The Taxpayer’s Duty Of Disclosure (Paper)
STEP ASIA CONFERENCE
12 – 13 October 2006
FOUR SEASONS HOTEL
THE TAXPAYER’S DUTY OF DISCLOSURE
Ian V Gzell
When I was asked to present this paper my attention was drawn to an article by Dr Terence Dwyer  and a response by Tony Molloy QC.  Dr Dwyer criticises the OECD campaign against tax havens. He says the OECD accuses offshore jurisdictions that protect privacy of aiding and abetting OECD citizens to commit illegalities. He submits that a failure to disclose overseas interests does not necessarily indicate fraud in lodging a false tax return by an OECD taxpayer. He criticises the implicit assumption that tax evasion is a form of theft. He suggests that tax evasion by mere silence or non-payment is not a form of cheating the Crown, but a form of withholding a contribution agreed to be given to a common fund, more a civil matter of disputed or unpaid contribution, rather than criminal fraud.
Mr Molloy points outs that unless it is unarguably clear that a client has divested himself of income and of the power to enjoy it, the taxpayer’s duty is to put the Revenue on notice that the correctness of his return rests on something about which the Revenue might well feel the need to think. As the Privy Council said,  the taxpayer is duty bound to see to it that the Revenue is informed of all facts relevant to an assessment of tax. 
The source of the taxing power
Dr Dwyer is correct, at least so far as Australia is concerned, in his observation that there is no common law of income tax. As early as 1910, Griffith CJ observed that the scheme of our then taxing Acts could only be ascertained from their express provisions because there was no common law of income tax.  The late Graham Hill was Australia’s foremost taxation judge. He said:
“With respect to those who might have suggested otherwise, it is hard to conceive of some common law of income tax operating outside the terms of the Act itself. The Act is statutory law and must be interpreted no doubt in accordance with its terms and so as to favour the policy that is enshrined in it. But if there is a statutory provision exempting a trustee from paying income tax, such as s 96, that section must be given effect to if the case falls squarely within it.” 
As a general proposition, one would have thought it to be true of common law and civil law countries that taxation is a creature of statute.
The source of the duty to disclose
There is no fiduciary relationship between a taxpayer and the Revenue that might ground an equitable obligation to disclose information to the Revenue. The fiduciary office involves a person undertaking to act for, or in the interests of, another. The predominant thrust of equitable supervision has been to prevent such persons from misusing their position to their own advantage.  Sir Sidney Rowlatt recognised that there was no equity about a tax. In dealing with the proposition that in a taxing Act clear words are necessary in order to tax the subject, his Lordship said:
“Too wide and fanciful a construction is often sought to be given to that maxim, which does not mean that words are to be unduly restricted against the Crown, or that there is to be any discrimination against the Crown, in those Acts. It simply means that in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” 
If there is no common law of tax and no equitable obligation of disclosure by a taxpayer, any obligation to disclose must be found in statutory law.
The statutory duty to disclose
Tax statutes or allied administration statutes around the globe contain provisions requiring taxpayers to disclose information to the Revenue. The statement of the duty can be quite simple. For example, taxpayers are often required to make annual or some other periodic returns of income in a statutory form.
In Australia, every person must, if required by the Commissioner by notice published in the Gazette, give to the Commissioner a return for a year of income within the period specified in the notice.  The annual Gazette notice specifies the persons required to lodge a return. It also requires the return to be lodged in an approved form. The approved form for individuals is divided into two parts. The first requires the disclosure of the more common forms of gross income and deductions: salary and wages, allowances, eligible terminations payments, government pensions and the like, interest and dividends on the one hand, and work related expenses, interest and dividend deductions, gifts, undeducted purchase price of pensions and annuities, costs of managing tax affairs and tax offsets on the other hand. The supplementary form requires the disclosure of income from partnerships and trusts, personal services income, net income or loss from business, capital gains, foreign source interests and rent. The deduction information includes film industry incentives, undeducted purchase price of a foreign pension or annuity and superannuation contributions.
The main form requires a declaration, amongst other things, that: “all the information I have given on this tax return, including any attachments, is true and correct”, and: “I have shown all my income – including net capital gains – for tax purposes for 2005-06”, and: “I have the necessary receipts and/or other records – or expect to obtain the necessary written evidence within a reasonable time of lodging this tax return – to support my claims for deductions and tax offsets.”
Similar disclosure obligations are prescribed by the statute laws of other countries. For example, for United States federal income tax purposes, when required by regulations prescribed by the Secretary, any person made liable for any tax imposed, or with respect to the collection thereof, shall make a return or statement according to the forms and regulations prescribed by the Secretary. Every person required to make a return or statement must include therein the information required by such forms or regulations. 
In the United Kingdom a person may be required by a notice given by an officer of the Board to make and deliver to the officer a return containing such information as may reasonably be required in pursuance of the notice and to deliver with the return such accounts, statements and documents relating to information contained in the return as may reasonably be required. 
A New Zealand taxpayer must, if required under a tax law, make an assessment and, unless a non-filing taxpayer, correctly determine the amount of tax payable. 
In Canada, subject to exceptions, a return of income that is in prescribed form and that contains prescribed information must be filed with the Minister without notice or demand for the return for each taxation year of the taxpayer. 
