ATO Prosecutions: Firm and Fair Enforcement

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ATO Prosecutions Firm and Fair Enforcement?

• Dr Declan Roche
• Centre for Tax System Integrity
• ANU

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Overview

• The ATO getting tougher
• Benefits of tougher approach
• Concerns about tougher approach
• Implications for tax practice and regulatory
  theory

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The ATO says they are getting tougher

• You can expect us to be tougher on serious fraud
  and evasion. Bringing together our serious
  non-compliance operations has resulted in
  substantial prosecutions We will focus on, and
  take tougher action against, habitual non-payers
  
• Tax Commissioner, Michael Carmody, April 2005

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Evidence of their tougher approach

• Increasing number of prosecutions
• Press releases and media commentary
• Public statements by ATO officials

5
A tougher approach has benefits
Effective self-compliance and informal regulation
requires the credible threat of more coercive
regulation

• Roosevelt speak softly and carry a big stick
• Braithwaite responsive regulation

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But, a tougher approach also has its pitfalls

• Procedural justice
• Informal sanctions
• Proportional enforcement

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What we did

• 34 people identified from ATO records
• 3 letters sent to each
• 10 replied consenting to phone interview
• Male
• 30-60 years old
• Served 3 months to 2 years

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Procedural justice issues

• Few complaints about conviction or sentence

• I knew I was as guilty as hell

• Many complaints about manner of prosecution

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Complaints about treatment

• Delay
• I was effectively in prison for a couple of
  years more
• My life was on hold I couldnt enjoy anything
• Investigative Style
• My friends all think they (the ATO) were
  vindictive. I wouldnt say that but it did seem
  as if they were working on commission
• Communication
• The hardest thing is to get in touch with them
  totally, absolutely, unequivocally impossible.
  They have this phone menu but theres nothing on
  it about owing them money Ill probably end up
  having to sue them, and take them to court.
  Thats the only way you can meet them, in court
  I also owe money to Centrelink, but theyre a
  dream to work with.

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Not everyone complained

• I tried to bullcrap him the ATO investigator,
  but he didnt buy it - he was one of those old
  copper types - you know, dogged. He just kept
  asking sensible bloody questionsthat I couldnt
  answer

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Why delays are a problem

• Increase risk of non-compliance
• Undermine presumption of innocence
• Can reduce eventual punishment

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Judicial view of delay

• It is bordering on the unconscionable for three
  years to elapse between a police interview which
  results in full admissions and the laying of
  ensuing charges The public interest as well as
  the legitimate private interests of the offender
  require a matter such as this to be brought to
  justice quickly. A failure by the authorities to
  do so will mitigate an otherwise appropriate
  sentence
• - Mason P, R v Gay 2002 NSW CCA 6

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Informal sanctions were more severe than formal
ones

• Q What was the hardest thing about your
  experience?
• Well, it wasnt jail - been there before, done
  that - jail would be at the bottom of my list
• The hardest thing was not so much the jail time,
  but the time leading up to it, and the time after
  being released

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The harms caused by prosecution

• Personal relationships
• She says she married me for better or worse she
  just didnt think that the worst would be this
  bad
• Employment
• No-one will touch me
• Defrauding the Commonwealth doesnt sound too
  flash on your application form
• Mental health
• They say what doesnt break you, makes you
  stronger. But I dont know about that it just
  makes you different, and in my case, angrier.

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Is ATO enforcement proportional to the offence?

• No complaints about punishment
• Widespread perception that ATO prosecutes less
  serious evaders more vigorously than serious
  evaders
• They pick the easy channel
• Similar perception revealed by ATO annual
  community survey

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Implications for tax practice

• Reinforce Taxpayers Charter applies to all
  taxpayers
• Prosecute fewer cases, faster
• Consider alternative approaches
• Publish feature stories about those prosecuted
• Prosecute high profile corporate cases

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Responsive regulators should

• Set regulatory approach according to persons
  behaviour
• Always look for opportunities to regulate simply
  and informally
• Always be prepared to escalate to more coercive
  regulation

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The enforcement pyramid
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Two faces of the ATO

• We need to differentiate our treatment of
  taxpayers according to their approach to meeting
  their tax responsibilities we differentiate our
  responses to the needs and risk profiles of
  different market segments. For some segments,
  there is a stronger emphasis on enforcement
  approaches, for others it is more about education
  and information and supporting those advisers who
  are dealing directly with taxpayers
• - Tax Commissioner, Michael Carmody, 2002

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Regulate responsively but

• Procedural justice should be fixed, not
  responsive
• Procedural justice not something to be granted to
  the honest as a courtesy, nor withheld from the
  dishonest as a punishment
• Honest and dishonest alike entitled to fair
  treatment