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Standing Committee on Tax and Revenue
(House of Reps-Monday, 18 August 2014)
Mr VAN MANEN
CHAIR (Mr Alexander)
Mr VAN MANEN
Mr VAN MANEN
Mr VAN MANEN
Mr VAN MANEN
Mr VAN MANEN
Mr VAN MANEN
Mr VAN MANEN
- Mr Cunningham
Content WindowStanding Committee on Tax and Revenue - 18/08/2014 - Tax disputes
GOULD, Mr Vanda Russell, Private capacity
CHAIR: Welcome. I have to read this to you. Although the committee does not require you to give evidence under oath, I advise you that these hearings are formal proceedings of the parliament and warrant the same respect as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Do you have anything to say about the capacity in which you appear before the committee?
Mr Gould : I am a chartered accountant.
CHAIR: And, Vanda, do you have an opening statement?
Mr Gould : I have tendered a letter, but I do have probably three things I would like to talk about: first of all, the misuse of the Crime Commission. And I need to explain a little bit; I work as a tax specialist in the international area primarily. Up until about 1994, it was possible for Australian residents to get a tax deduction for contributions to offshore superannuation funds, and I had a number of clients who did that. These situations were investigated in around 2000 and were all approved. And then we had Operation Wickenby. What happened was that a number of the clients I had involved in having interests in offshore superannuation funds were pulled in to the Crime Commission for examination. In one case, we had a lady who had been divorced from her husband for 20 years. The husband had an interest in the offshore super fund and, notwithstanding that, she was taken before the Crime Commission—with the trauma that that represents—to see if she had any information concerning her husband's affairs. Another case I had was where people who were motor mechanics were pulled in basically to be examined by the Crime Commission over their interest in an offshore superannuation fund. I should also say that the matter has been litigated and the Federal Court, in the case of Fitzroy Services, has agreed that basically these offshore superannuation funds are perfectly legitimate. Indeed, many Australian residents have interests in offshore superannuation funds. If you worked for Nestle or Coca-Cola, invariably you will have an interest in an offshore superannuation fund.
The very fact that you are getting people pulled in and traumatised by the Crime Commission, I think, is absolutely wrong—just wrong. There should be somebody, like some judicial officer, maybe a judge, who has to grant approval before someone is taken before the Crime Commission, with all the trauma that that represents. It should not be used as part of their general audit procedure.
The other thing that was said to the taxpayers when they went before the Crime Commission was that, if they did not use my services, then the tax department would go easy on them. So the whole thing is reprehensible and really just leads to a breakdown in public confidence in the judicial system. The Crime Commission should never be used in this way.
The second major problem, I think, is that, when taxpayers have disputes with the tax office, they should have the capacity to have a judge look at the dispute and, if there is basically a sound case, they should not have to pay the debt. The problem at the moment is the tax department has a huge advantage and in a sense it can force people to pay the debt, even though they have a perfectly legitimate case. In some cases people have gone bankrupt. In some cases they have not been able to fight their court case because of these remarkable powers that the tax office has. In a sense they use these powers to try to force some sort of compromise or settlement which is against the interest of the tax office. I think just changing the law in this area would be a significant step forward in the administration of justice in this country.
Finally, I would like to mention my own case, where I was basically charged with being involved in a sham loan, when the Deputy Commissioner of Taxation came out about my involvement. When the matter came before a magistrate, the DPP claimed to have a forensic accountant's report which documented this alleged sham loan. When we subpoenaed to get it, it did not exist. The whole basic claim was fraudulent from the tax office perspective. What sort of country is this, when things like that are permitted, when basically you have your name besmirched as involved in tax fraud, when there is absolutely no evidence of any wrongdoing?
As you have seen from the publicity in my case, ultimately the government has paid most of my legal costs, but the fact is the damage is now done. I think there are some very serious problems with the administration of tax law in this country.