And the list goes on. It tends to contradict one of Dr Dwyer’s assertions. He said:
The statute laws of OECD countries do not allow their residents a quiet life free from disclosure of offshore information if that information is necessary to a proper assessment of taxable income. There is a statutory obligation to make annual or other periodic returns to the Revenue containing prescribed information. If the prescribed information includes offshore income or deductions they must be disclosed in the return.
“… an OECD citizen may want secrecy in relation to offshore financial arrangements for the same reason that Coca-Cola does not publish its recipe – he does not want business or investment advantage eroded or disturbed. There is nothing dishonest about wanting a quite life.”
That is a simple enough statement. But its application will often cause problems. What if taxable income has been excluded from the taxpayer or a deduction has been obtained from participation in a promoted scheme and the prescribed information does not require its separate specification? Does one return a lower figure for income and a bulk figure for deductions including the scheme deduction and say nothing, or does one disclose the nature of the scheme? I will return to this conundrum.
The Revenue’s powers of inquiry and search
For the protection of the Revenue, statute laws will vest in appropriate officers powers of inquiry and search. When these powers are exercised, taxpayers will be subject to further duties of disclosure.
In discussing this issue I will confine myself to the position in Australia. It would be too cumbersome to do otherwise.
In addition to the annual return, the Australian Commissioner of Taxation may require any person to give a return or a further or fuller return for a year of income or a specified period, whether or not the person has given a return for the same period, or any information, statement or document about the person’s financial affairs.  In addition, every person whether a taxpayer or not, if required by the Commissioner, shall in the approved form and within the time required by him, furnish any return required by the Commissioner for the purpose of the Act. 
Thus the Commissioner has the power to call for further disclosures from any person who might assist the administration of the Revenue laws.
To inform this process of further disclosure, one would expect there to be a statutory obligation to keep records. And so there is.  The Commissioner or other authorised officer is entitled to full and free access to all buildings, places, books, documents and other papers for any of the purposes of the Act, and for that purpose to make extracts or copies.  The Commissioner may by notice in writing require any person, whether a taxpayer or not, to furnish him with such information as he may require and to attend and give evidence before him or an authorised officer concerning his or any other person’s income or assessment and may require him to produce books, documents and other papers in his custody or under his control. The Commissioner may require the information or evidence to be given on oath or affirmation and either verbally or in writing. 
One fails to comply with these duties of disclosure at one’s peril. There are offences giving rise to penalties of varying levels of severity for failures to comply. The ramifications of a failure to comply are twofold. First, the Commissioner may amend an assessment and impose the general interest charge and penalties. Secondly, the taxpayer may be charged with an offence.
Australia has a partial self-assessment system. Companies, including trustees of corporate unit trusts and trustees of public trading trusts and trustees of eligible ADFs, eligible superannuation funds and pooled superannuation trusts  are subject to full self-assessment. On the day on which the return is furnished, the Commissioner is taken to have made an assessment of the relevant taxable income or net income and of the tax payable being the respective amounts specified in the return and on that day the return is deemed to be a notice of the deemed assessment, deemed to have been served on the entity on the day on which the Commissioner was deemed to have made the assessment.  In the case of these full self-assessment taxpayers, the Commissioner does not issue a notice of assessment.
For individuals, the Commissioner makes an assessment of the taxable income and the tax payable thereon from returns or other information in his possession.  He is then obliged to serve notice of the assessment on the taxpayer. 
The statute provides that, subject to an exception, when a return of a non full-assessment taxpayer is lodged, the Commissioner may for the purposes of making an assessment accept either in whole or in part a statement in the return of the assessable income derived by the taxpayer and of any allowable deductions or rebates to which it is claimed that the taxpayer is entitled.  Unless the exception is invoked, the Commissioner will almost invariably issue a notice of assessment in accordance with the return of an individual thus accepting a virtual self-assessment system.
Having issued a notice of assessment to a taxpayer other than a full self-assessment taxpayer, or having been deemed to issue an assessment in accordance with a return by a full self-assessment taxpayer, the Commissioner is not bound either by the assessment or the deemed assessment.
The exception arises if a taxpayer includes with a return a document signed on behalf of the taxpayer that raises a question relevant to the liability of the taxpayer on which the taxpayer is not entitled to apply for a private ruling. The Commissioner must give attention to the question. 
Under the private ruling system, a person is entitled to apply to the Commissioner to make a written ruling on the way in which the Commissioner considers a relevant provision applies or would apply in relation to a specified scheme.  A ruling binds the Commissioner if the ruling applies to the taxpayer and the taxpayer relies on the ruling by acting or omitting to act in accordance with the ruling. 
Since it is unlikely that any question asked by a taxpayer about excluded income or a tax-effective scheme deduction could not be the subject of a private ruling, the exception to the Commissioner issuing an assessment in conformity with a return is unlikely to apply. The safe course is to seek the private ruling. There is an encouragement under this system to disclose information to the Commissioner to gain the protection of a binding ruling.
Amendment of assessment
The provision enabling the Commissioner to amend an assessment,  has had many revisions over the years. In its early manifestation it provided that where a taxpayer had failed to make a full and true disclosure of all material facts necessary to make an assessment and there was an avoidance of tax the Commissioner could issue an amended assessment to increase the tax liability, where the avoidance was due to fraud or evasion, at any time and, in any other case, within six years from the date the tax became due and payable.
