Hundreds of Australians linked to an international tax fraud associated with a Central American financial institution

07 February 2020

On 24 January 2020, tax authorities from Australia, the United States, Canada, the Netherlands and the United Kingdom (the J5) announced a coordinated day of global action to stop the facilitation of international tax fraud through a Central American financial institution. The announcement comes at a time when the Commonwealth Government has provided additional funding to the ATO of more than $1 billion to conduct tax investigations under the Tax Evasion and Black Economy Taskforces. You can read our previous Tax Insight on the ATO Task Force here.

The J5’s investigation collected evidence, intelligence and information via the use of search warrants, interviews and subpoenas. A man from the United Kingdom was also arrested. The ATO alleges that the financial institution has been offering services and products to hundreds of Australian citizens which it believes are designed to facilitate money laundering and tax fraud.

The message is clear. The ATO will not tolerate tax evasion and if you attempt to hide assets and income overseas, you are likely to eventually be caught. Over the past decade, significant resources have been applied by the ATO to investigate tax fraud under Project Wickenby, and the Paradise and Panama Papers. Further, global information sharing, large-scale public data leaks (see our Tax Insight on the Glencore decision here) and breakdowns in corporate secrecy rules in tax havens have markedly increased the risk of detection. Significantly, advisors can also face civil and criminal penalties for facilitating clients to enter into tax-driven schemes or structures.

Where to from here?

We understand that the ATO has already started to issue letters to taxpayers to commence its enquiries. Under the tax law, Australians can face penalties of up to 90% of any tax shortfall and criminal prosecution. The ATO can also recover interest on unpaid taxes. In circumstances where tax fraud has been identified, it is more likely that an ATO audit could escalate into an intensive tax audit of a taxpayer’s entire group (including any Australian operations that might not previously have been subjected to a tax audit).

What should you do?

Act fast. We recommend that advisors and their clients review their existing off-shore structures and arrangements which hold foreign assets and derive income, to determine if those arrangements comply with Australian tax law. In particular, where arrangements involve foreign banks and the non-disclosure of income or assets to the ATO. There may be instances where taxpayers have inherited an off-shore tax structure from a deceased parent or grandparent.  Some of these taxpayers may have historically taken a view that as they didn’t set it up, they can leave it be. Our message here is that ignorance is no excuse. If a review of your structures identifies historical tax liabilities, clients should strongly consider making a form of voluntary disclosure to the ATO. The ATO encourages voluntary disclosures and in our experience is more likely to favourably exercise its discretions to remit penalties and interest in such circumstances. Depending on the circumstances, the risk of criminal prosecution may also be reduced in circumstances where a taxpayer has made a voluntary disclosure to the ATO.

HWL Ebsworth Lawyers’ National Tax Disputes Group has experienced tax lawyers who can assist advisors and their clients to review their existing off-shore structures and implement a mitigation strategy, which in some cases would include making a voluntary disclosure to the ATO. Contact a member of our National Tax Disputes Group to find out more.

Written by Shaun Cartoon (Partner) and Vincent Licciardi (Senior Associate)

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