Business Services and Structuring Alert: OECD Multilateral Convention helps ATO recover offshore debt - 6 Feb 2012

The recent public pursuit of Paul Hogan and other high-profile individuals is a reminder of the Australian Tax Office's willingness to pursue the often uphill battle of recovering tax from offshore. The ATO recently signed the Organisation for Economic Co-operation and Development (OECD) Multilateral Convention on tax collection assistance, joining over 20 other powerful countries including Belgium, Denmark, Finland, United Kingdom and the United States. The Convention enables the ATO to ask countries that are a party to the Convention to help recover Australian tax debts.

Over recent years, Project Wickenby and a number of information exchange agreements with low tax countries have been the ATO's primary mechanisms for fighting those who evade tax through offshore tax havens. Adopting the OECD Multilateral Convention adds a powerful weapon to the ATO's already wide arsenal.

Here, special counsel Justin Byrne explains how the Convention works and how the ATO will use it to recover tax debts.

Key points

  • The OECD Convention provides a solid legal framework to facilitate international cooperation through inter-country exchanges of tax information and assistance. The Convention helps parties better exchange information, undertake examinations, serve documents, recover tax claims, implement measures of conservancy and undertake joint audits.
  • All forms of compulsory payments to the Federal Government are covered by the Convention, except for custom duties.

Why Australia has become a party to the Convention

The OECD Convention allows each party to combat international tax evasion and better enforce its national tax laws, while at the same time respecting the rights of taxpayers.

The recovery of Australian tax debts from those residing outside Australia has always been problematic. The Convention provides the ATO with an effective and efficient framework to get much-needed information about tax owed by international residents through co-operation from other countries. However, the Commissioner of Taxation, Michael D'Ascenzo, has commented that the ATO will not ask other countries to investigate small debts that impose an unfair burden on them.

Under the Convention, Australia will also help other countries to recover debts that are linked to residents offshore who also have assets offshore.

Automatic exchange of information

The Convention allows for automatic exchange of information between the parties. This can be established through an administrative agreement, whereby, for example, dividend and interest information is passed on by the source country to the resident country.

The effect on existing bilateral agreements

The Convention covers a much wider range of taxes than bilateral treaties and provides a single legal basis for multilateral country co-operation in tax matters. It also means that an established body (namely the OECD) can, at the request of a party, furnish opinions on the interpretation and application of the Convention.

For more information on the effect of the Convention on Australian businesses, please contact HopgoodGanim's Business Services and Structuring team.