For some time now, the power to amend has been limited, typically to four years, except in the case of fraud or evasion in which case the amendment can be made at any time. The present provision allows the Commissioner to amend the assessments of an individual, a company or a trustee that is a simplified tax system taxpayer  within two years and any other taxpayer within four years. But if the Commissioner is of the opinion that there has been fraud or evasion, the amendment may be made at any time. And an amendment may be made at any time to give effect to a decision on review or appeal or as a result of an objection made by a taxpayer or pending a review or appeal.
But then there are provisions that extend the Commissioner’s power to amend at any time. He has that power to give effect to 39 specified sections or divisions in the 1936  and 27 sections or divisions of the 1997 Act. 
In addition, the Commissioner is given power to amend at any time to give effect to Australia’s anti-international profit-shifting provisions  and to give effect to a provision of a double taxation agreement that attributes to a permanent establishment or to an enterprise the profits it might be expected to derive if it were independent and dealing at arm’s length together with giving effect to specified provisions within the Timor Sea treaty. 
The Commissioner conducts audit of programmes of various kinds. It is as a result of an audit that his power to amend an assessment is likely to arise.
There is no provision in the legislation specifically providing that power but there are the provisions for access and inquisition  to which I have referred. The High Court of Australia has held that they may be used randomly in support of the general administration of the Act vested in the Commissioner  and the provision of the Act by which income tax at the rates declared by the Parliament is levied and is to be paid in each financial year upon the taxable income derived during that year by any person whether a resident or a non-resident.  The High Court held that the powers of access and inquisition must be exercised for the purpose of the Act and that question is to be considered in the context of the provision levying income tax.  It was observed that with the introduction of self-assessment, the process of investigation contemplated by the access and inquisition powers was more likely to arise after assessment than before. 
Fraud and evasion
Apart from the power to amend at any time to give effect to the specified provisions of the 1936 Act, the 1997 Act and the specified international treaty provisions, the Commissioner’s current power to amend at any time is predicated upon fraud or evasion.
Lord Herschell’s definition of fraud has often been cited: 
“… fraud is proved when it is shewn that a false representation has been made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false … if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.”
These observations were endorsed by the High Court of Australia in observing that it would have been erroneous to have declined to find fraud merely because the defendant or its solicitor had not first formed a plan to trick the purchasers into buying the unit in question. 
So far as evasion is concerned, Sir Owen Dixon said it was unwise to attempt to define the word, but is meant more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information. His Honour went on to say:
“It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion.”
Timing of fraud or evasion
It has been suggested to me that the question whether fraud or evasion is present is to be determined immediately before the Commissioner seeks to exercise his power to amend and that a recalcitrant taxpayer may amend his ways after assessment and after any audit procedure.
I doubt that a Court will look at it in that way. It seems to me that an amended assessment corrects an error in the original assessment or deemed assessment and it is the quality of that error that determines the time within which the Commissioner may amend the assessment. If the absence of disclosure or a misstatement in the return gave rise to the original assessment with the quality of fraud or evasion about it, I think the Commissioner is not bound by a time limit and may amend the assessment at any time.
I think that at least Kirby J of the High Court would not support this notion.
The combination of two provisions of Commonwealth legislation  made it an offence to conspire to defraud the Commonwealth. The promoters of a franchised internet service provision scheme were found guilty of conspiring with others to defraud the Commonwealth.  Their appeal to the Court of Criminal Appeal of Western Australia failed.  An application for a special leave to appeal to the High Court was heard by Gummow, Kirby and Heydon JJ. Early in those proceedings Kirby J said: 
“Is not the flaw in your argument that the whole system of self-assessment works upon a premise of honesty and you say the problem only arises later in the step but the later step does not occur in, I would think, 90 or more per cent of cases, probably 95 or 98, and the flaw in your argument is that you can just be as dishonest as you like at the earlier step but it does not really matter because you have not actually been asked to say anything. But the whole system works on the honesty of taxpayers and citizens.”
Without access to the papers one cannot be categorical about this comment, but it does seem to address the above argument. That argument was not central to the special leave application, however. What was put was that the Crown needed to establish to the jury beyond reasonable doubt that the consequence of the actions of the alleged conspirators was at least to deprive the Commissioner of an arguable case to deny the deductions claimed by those who invested in the scheme and thereby cause the Crown to lose something of value.  The application failed on the basis that there was insufficient prospect of success in demonstrating error in the decision of the Court of Criminal Appeal.
The element of dishonesty upon which the Crown relied in those cases was that information provided to prospective investors was calculated not only to deceive them into making the investment, but also to cause them to mislead the Commissioner in claiming deductions. Thus a failure to disclose gave rise to a criminal sanction. The difference between this situation and that which I am asked to discuss is that the failure of disclosure was to prospective investors rather than the Commissioner.
Commission of offences
The other ramification of a failure to disclose information to the Commissioner is that an offence may have been committed. The offence may be prescribed by taxation or allied legislation or by general criminal legislation. It may be dealt with summarily or on indictment.
Taxation administration offences
Taxation administration legislation contains a series of charges and penalties affecting taxpayers. These provisions help to define the content of a taxpayer’s duties. If a taxpayer is guilty of an offence for doing or failing to do something, his duty to the Revenue includes refraining from doing the impugned thing or doing the omitted thing.
There is a general interest charge for failure to comply with various provisions.  There are also a number of provisions that make a person liable to pay for a failure to notify penalty.  Likewise, there are provisions that make a person liable to pay a late reconciliation statement penalty. 
Then there are the offences. A person who refuses or fails when and as required under or pursuant to a taxation law to furnish an approved form or any information to the Commissioner or another person, to give information to the Commissioner in the manner in which it is required under a taxation law, to lodge an instrument with the Commissioner or other person for assessment, to cause an instrument to be duly stamped, to notify the Commissioner or another person of a matter or thing, to produce a book, paper, record or other document to the Commissioner or another person, to attend before the Commissioner or another person, to apply for registration or cancellation of registration for GST purposes, or to comply with a requirement under the Product Grants and Benefits Administration Act 2000, is guilty of an offence. 
A person who when attending before the Commissioner or another person pursuant to a taxation law refuses or fails when and as required to answer a question or to produce a book, paper, record or other document is guilty of an offence. 
A person is guilty of an offence if the person makes a statement to a taxation officer and the statement is false or misleading in a material particular.  A person is guilty of an offence if the person makes a statement to a taxation officer and omits any matter or thing from the statement and the statement is misleading in a material particular because of the omission.  A person is guilty of an offence if the person is required under a taxation law to keep any accounts, accounting records or other records and the person keeps the accounts or records and they do not correctly record and explain the matters, transactions or operations to which they relate.  A person is guilty of an offence if required under a taxation law to make a record of any matter, transaction, act or operation and the person makes the record but it does not correctly record the matter, transaction, act or operation. 
A person is guilty of an offence if the person makes a statement to a taxation officer, the statement is false or misleading in a material particular and the person is reckless as to whether the statement is false or misleading or omits any matter about which it is misleading in a material particular.  A person is guilty of an offence if required to keep any accounts, accounting records or other records, the person keeps the accounts or records, the accounts or records do not correctly record and explain the matters, transactions, acts or operations to which they relate, and the person is reckless as to whether the accounts or records correctly record and explain the matters, transactions, acts or operations to which they relate. 
A person is guilty of an offence if the person keeps any accounts, accounting records or other records in such a way that they do not correctly record and explain the matters, transactions, acts or operations to which they relate, or are illegible indecipherable, incapable of identification or incapable of being used to reproduce information, makes a record of any matter, transaction, act or operation in such a way that it does not correctly record the matter, transaction, act or operation, engages in conduct that results in alteration, defacing, mutilation, falsification, damage, removal, concealing or destruction of any accounts, accounting records or other records, or does or omits to do any other act or thing to any accounts, accounting records or other records with the intention of deceiving or misleading the Commissioner or a particular taxation officer, hindering or obstructing the Commissioner or a particular taxation officer, hindering or obstructing the investigation of a taxation offence, hindering obstructing or defeating the administration execution or enforcement of a taxation law, or defeating the purposes of a taxation law. 
A person is also guilty of an offence if the person engages in conduct that results in the falsification or concealing of the identity of or the address or location of a place of residence or business of the person or another person, or does or omits to do any act or thing the doing or omission of which facilitates the falsification or concealment of the identity of or the address or location of a place of residence or business of the person or another with the intention of deceiving or misleading the Commissioner or a particular taxation officer, hindering or obstructing the Commissioner or a particular taxation officer, hindering or obstructing the investigation of a taxation officer, hindering obstructing or defeating the administration execution or enforcement of a taxation law, or defeating the purposes of a taxation law. 
There is a hierarchy with respect to the prosecution of taxation offences. An offence that is punishable by imprisonment for a period exceeding 12 months committed by a natural person is an indictable offence. It is a summary offence if the imprisonment is for a period not exceeding 12 months. Prescribed offences committed by a natural person are punishable on summary conviction as are taxation offences committed by a corporation.  Civil penalties are not payable if a prosecution is instituted. 
General criminal offences
Much of what was in the former Crimes Act 1914 (Cth) is now contained in the Criminal Code (Cth) which is contained in the Schedule to the Criminal Code Act 1995 (Cth).
A common law offence of cheating the public Revenue is recognised in the United Kingdom. In R v Dimsey the appellant, resident in Jersey, provided services including the formation of offshore companies for clients and the administration of such companies for a fee. He set up two companies on behalf of a client to act as intermediaries in the supply of avionic equipment to a company in South Africa in contravention of sanctions then in force in South Africa. He was charged with conspiring with the client and another to cheat the public Revenue by concealing the fact that the client managed and controlled the companies’ business in England and that the companies were therefore resident in the United Kingdom and liable to taxation there. He was convicted and his appeal to the House of Lords failed.
Likewise, in R v Allen it was alleged against him that he managed and controlled in the United Kingdom the business of property companies which were incorporated in Jersey and administered by Dimsey and he concealed that fact in order to give the false impression that the companies were not resident in the United Kingdom and had failed to disclose profits made by those companies and benefits derived by them. He was convicted on all counts of cheating the public Revenue of income and corporation tax and his appeal to the House of Lords was dismissed at the same time as Dimsey.
A prosecution for a common law offence is not open in Australia. The Criminal Code (Cth) contains a provision that the only offences against laws of the Commonwealth are those offences created by or under the authority of the Criminal Code (Cth) or any other Act. 
