‘An offshore law firm is not a cloak of invisibility’: ATO celebrates High Court tax ruling

By Stephen Easton

Thursday August 15, 2019

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The High Court’s ruling that the Australian Taxation Office can rely on documents leaked to journalists from secretive law firms that provide tax-haven services is a win for the whole nation, says ATO second commissioner Jeremy Hirschhorn.

“An offshore law firm is not a cloak of invisibility to hide offshore arrangements,” he said.

Jeremy Hirschhorn. Image: LinkedIn

Mining company Glencore argued such information remained legally privileged and tax compliance investigators should not be able to use it, even if it was put into the public domain by investigative journalists through publications like the Paradise Papers, or the earlier Panama Papers. The High Court did not agree.

“Today’s decision is not just a win for the ATO; it’s a win for the Australian community who rightly expect the ATO to use all information available to ensure large corporations and those who seek to hide money overseas are paying the right amount of tax,” Hirschhorn said in a statement.

“The information in question was already in the public domain. Once we have information we can’t just ignore it – we are obliged to use all relevant information we have.”

“It would be a perverse outcome if the ATO and the Courts were not allowed to take into account information that the public at large can access, or had to forget information that is known.

“This ruling ensures that the ATO will continue to be able to use information in its possession, and can make decisions based on all of the available facts.”

Chasing down tax avoidance is difficult, but international cooperation is increasing particularly in the wake of such disclosures that have pressured governments to try a bit harder.

Hirschhorn says the ATO often gets intelligence and data from international partners and plays an active role in the Joint Chiefs of Global Tax Enforcement alliance brought together by the tax authority in the United States, and the OECD’s Joint International Tax Shelter Information and Collaboration Network.

The Tax Office’s own Country by Country reporting system is another anti-avoidance measure and it has also stepped up data sharing activities with domestic agencies such as AUSTRAC, the Australian Securities and Investments Commission and the Federal Police.

“The ATO will continue to use all information available to ensure large corporations and those trying to hide money overseas are paying the right amount of tax,” said Hirschhorn, who has been the second commissioner in charge of client engagement for over five years but is still officially “acting” in the role.

“Our wide and growing range of information sources and increased collaboration with overseas agencies are vital tools in achieving this objective.”

Beyond the implications for Glencore, he says the ruling means “the days of being able to hide money overseas are rapidly coming to an end” as foreign banks are increasingly being pressured into providing the ATO with details of money held offshore by Australians, and further mass data leaks could expose more tax avoidance in future.

It’s not quite that simple, as academics Ann Kayis-Kumar and Annet Oguttu explain. It costs time and money to trawl through millions of documents and find the evidence to make a charge of criminal tax-avoidance stick. 

The ATO says it “fully supports the appropriate use of privilege and understands the importance of entities being able to seek advice on issues of law” and wants every taxpayer, large and small, to be able to seek good independent advice on managing their finances.

“We are working with key partners in the tax system to ensure that taxpayers can confidently continue to obtain high quality independent legal advice on their tax affairs, but also that the ATO can appropriately review transactions without having critical evidence withheld,” Hirschhorn said.

“The public may have the false impression that this case was about the ATO seeking to access legal advice. In reality, we are interested in facts, not someone else’s analysis of tax law. The critical importance of the case was confirming that the ATO can use leaked copies of documents like contracts, board minutes and banking details.”

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