Offshore tax evasion was once the domain of the very wealthy, but as the world becomes more globalised, many ordinary professional individuals both with and without accounting experience are increasing turning to establishing offshore companies to decrease the amount of tax paid in Australia. In response, the ATO is using the many tools in its arsenal to tackle the problem before it becomes established.
As shown by recently offshore tax evasion case studies, one of the most effective tools employed by the ATO is advanced data analytics to identify patterns and anomalies indicative of tax evasion. By cross-referencing information from various sources, including those obtained through international agreements as well as domestically through share market trading data and payments made to domestic bank accounts, the ATO is able to detect unreported offshore income.
The ATO also actively participates in international agreements for the exchange of tax information. The list of countries that the ATO has Tax Information Exchange Agreements (TIEAs) with include many famed tax havens as well as other countries: Andorra; Anguilla; Antigua and Barbuda; Aruba; The Bahamas; Bahrain; Belize; Bermuda; British Virgin Islands; Brunei; The Cayman Islands; Cook Islands; Costa Rica; Dominica; Gibraltar; Grenda; Guatemala; Guernsey; Isle of Man; Jersey; Liberia; Liechtenstein; Macao, Marshall Islands, Mauritius; Monaco, Montserrat; Netherlands Antilles; Samoa; San Marino; St Kitts and Nevis; St Lucia; St Vincent and the Grenadines; Turks and Caicos Islands; Uruguay; and Vanuatu. TIEAs allow the automatic exchange of financial account information between countries and allows the ATO to receive detailed information about Australians with financial accounts in other countries.
In addition to these two very effective tools, the ATO also gathers information of tax evasion through the multi-agency Serious Financial Crime Taskforce (SFCT) which started operating on 1 July 2015, and combines the expertise and resources of the ATO, AFP, AUSTRAC, ASIC and ACIC, to name a few. The composition of the taskforce changes depending on the financial crime being investigated. As at 31 December 2023, the taskforce had investigated cases that resulted in the completion of 1,994 audits and reviews and the conviction and sentencing of 33 people, raising liabilities of over $2bn and collecting around $800m.
In terms of international presence, the ATO is also a part of the J5 (Joint Chiefs of Global Tax Enforcement) along with Canada, UK, US, and Netherlands, which share intelligence and carry out operational activities. The most recent focus of the J5 include optimising the usage of data acquired from a variety of open and investigative sources available to each country to detect threats from crypto-assets.
While these active approaches occupy most of ATO’s focus under normal operating conditions, where there is a substantial data leak from whistleblowers or investigative journalists such as the Panama Papers, the ATO will scrutinise the data and conduct investigations and audits of individuals and businesses with suspected links to offshore tax evasion.
For individuals who inadvertently or mistakenly find themselves as part of possible offshore tax evasion structures, the ATO encourages making a voluntary disclosure before the commencement of potential audits to reduce the penalties and interest which may apply. However, those that deliberately flout the system may find themselves mired in legal action which can result in significant penalties or even criminal charges.