Under the Criminal Code (Cth) a person is guilty of an offence if the person by deception dishonestly obtains a financial advantage from another person and the other person is a Commonwealth entity.  It is also an offence if a person gives information to another person knowing that the information is false or misleading or omits any matter or thing without which the information is misleading and the information is given to a Commonwealth entity or to a person exercising powers or performing functions under a law of the Commonwealth, or the information is given in purported compliance with a law of the Commonwealth. 
The charge of conspiracy to defraud is available to the Crown where a failure to disclose a material matter to the Commissioner causes the Commonwealth to receive less by way of tax than that to which it is entitled. Current Commonwealth legislation provides that a person is guilty of an offence if that person conspires with another person with the intention of dishonestly causing a loss to a third person and the third person is a Commonwealth entity. 
A feature of this legislation is its extension of geographical limits with respect to offences. A specific extended geographical jurisdiction applies to charges of defrauding the Commonwealth and conspiracy to defraud the Commonwealth.  The offences apply whether or not the conduct constituting the alleged offence occurs in Australia and whether or not a result of the conduct constituting the alleged offence occurs in Australia.  This means that if Messrs Pearce, Tieleman and Wharton had been subject to the current conspiracy to defraud provision and had confined their activities to promoting the scheme to prospective non-resident franchisees while themselves overseas, the indictments would still lie provided, of course, that Messrs Pearce, Tieleman and Wharton returned to Australia or were extradited to Australia.
OECD article 26
This geographical extension of jurisdiction may take advantage of recent changes to international sharing of information to which Dr Dwyer referred.
Article 26 of the OECD model convention with respect to taxes on income and on capital provided that the competent authorities of contracting states should exchange information for carrying out the provisions of the convention or the domestic laws of the contracting states. It required that any information received be treated as secret and disclosed only to authorities concerned with the assessment or collection or enforcement or prosecution of taxes covered by the convention. The article provided that it should not be construed so as to impose the obligation to carry out administrative measures at variance with the laws and administrative practices of the contracting states, to supply information that was not obtainable under the laws or in the normal cause of administration of the contracting states, or to supply information which disclosed any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy.
On 15 July 2005 the article was amended to include the provision that if information was requested by a contracting state in accordance with the article the other contracting state should use its information gathering measures to obtain the requested information, even though that other state might not need such information for its own tax purposes. A specific provision was included providing that a contracting state should not decline to supply information solely because it was held by a bank, other financial institution, nominee or person acting in an agency or fiduciary capacity, or because it related to ownership interests in a person.
Australia has adopted the amended version of article 26 in its domestic law and now seeks to include the provision in revised or new tax treaties. The International Tax Agreements Amendment Act (No 1) 2006  received royal assent on 14 September 2006. It amended the International Tax Agreements Act 1953 to give force in Australia to the new information gathering provisions of article 26 of the OECD model convention. It also gives legislative force in Australia to a protocol amending the tax treaty between Australia and New Zealand. It provides for the omission of the present article 26 and its substitution by an article in the OECD form. Australia may now request New Zealand to exercise its information gathering measures in aid of investigations by the Commissioner regarding taxpayers alleged to be liable to tax or to further tax in Australia.
On 21 June 2006 the Treasurer announced that Australia had signed a new tax treaty with France and on 8 August 2006 that Australia and Norway had signed a new tax treaty. Both contain the new information gathering provisions in article 26 of the OECD model convention.
There are in the domestic laws of Australia a number of provisions that require the Commissioner and his officers to maintain secrecy with respect to information gathered by them. For example, there is a provision that an officer of the Commonwealth or a State shall not either directly or indirectly while he is, or after he ceases to be, an officer make a record of or divulge or communicate to any person any information respecting the affairs of another person acquired by the officer under the Act. 
The International Tax Agreements Amendment Act (No 1) 2006 has inserted a new provision in the International Tax Agreement Act 1953  providing that the Commissioner or an officer authorised by the Commissioner may use the information gathering provisions for the purpose of gathering information to be exchanged in accordance with the Commissioner’s obligations under an international agreement. The provision also states that the making of a record of and exchanging information in accordance with the Commissioner’s obligations under an international agreement is not a breach of a provision of a taxation law that prohibits the Commissioner or an officer from making a record of, or disclosing, information.
On 23 August 2006, the Treasury announced a review of taxation secrecy and disclosure provisions. The discussion paper identified 33 Commonwealth Acts containing secrecy and disclosure provisions, in some cases a number of them. The review proposes to consolidate and standardise the provisions. That process may have ramifications so far as the sharing of information at the domestic level is concerned.
At the domestic level, recent changes have aided the Commissioner’s ability to gather tax information. The risks associated with promoting tax effective arrangements, as witness the fate of Messrs Pearce, Tieleman and Wharton, led to increased disclosure to the Revenue in advance of the promotion of a scheme to gain a product ruling in favour of it. The product ruling system is merely a specialisation of the public ruling system confined to the tax consequence of disclosed proposed transactions.
The legislation provides that the Commissioner may make a written ruling on the way in which the Commissioner considers a relevant provision applies or would apply to entities generally or a class of entities, such entities in relation to a class or schemes and such entities in relation to a particular scheme.  A public ruling about a class of arrangement applies to all arrangements in the class whether past, present or future.  Like a private ruling, a public ruling binds the Commissioner in relation to a taxpayer if the ruling applied to the taxpayer and the taxpayer relied on the ruling by acting in accordance with it. 
The risk that is run by a person promoting a scheme or, for that matter, by a participant, in the absence of a product ruling has led to the Commissioner receiving more disclosures than was the position prior to the introduction of the binding ruling system.
Promoter penalty provisions
And this tendency has been accelerated by new promoter penalty provisions introduced on 6 April 2006.  An entity must not engage in conduct that results in that or another entity being a promoter of a tax exploitation scheme.  An entity is a promoter if it markets a scheme or otherwise encourages the growth of the scheme or interest in it, it or an associate receives consideration in respect of the marketing or encouragement, and it is reasonable to conclude that it had a substantial role in respect of that marketing or encouragement.  A tax exploitation scheme is one it is reasonable to conclude an entity entered into or carried out with the sole or dominant purpose of it or another entity getting a scheme benefit, or it is reasonable to conclude that if an entity entered into or carried out the scheme it would have done so with that sole or dominant purpose, and it is not reasonably arguable that the scheme benefit is available at law, or it is not reasonably arguable that the scheme benefit would be available at law if the scheme were implemented. 
There is also an embargo upon an entity engaging in conduct that results in a scheme that has been promoted on the basis of conformity with a product ruling being implemented in a way that is materially different from that described in the product ruling. 
If the Federal Court of Australia is satisfied on the application of the Commissioner that an entity has contravened either provision it may order the entity to pay a civil penalty to the Commonwealth.  The maximum penalties are 5,000 penalty units for individuals and 25,000 penalty units for bodies corporate or twice the consideration received or receivable by the entity and associates whichever is the greater.  Making of a civil penalty order does not prevent subsequent criminal proceedings against a promoter. 
Again, these provisions will have the effect of increased disclosure to the Revenue in seeking product rulings before any promotion of a scheme rather than relying upon the exception that it is reasonably arguable that the scheme benefit is available at law.
There is on the statute books in Australia, the Crimes (Taxation Offences) Act 1980. But it turned out to be a damp squib. It applied where a person entered into an arrangement or transaction with the intention of securing that a company or trustee would be unable, or would be likely to be unable, having regard to other debts of the company or trustee to pay various forms of Commonwealth tax.  There were aiding and abetting provisions  which might have applied to promoters but since the offence was limited to denuding a company or trustee of liquidity, its scope was severely limited. The new provisions are far more extensive.
OECD article 27
We all know that in the Government of India v Taylor the House of Lords held that claims on behalf of a foreign state to recover taxes due under its laws were unenforceable in English courts. The OECD has been at pains to reverse the effect of that decision. It has introduced to the model convention a new article 27 providing that the contracting states should lend assistance to each other in the collection of revenue claims in so far as not contrary to the convention or any other instrument to which the contracting states are parties. Article 27(3) overcomes the rule in the Government of India v Taylor. It provides:
“When a revenue claim of a Contracting State is enforceable under the laws of that State and is owed by a person who, at that time, cannot, under the laws of that State prevent its collection, that revenue claim shall, at the request of the competent authority of that State, be accepted for purposes of collection by the competent authority of the other Contracting State. That revenue claim shall be collected by that other State in accordance with the provisions of its laws applicable to the enforcement and collection of its own taxes as if the revenue claim were a revenue claim of that other State.”
Where the revenue claim might be subject to measures of conservancy in the requesting state the other state is obliged to take the measures of conservancy in respect of the claim in accordance with the provisions of its laws as if it were a revenue claim of it. There are safeguards in that there is no imposition on a contracting state to carry out administrative measures at variance with the laws and administrative practice of that or of the other contracting state, to carry out measures contrary to public policy, to provide assistance if the other contracting state does not pursue all reasonable measures of collection or conservancy, nor to provide assistance in those cases where the administrative burden is clearly disproportionate to the benefit to be derived by the other contracting state.
Australia has had included an article based on OECD article 27 in the New Zealand protocol and in the new treaties with France and Norway.
It is a further impediment to taxpayers who fail to perform their duty of disclosure and take up residence overseas.
To give legislative effect in Australia to article 27 of the OECD model, Australia has introduced a provision requiring a foreign revenue claim to be made on behalf of the competent authority under an international agreement to be consistent with the provisions of the agreement, to be in approved form, to specify the amount owed by the debtor in Australian currency, and to be accompanied by a declaration by the competent authority stating that the claim fulfils the requirements of the agreement.  The Commissioner is required to keep a register called the foreign revenue claims register.  If the Commissioner is satisfied that a foreign revenue claim has been made in accordance with the legislation the Commissioner must register the claim by entering particulars of it in the register.  When particulars of a foreign revenue claim are entered in the register, the legislation provides that the amount owed by the debtor becomes a pecuniary liability to the Commonwealth by the debtor. It becomes due and payable 30 days after notice of the particulars of the foreign revenue claim is given to the debtor and if that amount remains unpaid after it is due and payable, the debtor is liable to pay general interest charge on the unpaid amount. 
There may be a problem with this structure. The Australian Commonwealth Parliament is one of limited jurisdiction. The Commonwealth of Australia Constitution Act 1900 contains the Constitution of the Commonwealth. It specifies Commonwealth powers. The Commonwealth Parliament has power to make laws for the peace, order and the good government of the Commonwealth with respect to specified matters. 
