Project Wickenby five years on and still watching: E-Alert September 2010

Project Wickenby five years on and still watching

The spotlight of the Commissioner of Taxation remains firmly on cross border transactions by individuals, trusts and corporate entities.  As the ATO itself declares: 'five years on and still watching'[1].

Whilst Project Wickenby has, at times, been criticised for lack of results, it has continued to achieve increased voluntary compliance, and raised millions of dollars in revenue and resulted in many criminal charges being laid.

The scorecard as at 31 August 2010 shows that the Project Wickenby has resulted in:

• $915 million in tax liabilities raised
• 1581 audits/reviews completed
• 536 audits/reviews underway
• $208.57 million in tax collected
• 58 people charged with serious (indictable) offences
• 26 criminal investigations in progress

The liability and taxation collected figures above are significantly higher than those provided by the ATO in June 2010.

The ATO indicates that the focus is not necessarily on achieving these sorts of results, but more about protecting honest taxpayers and making accountable those engaged in serious and deliberate tax evasion using offshore havens. With the ATO on such high moral ground, taxpayers should be under no illusions. It seems that no stone will be left unturned - and the results above support this.

It is apparent that many taxpayers who are the subject of Project Wickenby investigations and the legal consequences did not regard themselves as having engaged in any serious tax evasion.  Most, if not all, suggest they followed their advisers without detailed understanding of the transactions or arrangements proposed. It is patently clear that this is not an acceptable defence. 

Taxpayers face not only risk of significant upward taxation adjustments, high penalties and interest, criminal prosecution but also reputational risk and the possibility of asset restraint or confiscation.

There are steps that taxpayers can take to minimise risk in the context of Project Wickenby. 

Any involvement by taxpayers in the use of offshore accounts or corporate structures would be well advised to urgently review their position in advance of the ATO's attention being directed to them.

In many instances the Commissioner's enquiries go back many years which exacerbates the evidential issues as well as the potential tax at stake due to the potent combination of potential penalties and GIC/SIC. The evidential issues arising, in particular, are very real and critical.  A lack of cogent, contemporaneous evidence can be a stumbling block for many.  Evidence regarding the events leading to the establishment of the offshore transactions or arrangements under scrutiny should be reviewed and independently assessed.  The burden of proving a taxation assessment rests squarely with taxpayers. It is not sufficient to identify holes in the ATO's logic or case.

If under a Project Wickenby review or audit by the ATO, or considering approaching the ATO voluntarily to make disclosures relating to offshore transactions, it is essential to achieve an understanding of the broader context and imperatives driving Project Wickenby, particularly the ATO's involvement. 

1. Do not assume you know what sort of information the ATO will be interested in. 
2. Do not assume that your matter is one that will not warrant referral to criminal prosecution.  All such matters hold significant potential for criminal prosecution.  Voluntary disclosure of a seemingly or relatively small amount of income, for example, does not guarantee that the matter will start and finish with the ATO.
3. Do understand the possible implications of each communication you have with the ATO before you have such communications.  For example, will the information be relevant to the imposition of penalties, or could it result in you or your client inadvertently raising an alarm for the ATO or other Wickenby regulators to undertake further and/or more formal investigation steps?
4. Do take into account previous compliance history. It will be relevant to the manner in which the ATO may seek to operate.
5. Do not assume that the ATO will be willing to keep their review or enquiries relatively informal.  

Significant penalty and interest concessions may be made by the ATO if taxpayers voluntarily disclose involvement in offshore arrangements falling within the scope of Project Wickenby. Taxpayers should not be waiting to see whether or not the ATO selects them for Project Wickenby review.  The risks are simply too high.

The Maddocks Tax Controversy Team is widely considered to be one of Australia's premier tax controversy practices, and has had significant experience in Project Wickenby litigation and audits. We provide objective advice and assessment on the most relevant and efficient way to resolve or manage any controversy with the ATO. We have an excellent track record in early resolution of major risk reviews and audits. Our practitioners have an unrivalled depth of experience and knowledge of tax controversy processes. This is supplemented by many years as tax litigators both for and against the ATO.

If you have any queries about any of the matters in the update please click here to contact a member of the Tax Controversy Team.