Tax havens and the Australian tax system - are we 'match fit'?

Tax havens and the Australian tax system - are we 'match fit'?

In a competitive and international economic environment, tax competition and the use of tax havens is, and will continue to be, an important issue in relation to the Australian taxation system. In February 2004, the Australian Tax Office (ATO) published the report titled ‘Tax Havens and Tax Administration’ outlining the compliance strategies being undertaken to address the use of tax havens by Australian taxpayers. The Commissioner of Taxation outlined that in 2002-03 approximately $3.8 billion flowed from Australia to tax havens. This paper will identify that perhaps one of the reasons the ATO perceives tax havens as a risk to revenue collection is that the $3.8 billion represents amounts that have been declared or that could be traced. The amount of undeclared or untraceable funds may be significantly larger. This paper will explore whether the use of tax havens by Australian taxpayers poses a genuine risk to revenue collection by analysing the extent to which tax havens are being utilised by Australian taxpayers in terms of data available from the ATO and other agencies. Additionally, this paper will discuss the concept of tax competition and whether or not the use of tax havens contravenes the objectives outlined in the Ralph Report (optimising economic growth, promoting equity and promoting simplification and certainty) or indeed international economic theory. This paper will finally analyse whether the Australian taxation system is “match fit” in terms of either legislative frameworks or administrative measures aimed at minimising the risk to revenue that the use of tax havens by Australian taxpayers poses.