By Jack Stuk, Partner
When the Commissioner of Taxation announced Project DO IT in March 2014, he said, “as governments around the world step up their data sharing and harness powerful technology to find tax cheats, the concept of the ‘tax haven’ is dying. It’s just a matter of time before you’ll be caught.” This is not a self-serving statement or an empty threat.
Project DO IT is a unique opportunity, perhaps the last great opportunity, for any taxpayer who has undeclared assets and income outside Australia to “come clean” and enjoy the truly remarkable benefits that are on offer. Project DO IT is a limited once-off program that is open until 19 December 2014. The full terms of Project DO IT can be viewed at www.ato.gov.au/projectdoit.
Australia has already taken a lead role globally (save for the USA and its FATCA offshore disclosure program) in signing Tax Information Exchange Agreements with many so called “tax havens” (such as Bermuda, Liechtenstein and Vanuatu). What’s more, the rest of the world is not far behind.
In July 2014, the OECD released a new global standard for the exchange of information between jurisdictions to help governments tackle tax fraud and tax evasion. The standard provides for the annual automatic exchange of various financial account information between governments, as reported to governments by financial institutions. The standard covers accounts held by individuals and entities, including trusts and foundations. Over 40 countries (including Australia) have committed to the first annual automatic information exchanges occurring in 2017. Thus, many affected taxpayers (including persons that have evaded) will benefit from a voluntary disclosure made under Project DO IT and would be strongly advised to consider the full terms of Project DO IT immediately with appropriate professional assistance.
If applicable, the substantial tax penalties saved and the potential criminal exposure (including prison) eliminated makes it a compelling choice. It is important that the disclosure be handled through an experienced lawyer so all instructions from the tax payer are covered by legal professional privilege between client and lawyer. The substantial accounting work (including original and amended returns) required due to the Project DO IT disclosure can then proceed to be done by the accountant through instructions received via the lawyer as part of his legal advice to his client.
Project DO IT offers very generous benefits. In summary, the principal benefits of Project DO IT are:
|1.||h||Taxpayers will only to be assessed for applicable (open) periods of review (generally only the last 4 years);|
|2.||Taxpayers will only be liable for a shortfall penalty of a maximum of 10% (total tax of only 110% of the tax avoided in that 4 year period, not 190% or more);|
|3.||Taxpayers be able to seek assurance regarding the ATO’s tax treatment of repatriated offshore assets (net assets or cash can be brought back to Australia without any further interrogation);|
|4.||Taxpayers be able to enter into a settlement deed with the ATO to obtain additional certainty (where circumstances call for additional surety);|
|5.||Although initially subject to some uncertainty, the ATO has recently confirmed that benefits of Project DO IT generally apply to cases of clear tax evasion. An example recently given by the ATO is of Jonathan, a taxpayer who has knowingly siphoned funds offshore and claimed false or inflated deductions in Australia. That taxpayer could qualify for Project DO IT; and|
|6.||Even more importantly taxpayers will not be investigated or referred for criminal investigation by the ATO on the basis of their disclosures.|
There are important limitations to Project DO IT. The overriding and fundamental limitation is that the ATO must accept a taxpayer into Project DO IT. Acceptance is at the discretion of the ATO and is not guaranteed. It may be possible to negotiate an anonymous factual disclosure to the ATO to determine eligibility prior to formally proceeding with Project DO IT.
Therefore, it is critical to put forward a fulsome and compelling case on the first attempt. The “prize” on offer is the extremely generous and once-off benefits (monetary and criminal prosecution avoidance) provided under Project DO IT.
If a taxpayer is not eligible for Project DO IT, and nonetheless makes a voluntary disclosure, they may still be eligible for sizable benefits available for an “ordinary” voluntary disclosure (up to 80% penalty reductions depending on the circumstances).
The key limitations of Project DO IT are:
|1.||h||Taxpayers that are already under compliance action are not eligible (including compliance action that is being undertaken on a covert basis);|
|2.||Taxpayers who are detected by the ATO before they lodge a disclosure statement are not eligible;|
|3.||Taxpayers must make a fulsome and truthful disclosure – anything less than the whole truth will be rejected when that fact comes to light;|
|4.||The terms of Project DO IT, its benefits and its obligations operate as a single package (i.e. “take it or leave it”);|
|5.||Taxpayers must deal with the ATO in good faith;|
|6.||Taxpayers should try to save the ATO as much work as possible;|
|7.||Taxpayers may need to provide details of any about advisers or other intermediaries that, at any time after 1 January 2006, helped establish or maintain the taxpayers offshore structures;|
|8.||Taxpayers must provide details of all offshore structures, assets and entities related to the disclosure;|
|9.||Taxpayers must provide all other material facts relevant to determining their tax liability for the relevant years (but for the Project DO IT benefits);|
|10.||Taxpayers whose foreign assets or income were derived from serious criminal offences unrelated to tax are not eligible(e.g. drug lords); and|
|11.||Taxpayers who have been involved in promoting or marketing tax evasion schemes are not eligible.|
The risks for taxpayers that do not disclose their foreign assets and income fulsomely and those tax affairs are later discovered by the ATO can be extremely severe, and may include:
|1.||h||The ATO having unlimited time to review those taxpayer’s tax affairs and amend their tax returns, where evasion or fraud has occurred (i.e. no 4 year limitation);|
|2.||h||The ATO may (and in most cases will) impose substantial penalties and interest for every single year going back to the beginning of any offshore arrangement;|
|3.||The tax shortfall penalties can be up to 90% of the tax owing plus interest;|
|4.||Criminal prosecution may occur; and|
|5.||If the offshore arrangement was set up by a promoter and one of their clients utilises Project DO IT, it is likely that all other clients on that promoters list will come to the attention of the ATO. This could have dire consequences for those that did not disclose before being tapped on the shoulder by the ATO auditors.|
It is highly recommended that any taxpayers (and their accountants, financial planners or advisors) consider the opportunities available under Project DO IT in careful detail. Affected taxpayers should seek legal advice when considering making a disclosure under Project DO IT.
For more information please contact: