s science correspondent.

In early 1984, I went to Antarctica with him. We shared a cabin on a British Antarctic Survey ship while it visited research ­stations “down south”. I was writing a book on Antarctica, subtitled “the Last Great Wilderness”, while Adrian sent a series of crisp despatches to the Telegraph via the ship’s radio-telex. Adrian’s dateline was “On board the John Biscoe, Antarctica”. Distant galaxies were Adrian’s consuming passion. I am sure he is filing stories from the spaceship Spacey McSpaceFace even as I write.

 

Green surge

As co-chairman with Baroness (Barbara) Young of Environmentalists for Europe, my life has been fairly hectic recently. I am sure it will get more so as the referendum day approaches. I know perfectly well that one of the reasons the invitations to speak or write articles ping into my inbox is the titillation factor. Are Families Divided on the Referendum? Is “Boris’s Dad” (that’s me!) going to Disagree with Boris?

Notwithstanding the family relationship, which I deeply treasure, the answer is “yes”. I am going to disagree. Boris and Michael Gove and other key members of the Brexit team have injected a wonderful level of vigour and energy into the referendum debate. They have raised issues, besides the economy, which needed to be discussed, particularly sovereignty, immigration and the EU’s general direction of travel. For this, the nation owes them a debt of gratitude. That said, I am convinced that this is not the moment to call time on the UK’s membership of the EU. As I see it, the best way to address the obvious problems is not to leave the EU but to “Remain” and to fight for change from within. In the end, this will benefit not just the UK but Europe as a whole.

 

Quiet no more

Last Sunday evening, I took part in the BBC Radio 4 programme Westminster Hour. My fellow panellists were the former work and pensions secretary Iain Duncan Smith and Baroness Smith of Basildon, formerly Angela Smith MP, now the shadow leader of the House of Lords.

We had a very lively and sometimes rowdy discussion. IDS is the “quiet man” who, since his resignation from the cabinet a couple of months ago, has regained his voice in no uncertain terms. Baroness Smith, a delightfully unpushy lady, sometimes found it difficult to get a word in edgeways. I don’t think I did so well myself.

But I did, I hope, make it clear that, from my point of view, there was still time to build on all that was good in the EU (such as its environmental record), while seeking common rather than unilateral solutions for the problems that persist.

On 24 June, if the Remain side wins, the government should go into action in Europe with all cylinders firing and with our politicians and diplomats working overtime, to get the arrangements that we need and deserve. On the way out, IDS said to me, “It won’t work. They won’t have it.”

He may be right. But I still think we should give it a go. You don’t file for divorce as a result of a single tiff, not after more than 40 years of marriage.

On the issues of immigration, for example, and possible changes to the EU’s freedom of movement rules, we may find more allies in Europe than we think.

Stanley Johnson is co-chairman of Environmentalists for Europe: environmentalistsforeurope.org

Stanley Johnson is an author, journalist and former Conservative member of the European Parliament. He has also worked in the European Commission. In 1984 Stanley was awarded the Greenpeace Prize for Outstanding Services to the Environment and in the same year the RSPCA Richard Martin award for services to animal welfare. In 1962 he won the Newdigate Prize for Poetry. He also happens to be the father of Boris Johnson.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad