ATO hits wealthy taxpayer with $242 million bill – and now the US tax man is coming to Australia

A senior ATO official has revealed the Tax Office recently hit a wealthy taxpayer with a $242 million tax bill over the use of a foreign tax bill and warned the ATO will pursue criminal sanction against taxpayers found to have hidden income overseas.

And the revelations are just the start of the bad news for tax dodgers who use foreign tax havens, with the US Government’s tax agency, the Internal Revenue Service, set to open an office in Sydney as part of its haven crackdown.

In a speech to the Tasmanian chapter of the Tax Institute of Australia, the ATO’s second commissioner Bruce Quigley revealed the ATO is currently conducting 600 audits and 23 criminal investigations in relation to the use of tax havens.

He said $407 million in unpaid tax debts have been found as part of the Operation Wickenby tax haven investigation, with the huge $242 million penalty leveled at one wealthy business person.

The individual has not been identified.

In another case, an attempted to bring $2.5 million into Australia from the tax haven of Jersey by directing it to his wife. “He failed to declare the income personally and then his wife omitted nearly $50,000 of interest earned after it was deposited to her Australian bank account. We responded to this case by raising assessments with high penalties for both taxpayers.” Quigley says.

The tax haven problem in Australia is surprisingly large. In 2007-08, $16 billion was sent directly from Australia to havens and $29 billion was sent from these jurisdictions to Australia.

“While these fund flows can relate to legitimate trade and tourism, our intelligence suggests that this haven risk in Australia is in the order of hundreds of millions of dollars.”

In recent times Australia has signed seven tax information exchange agreements with havens including Bermuda, Antigua and Barbuda, Netherlands Antilles, British Virgin Islands, Isle of Man, Jersey, and Gibraltar and hopes to have 30 haven agreements signed by 30 June next year.

The ATO is not the only jurisdiction cracking down on the use of tax havens – American’s IRS is also on the hunt for tax dodgers using foreign accounts.

The US investigations have been given extra impetus in recent months by the release of information by Swiss banking giant UBS, which handed over the names and details of 4,450 US citizens with Swiss bank accounts.

The IRS also conducted an amnesty program to encourage tax dodgers to come forward. According to a report in the LA Times, about 7,500 people came forward to disclose foreign bank accounts and agree to pay back taxes and penalties.

The amnesty finished last week, but the crackdown will continue. The IRS will open offices in Beijing, Panama City and Sydney as part of the hunt (it already has eight foreign offices) and could soon have as many as 11,000 active investigations underway.