Mr VAN MANEN: Since the new commissioner has come on board, have you seen an improvement in the administration of tax law or the attitude of the tax office?
Mr Gould : I think there has been less use of the Crime Commission, so that has been a positive, but I think overall that the use of the Crime Commission should not be permissible unless they have a judicial sign-off on it. You need to have someone who has been a tax practitioner, like a judge who has done tax, to understand what the issues are because it is so easy for them to go before a judge and say, 'We believe this person's done this or done that.' And of course, most judges know very little about taxation. Even having any sort of judge sign-off would be a step forward.
Mr VAN MANEN: Under what circumstances can the ATO involve the Australian Crime Commission or the Australian Federal Police in matters of tax dispute?
Mr Gould : In every circumstance. There is no limit on their capacity to do this.
Mr VAN MANEN: So irrespective of whether it involves offshore-related matters or onshore-related matters?
Mr Gould : Correct. They could use that regime.
CHAIR: Could you elaborate on your comment about using these extraordinary powers to sometimes enforce a capitulation? It does seem that it can take years to obtain a hearing in court and meanwhile penalty interest is accruing. Could you give us more examples of that or elaborate?
Mr Gould : I am not quite sure what you are asking, but in general what you are saying is correct because quite often you are dealing with issues which go back sometimes to the 1990s. So it is not uncommon to be faced with situations where you are trying to find evidence relating to transactions in the 1990s, certainly in the early 2000s. So because of the issue of the retention of records, most taxpayers do not have those records. So they are at a very big disadvantage. Contrary to what the second last speaker was talking about, the tax department typically says that virtually—their opening gambit is that there has been fraud or evasion. So the fraud card is a very common way they proceed.
CHAIR: To open up that period of time?
Mr Gould : Correct. To get a past-four-years situation.
CHAIR: And yet there is an onus on the taxpayer to prove their innocence.
Mr Gould : Correct.
CHAIR: And the nonproduction of documents can affect the result in fact.
Mr Gould : Correct. We have at law the onus on the taxpayer to prove their case. The difficulty is, if you are going into the early 2000s or before that, very few people have any records. So they almost lose by default. It is a very big problem.
CHAIR: And this is probably a greater problem for a small business or an individual than for a larger business?
Mr Gould : In can be for both, actually, but certainly it is true for small businesses. Typically the advantage large businesses have is that they are dealing with more sophisticated tax officers. So there is definitely an advantage if you are a large tax payer.
Mr VAN MANEN: And they probably have much better record keeping as well.
Mr Gould : Sometimes.
Mr VAN MANEN: The requirement for record keeping is five years, is it not?
Mr Gould : Well, it depends: it is in the five to seven years bracket, depending on the purposes. But you are right: basically for tax purposes usually it is five years. This is just so unfair.
CHAIR: Then adding to that one of the requirements of the model litigant rules is that the ATO should not require taxpayers to prove facts that are not in dispute. Did this come into play in your case?
Mr Gould : In every case I have been involved in the tax department has not been a model litigant. It is just a nonsense. I have read what they have said. They do not behave that way at all. They are in it to win it in one sense and that is right, but they certainly are not model litigants.
CHAIR: It is interesting that you would say 'they are in it to win it and that is fine'. Is it fine?
Mr Gould : Well, no, not in the public policy sense because the net effect of all this is that—I am also chairman of a large venture capital company—you have a million Australians living offshore or being offshore partly because of the way the tax act is administered here. So a lot of entrepreneurial people do not work in this country. It is surprising, but the aggressiveness of the tax office has been I think very counterproductive in terms of our economy generally. You need entrepreneurial people to do things. If the framework is so difficult, you are better going to a jurisdiction where you just do not have these problems.
CHAIR: Is part of the issue with the tax office the fact that there is a lack of practical commercial experience within the tax office?
Mr Gould : Yes, but it is also compounded because you also get ideologues; you get tax officers who have a view which is dictated by jealousies and hatreds. For instance, over the 30 years I have been a tax practitioner dealing with, say, doctors, tax officers typically hate doctors—that is a generalisation. You get a far more inferior result dealing with a client who is a doctor than for most other practitioners, because there is something in the culture in the tax office which is particularly anti-tall poppies and people who are successful. It is a very big problem, and so some tax officers are fundamentally troglodyte-ideologues.
Mr VAN MANEN: If you have got an audit officer who maybe is being difficult or not easy to work with, there is no capacity to ask for somebody else. It is at the ATO's discretion as to whether they bring others in and at what point in the process.
Mr Gould : In practice, you never do that. Even though you felt the tax officer is being unfair and unreasonable, you just work with what you have got, because you know there will be a consequence if you make that type of complaint.
CHAIR: Going back to that comment that I made that the tax commissioner has sought to impose through a cultural change a greater fairness and whether it is scar tissue from years of practising, you felt it was fair that they just try to win the case; whereas independence or what the commissioner is now trying to do is to make sure that the right and fair amount of tax is taken, not just wham the case because we can intimidate or use any other tool to our resource.
Mr Gould : The Commissioner of Taxation is only one person and there are 40,000 other tax officers. It is very difficult to change a culture. It is true that we now find there are more mediations than before. They do not go straight to litigation—that is absolutely true. But, once you get into the mediation process, quite often the tax office will employ a criminal lawyer, a criminal barrister or senior counsel to argue the tax office's case. There are no holds barred. It is very adversarial.
CHAIR: Can you give a specific example where the ATO did not conduct itself as a model litigant?
Mr Gould : I have been dealing with international situations where they will never permit the use of videolink evidence. They insist that you bring minor witnesses to this country with all the costs that that entails. I can understand with a major witness you may prefer to have them come, but often people only giving 10 minutes worth of evidence are forced to come. That is a very good example of them not being model litigants.
CHAIR: Do you have a specific case where that has happened?
Mr Gould : Absolutely.
CHAIR: What is that?
Mr Gould : Five cases before Justice Perram in the Federal Court have that type of situation occurring.
CHAIR: In your submission you note that there was a lack of understanding by the ATO and Federal Police officers about the tax rules in your case. Could you elaborate on that: did it extend the dispute? Does this occur more widely across the ATO?
Mr Gould : The problem is the Australian tax act itself is extremely complex. There are 10,000 pages to it. The difficulty is the issues of international taxation are not something ATO officer/Australian Federal policeman would ever have considered. In our particular situation, they would have the assumption that the mere involvement of administering the affairs of an offshore company means you are doing something illegal.
In the key case in all this, Esquire Nominees, the High Court has held that Mr Sheehan, the accountant in that case, virtually did everything for an offshore company but, notwithstanding that, the company was still held to be a nonresident of Australia for tax purposes. In my experience, and in my current situation, the people you were dealing with had no idea of what the law was in relation to international taxation. It is a very big problem—why it took so long for someone to finally realise that there was no evidence of any wrongdoing on my part or on my associate's part.
Mr VAN MANEN: Surely the ATO has within its staff people who are conversant with those particular aspects of taxation law. Why were they not involved in that process?
Mr Gould : I have no idea. Here we had a situation where a man, a British solicitor, resident in Switzerland, was retained in this country seven months. I cannot explain why. I have written letters to the Commissioner of Taxation about it. The commissioner I understand informally says he has never received my letters. Obviously they are spirited off elsewhere. That is the reality. If somebody had had any international tax knowledge, the matter would never have gone on to this extent. It would never have happened in the first place actually.
Mr VAN MANEN: That raises its own series of questions.
CHAIR: Do you think it is possible, as is currently being proposed, that dispute resolution be administered under the ATO or do you think there needs to be a separation?
