Big business, secret tax havens in ATO's spotlight

AUSTRALIA's controversial tax sting, Project Wickenby, and serious non-compliance and prosecutions were cranked up this year with the Australian Taxation Office completing 280 audits, 600 reviews and raising $360 million in liabilities.

All up, Project Wickenby has raised $1 billion in tax liabilities from secret tax havens, tax fraud and money laundering since its introduction in 2006.

During its five years of operation, it has raised another $832 million from a sudden burst of voluntary offshore disclosures, and results from Australia's financial intelligence unit, AUSTRAC, show a considerable decline in annual flows to havens, according to the ATO's latest compliance program.

The ATO's spruiking of Project Wickenby, which was allocated a total of $431 million between 2006 and 2013, comes as the government assesses the success of the cross-agency taskforce.

Government funding of the project dries up in 2013 and there has been a lot of debate about how successful the nation's most expensive tax probe has been. Music entrepreneur Glenn Wheatley was the first tax offender convicted under Project Wickenby in 2007.

Since 2006, Wickenby has achieved 18 custodial convictions and has collected $1 billion in liabilities.

Authorities predict there will be substantially more prosecutions resulting from Wickenby in the next 12 months. According to Bruce Quigley, the ATO's second commissioner for compliance, the use of tax havens will continue to face intense surveillance.

He told BusinessDay that businesses participating in the cash economy to evade tax, phoenix arrangements, incorrect superannuation guarantee contributions, promoters of illegal early-release superannuation schemes and some high wealth individual groups were some of the focuses this year.

There are concerns the global financial crisis has increased pressure on small companies, causing some to seek an advantage by hiding their income. The ATO completed 2100 reviews and audits in the past year, raising about $111 million.

Of those earnings, the ATO will focus on their use of closely held entities, including charitable trusts and self-managed super funds.

Over the past four years, the ATO has reviewed the affairs of a high-risk group of more than 2000 highly paid people. During that time it corrected 60 per cent of tax returns. This year the focus will be on medical practices and football codes. The ATO expects to raise more than $800 million in liabilities by the end of 2010-11.

Mr Quigley said the ATO would cross-reference information reported in tax returns against at least 500 million transactions reported by other parties.

Another key target is big business, which is being ramped up as a key focus for revenue raising. In its report, the ATO says it completed 46 compliance audits and 370 reviews. By the end of 2010-11 it expects to have raised more than $1.2 billion in liabilities and $1.3 billion in notional tax adjustments. "We expect to issue around 300 private and 100 class rulings to provide guidance on the application of the tax law to particular arrangements. We will also conduct tax reviews on around 400 large businesses to check on whether tax risks are present in these businesses and tax audits on around 150 large businesses to resolve identified tax issues," the report said.

Clayton Utz partner Niv Tadmore said there was no question there was an increasing ATO pressure on large businesses. "This is driven by sophisticated data acquisition, mining and mapping systems, and earlier, proactive and more demanding ATO scrutiny."

He said complexity and movements of large amounts attracted ATO attention. The ATO is now looking closely at cross-border deals, restructures, transfer pricing, acquisitions, financial arrangements and losses.

It is also ramping up its scrutiny of phoenix companies following a move by the Gillard government to increase its budget in this area by $22 million.