Those matters include laws with respect to taxation.  But it is doubtful that this is the law as to taxation. It might have been if the legislation had taken the form of imposing a tax upon a resident equivalent to any tax owed by the resident to a country with which Australia had a tax treaty containing the equivalent of article 27 of the OECD model convention.
The Commonwealth Parliament has power to make laws with respect to external affairs.  But it also has power to make laws with respect to the acquisition of property on just terms from any State or person for any purpose in respect to which the Parliament has power to make laws.  That power implies that the Parliament has no power to make laws for the acquisition of property on unjust terms.
There is force in the argument that the provision deeming a foreign revenue claim once entered on the register to be a debt due to the Commonwealth constitutes an acquisition of property used to discharge the debt on unjust terms. If that is so the legislation cannot be saved by calling in aid the power to make laws with respect to external affairs.
Problems of enforcement
There may be some practical difficulty of enforcing the promoter penalty provisions with respect to offshore promotional activity. Suppose a New Zealand company with corporate shareholders resident in a country with which Australia does not have a tax treaty promoting a scheme for which the Commissioner succeeds in obtaining a Federal Court judgment for a civil penalty against the company. The Commissioner requests New Zealand to aid it in recovering the penalty from the New Zealand company. The directors of the company cause it to declare a dividend to its shareholders which denudes it of the capacity to pay the penalty. Article 27 is thwarted and unless Australia can have extradited the individuals who aided and abetted the declaration of the dividend, a prosecution under the Crimes Taxation Offences Act 1980 or for fraud against the Commonwealth is unavailable.
As one can see there is a plethora of statutory provisions in Australia that define the duty of a taxpayer to disclose information to the Commissioner and there are numerous offences for failure to disclose, some of which may be enforced in a summary way while others constitute indictable offences.
A taxpayer’s duty of disclosure is a creature of statute. The content of the duty will depend upon the proper construction of the statutory provision. In the case of a standard form of return, the duty is confined to appropriate answers to the questions raised. But where there is any doubt that a taxpayer has excluded income from derivation by the taxpayer or is entitled to a deduction under what is said to be a tax-effective scheme, the taxpayer will be well advised to seek a binding private ruling. Rare will be the case that the taxpayer is in a position to raise a question upon lodging a return that is not capable of being dealt with by a private ruling.
Legislation seeks to protect the Revenue by providing various powers of inquisition and search. It is with respect to those provisions that the obligation of disclosure will be more widely defined. In Australia it is under these provisions that the Commissioner conducts audits. The duty of disclosure in these circumstances will be breached by a failure to disclose information that renders that which has been disclosed misleading in a material respect.
A failure by a taxpayer to comply with the duty of disclosure can lead to an amended assessment, to penalties, to summary prosecution or to prosecution of an indictable offence.
Domestically, Australia has encouraged the making of disclosures to the Commissioner under its private and public ruling systems. There has been further impetus to disclose information to the Commissioner under the specialised product ruling system. The recent introduction of promoter penalty provisions is likely to augment the extent of such disclosures.
From the international perspective, the OECD model convention has been amended to provide greater exchange of information between treaty partners and to overcome the rule in Government of India v Taylor by providing for one treaty partner to recover a tax debt due to the other treaty partner. The manner in which the latter has been given legislative effect in Australia is questionable because it may amount to a law with respect to the acquisition of property not on just terms, overriding the usual font of legislative power under the external affairs power.
I wish to acknowledge the assistance given to me in research for this paper by the New South Wales Supreme Court Equity Division researcher, Sean O’Brien and by my Tipstaff, Sophie Hunt.
It should not be assumed that anything I have said will lead me to a decision consistent with this paper if an issue addressed in it is ever raised before me in Court.
