With increasing fiscal leakage due to tax evasion, the OECD, of which Australia and Greece are member states, has in recent years been very focused on a global strategy to reduce the incidence of tax evasion and restore government revenue by preventing fiscal leakage. In particular, the OECD’s work in developing the ‘Global Forum on Transparency and Exchange of Information’, in conjunction with their work on base erosion and profit shifting reflects a global attempt to bring the rules of international tax into the 21st century.

Those who commit serious tax crime can expect to be referred for the prosecution before the courts by the Commonwealth Director of Public Prosecutions.

In this respect the OECD (incl. Australia and Greece) are desperately looking for ways to boost revenue by changing the anachronistic infrastructure of the international tax system (largely created between the 1st and 2nd world wars) as those rules largely catered for a physical world completely irrelevant to todays global digital economy. Part of this also includes boosting information sharing and data matching systems to ensure residents in wealthy countries contribute appropriately to the lives they enjoy in that jurisdiction and it will be increasingly difficult to evade tax and there will be increasingly harsh penalties for doing so.

It has now become apparent that in relation to documents obtained by the ATO via an exchange of information requests in relation to the ‘Panama Leaks’, the ATO has flagged that it has received a considerable amount of data concerning a Panamanian law firm that contained the names of a significant number of Australian taxpayer residents. The ATO has identified more than 800 taxpayers, linking 120 of them to an “associate offshore service provider” located in Hong Kong.

By way of background, the leaked data covers almost 40 years, from 1977 and ending in 2015. It contains a never-seen-before overview of how the offshore world operates, providing a look at how money flows from the world’s financial systems to tax havens, cracking our national treasures relating to our tax revenue.

The data includes emails, spreadsheets, passports and company records connected to people in more than 200 countries and territories. It has been reported that a full list of taxpayers will be released in early May.

To explain the Panama Papers scandal and how it can affect the tax-paying Australian resident, we need to take a look back at 2014 in relation to the Project DO IT.
Project DO IT offered the most substantial terms ever publicised by the ATO since the last foreign income amnesty came into play back in 2010 for making a voluntary tax disclosure. Moving on to 2014, the key points to Project DO IT were:
• Tax was only assessed for the past four assessment years, regardless of the number of years of non-disclosure;
• Penalties of 10 per cent, or nil if additional income in a year was $20,000 or less;
• The ATO would not refer you for investigation for criminal prosecutions;
• The ATO would not voluntarily refer the disclosure to another law enforcement agency;
• Guarantee and certainty was given on the tax effects of winding up offshore structures and bringing offshore assets back to Australia;
• Only certain financial information was to be provided and;
• There was efficient disclosure processes with no compulsion to meet the ATO.

What happened if you didn’t disclose your offshore income, offshore assets and offshore bank account and you are detected after 19 December 2014?
Given the amount of publicity both nationally and internationally, and the need for the Commonwealth of Australia to protect its revenue, the ATO has firmly focused on the distinction between tax avoidance and tax evasion. Project Wickenby was a response to a change in dynamics out of which came Operation Wickenby, which centred on high-profile tax cases and high net wealth individuals with successful civil and criminal prosecutions. Frequently taxpayers are detected through any number of processes including a simple request, query, field audit, review or business review, investigation or audit.

In these circumstances, for taxpayers who had become aware that their tax affairs were not compliant and they needed to make a voluntary disclosure, there is absolutely no doubt that their level of tax noncompliance will eventually be detected and if so, they run a real risk of being prosecuted and incarcerated for substantial periods of time depending upon the nature of the offences committed. Accordingly, what the ATO is targeting amongst other things is, for example, conspicuous consumption, low salaries, substantial assets, glamorous cars, luxurious holidays, expensive homes, children at elite private schools and significant business and other overseas dealings.

Furthermore, the ATO’s compliance program 2015-2016 is far more aggressive than ever in detecting and prosecuting taxpayers who don’t disclose their foreign income and or assets or who overstate their deductions. The ATO has stated firmly that: “Those who commit serious tax crime can expect to be referred for prosecution before the courts by the Commonwealth Director of Public Prosecutions (CDPP). In addition to recording criminal convictions, the courts may impose security bonds, community service orders, fines, additional penalties and, for some offences, prison sentences.”

The ATO moving forward in 2016 – Project Do IT off the table and more criminal prosecutions to follow.
In this respect, two years have lapsed since Project Do IT in 2014, and taxpayers were given sufficient opportunity to make full disclosure relating to their income and or offshore assets. Accordingly, Project Do IT is now off the table and as a consequence, the ATO is now seeking to criminally prosecute taxpayers for non-disclosure of income and offshore assets worldwide, including high net individuals. As a consequence of the Panama Leaks there are currently approximately 120 live cases that the ATO is investigating relating to offshore and for the non-disclosure of income and or assets and offshore bank accounts.

The argument here is that some taxpayers still have a view of the ATO as a lumbering elephant that hasn’t learnt from its past mistakes. The ATO now is not only a revenue collector and tax enforcer, but a very sophisticated intelligence agency with real-time computing, so that with the blink of an eye it is able to pull up and extract a complete profile of the taxpayer, including on social and networking sites anywhere and at any time it chooses to do so.

The trap for many of those taxpayers currently under investigation is that by the time they come to the attention of the ATO it is already in possession of significant amounts of information and intelligence indicating that the taxpayers are noncompliant.
Another major aspect to this is that the ATO has adopted a whole new approach which involves all of the major agencies of the Australian government, and specifically, it involves the ATO, Australian Crime Commission, Australian Federal Police, Australian Securities and Investment Commission and the Commonwealth Director of Public Prosecutions (DPP).

One of the major issues that taxpayers will be facing currently is that there are no clear-cut guidelines as to the way the ATO will tackle the issues with respect to criminal prosecution for non-disclosure of foreign sourced income in relation to the ‘Panama Leaks’. The willingness now in relation to taxpayers coming clean and now voluntarily disclosing any foreign-sourced income or offshore assets and offshore bank accounts will discourage some taxpayers from disclosing any offshore income, because of the fear that taxpayers will be criminally prosecuted and sent to prison.

So what does it mean for legal advisers and financial advisers who have aided and abetted with a taxpayer to evade or avoid their tax obligations?
The Australian judiciary has made it quite clear in recent tax fraud cases that tax and financial advisers should expect longer jail sentences for tax fraud than a layperson without professional training and or experience in tax. This fundamentally comes back to the point that tax and financial advisers should know better than a taxpayer, who is simply following legal or financial advice.

However, many taxpayers have claimed legal professional privilege (client/attorney privilege) for legal advice given by a lawyer to a taxpayer/client. The difficulty is that taxpayers may very well have a claim for legal professional privilege, but if it’s established that this is due to tax fraud or tax evasion, then no privilege will apply for taxpayers as it’s considered to be criminal, which if found guilty, attracts a substantial term of imprisonment.
The point here is, defrauding the commonwealth of its revenue is a very serious crime in Australia and indeed in most parts of the world, and it attracts a significant term of imprisonment and substantial penalties.

In closing, the ATO has plenty of time and resources to catch out taxpayers who defraud the Commonwealth of its revenue, and the longer they delay, the greater the contribution the taxpayer(s) will have to make to the revenue when they are caught.

* Tony Anamourlis (CTA) (SSA) is an international tax lawyer and tax academic and managing principal at Templeton Fox Rothschild.