Mr Gould : I am not quite sure what you are asking. If you are talking about the actual dispute resolution, clearly the ATO has to be involved in that. I think dispute resolution is a better system than going to court. Basically, it is in taxpayers' interests to go through some form of mediation. I think that is going to be a better system. In terms of the tax office itself we know that when you lodge an objection it is very difficult to get someone sensible to acknowledge the validity of what you are saying. In fact, you will see in your evidence that you have people at the tax office with quotas of objections they can approve. Quite often, you know perfectly well that they have paid absolutely no attention to the issues you have raised in this objection period. So the whole appeals process in the tax office is very unsatisfactory.
CHAIR: In your opinion, is that because there is a focus on revenue collection?
Mr Gould : It is not so much that; it is the mentality. They are a team, so basically the appeals officer is very close to the auditor and the assessors. So naturally they support their friends.
CHAIR: Would we be better served by having a separation of this dispute area where the commissioner of such would be intent on achieving fairness and equity for taxpayers, not there being a focus on revenue collection?
Mr Gould : I think so. There should be some separation. The second last speaker mentioned that maybe it should still be under the auspices of the tax office. Maybe that is right but the point is there should be some practical separation so that the auditors are not infecting the appeals officers and the appeals officers come to it with a clear, open mind and look at the evidence afresh. That is the big issue because that is not what happens.
Mr VAN MANEN: It is like having a Chinese wall.
CHAIR: A structural separation or a complete separation I guess is the question.
Mr Gould : Yes.
Mr VAN MANEN: Obviously there are incentives in the tax laws to encourage taxpayers to be compliant and to give taxpayers compensation where the ATO breaches certain standards. In your experience, how well do you think that system is working and what reform do you think may be needed?
Mr Gould : I think most taxpayers, by and large, tend to want to comply with the tax act in its various manifestations. But, in terms of incentives, what are you getting at?
Mr VAN MANEN: For example, if you have not paid your tax bill you are going to incur an interest charge or a penalty payment, so that is the incentive to pay your tax on time, but if a dispute drags on and is found in favour of the tax office you are still going to have those additional imposts whereas if the dispute is resolved in your favour as a taxpayer what recompense or compensation are you getting from the tax office as a result of that? There is an inequity in that.
Mr Gould : That is absolutely true; there is an inequity there in terms of the interest penalty that is charged as against the interest that is paid to the taxpayer and the cost the taxpayer has to bear—and there is no recompense for that at all. I do think the biggest problem is the very fact you can be blackmailed by the tax office because this ability to collect the tax, even though you have a valid objection, is the greater problem—the very fact that you are forced to sometimes settle because you just cannot run the risk of having a dispute with the tax office or going bankrupt yourself. I think that is just wrong. There should be a way whereby a judge can say: 'The taxpayer has a reasonable case; this is not just some frivolous thing. Therefore, the assessment is staid.' I think that is one of the most important changes that are really warranted because I am telling you that you do get blackmailed.
Mr Gould : Intimidated. What are you going to do? Individuals in particular can be bankrupt before they have their day in court. There have been cases where the judges have said that it is very unfair that Mr X has had to go bankrupt before he has had his day in court. I do not know the facts of the situation, but the law should be that a judge can intervene and say: 'No. This person has a valid dispute. The matter has to stay in abeyance.' Of course the penalties and all the rest of it are still going to attach to it, so that is the risk the taxpayer runs, but he should be able to have his day in court.
CHAIR: Do you have examples of cases where people have—
Mr Gould : In my experience, but I have also read the case law. The cases are out there. If you read the Tax Institute's journals, you would see poor people who have been in exactly that situation.
CHAIR: Do you have anything else you wish to contribute?
Mr Gould : Not at this time—I think you need lunch. Thank you for listening to me. Hopefully, there will be some changes to improve our country. Thank you.
CHAIR: That is the purpose of these inquiries. Thank you very much for your contribution.
Mr Gould : It is a pleasure. Thank you.
Proceedings suspended from 13:23 to 14:17