27 September 2006
1. Morals, laws, taxes and sovereignty, Offshore Investment, April 2005, 2
2. Offshore, and Moral Hazard, Offshore Investment, October 2005, 2
3. Challenge Corporation Ltd v Commissioner of Inland Revenue  2 NZLR 513
4.  2 NZLR 513 at 561
5. Webb v Syme (1910) 10 CLR 482 at 489. The decision was reversed by the Privy Council, Syme v Commissioner of Taxes  AC 1013 without adverse comment on this point
6. Liedig v Commissioner of Taxation (1994) 50 FCR 461 at 470
7. PD Finn, Fiduciary Obligations, Law Book Co, Sydney, 1977 at 
8. Cape Brandy Syndicate v Inland Revenue Commissioners  1 KB 64 at 71
9. Income Tax Assessment Act 1936 (Cth), s 161(1)
10. Internal Revenue Code (US), s 6011(a)
11. Taxes Management Act 1970 (UK), s 8(1)
12. Tax Administration Act 1994 (NZ), s 15B
13. Income Tax Act 1985 (CAN), s 150(1)
14. Income Tax Assessment Act 1936 (Cth), s 162
15. Income Tax Assessment Act 1936 (Cth), s 163
16. Income Tax Assessment Act 1936 (Cth), s 262A
17. Income Tax Assessment Act 1936 (Cth), s 263(1)
18. Income Tax Assessment Act 1936 (Cth), s 264
19. Income Tax Assessment Act 1936 (Cth), s 221AK(1), s 221AZK(1). See, also, definition of “full self-assessment taxpayer” in s 6(1)
20. Income Tax Assessment Act 1936 (Cth), s 166A
21. Income Tax Assessment Act 1936 (Cth), s 166
22. Income Tax Assessment Act 1936 (Cth), s 174(1)
23. Income Tax Assessment Act 1936 (Cth), s 169A(1)
24. Income Tax Assessment Act 1936 (Cth), s 169A(2)
25. Taxation Administration Act 1953 (Cth), Sch 2, Div 359, s 359-5(1), s 359-10
26. Taxation Administration Act 1953 (Cth), Sch 2, Div 357, s 357-60(1)
27. Income Tax Assessment Act 1936 (Cth), s 170
28. Income Tax Assessment Act 1997 (Cth), Div 328
29. Income Tax Assessment Act 1936 (Cth), s 170(10), s 170(10A)
30. Income Tax Assessment Act 1936 (Cth), s 170(10AA)
31. Income Tax Assessment Act 1936 (Cth), s 136AD, s 136AE
32. Income Tax Assessment Act 1936 (Cth), s 170(9B)
33. Income Tax Assessment Act 1936 (Cth), s 263, s 264
34. Income Tax Assessment Act 1936 (Cth), s 8
35. Income Tax Assessment Act 1936 (Cth), s 17(1)
36. Industrial Equity Ltd v Deputy Commissioner of Taxation (1990) 170 CLR 649 at 659
37. 170 CLR at 662
38. Derry v Peek (1889) 14 App Cas 337 at 374
39. Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 579-580
40. Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 70 CLR 296 at 313
41. Crimes Act 1914 (Cth), s 29D, s 86(1)
42. R v Pearce Tieleman and Wharton  WASC INS 80 of 2003
43. Pearce v The Queen  WASCA 74
44. Wharton v The Queen, Pearce v The Queen; Tieleman v The Queen;  HCA Trans 888 at 2
45.  HCA Trans 888 at 3-4
46. Taxation Administration Act 1953 (Cth), s 8AAB(2)
47. Taxation Administration Act 1953 (Cth), s 8AAJ(2)
48. Taxation Administration Act 1953 (Cth), s 8AAP(2)
49. Taxation Administration Act 1953 (Cth), s 8C(1)
50. Taxation Administration Act 1953 (Cth), s 8D(1)
51. Taxation Administration Act 1953 (Cth), s 8K(1)
52. Taxation Administration Act 1953 (Cth), s 8K(1B)
53. Taxation Administration Act 1953 (Cth), s 8L(1)
54. Taxation Administration Act 1953 (Cth), s 8L(1A)
55. Taxation Administration Act 1953 (Cth), s 8N
56. Taxation Administration Act 1953 (Cth), s 8Q(1)
57. Taxation Administration Act 1953 (Cth), s 8T
58. Taxation Administration Act 1953 (Cth), s 8U
59. Taxation Administration Act 1953 (Cth), s 8ZA
60. Taxation Administration Act 1953 (Cth), s 8ZE
61.  1 AC 509
62.  1 AC 509
63. Criminal Code (Cth), s 1.1
64. Criminal Code (Cth), s 134.2
65. Criminal Code (Cth), s 137.1
66. Criminal Code (Cth), s 135.4(3)
67. Criminal Code (Cth), s 135.5
68. Criminal Code (Cth), s 15.4
69. Act No 100 of 2006
70. Income Tax Assessment Act 1936 (Cth), s 16(2)
71. s 23
72. Taxation Administration Act 1953 (Cth), Sch 2, Div 358, s 358-5(1)
73. Taxation Administration Act 1953 (Cth), s 14ZAAH(1)
74. Taxation Administration Act 1953 (Cth), Sch 2, Div 357, s 357-60(1)
75. Tax Laws Amendment (2006 Measures No 1) Act 2006 (Act No 32 of 2006)
76. Taxation Administration Act 1953 (Cth), Sch 1, Div 290, s 290-50(1)
77. Taxation Administration Act 1953 (Cth), Sch 1, Div 290, s 290-60
78. Taxation Administration Act 1953 (Cth), Sch 1, Div 290, s 290-65(1)
79. Taxation Administration Act 1953 (Cth), Sch 1, Div 290, s 290-50(2)
80. Taxation Administration Act 1953 (Cth), Sch 1, Div 290, s 290-50(3)
81. Taxation Administration Act 1953 (Cth), Sch 1, Div 290, s 290-50(4)
82. Taxation Administration Act 1953 (Cth), Sch 1, Div 290, s 298-100
83. Crimes (Taxation Offences) Act 1980 (Cth), s 5
84. Crimes (Taxation Offences) Act 1980 (Cth), s 6
85.  AC 491
86. Taxation Administration Act 1953 (Cth), Sch 1, Div 263, s 263-15
87. Taxation Administration Act 1953 (Cth), Sch 1, Div 263, s 263-20
88. Taxation Administration Act 1953 (Cth), Sch 1, Div 263, s 263-25
89. Taxation Administration Act 1953 (Cth), Sch 1, Div 263, s 263-30
90. Constitution (Cth), s 51
91. Constitution (Cth), s 51(ii)
92. Constitution (Cth), s 51(xxix)
93. Constitution (Cth), s 51(xxxi)