It is surprising that when more than 200 issues have been created to define the

It is surprising that when more than 200 issues have

This preview shows page 225 - 227 out of 311 pages.

It is surprising that when more than 200 issues have been created to define the most important risks, some of the most worrying fall outside that list. This could be due to limitations in the type of risks included on the original risk identification form, or to the way analysts complete the form. For instance, they may have been confused by the way that their instructions conjoin ‘further information desirable’ with ‘and would suggest audit action’. If insufficient information were available to properly assess an unusual issue they would be obliged to rate it as a high risk. Yet perhaps this unexpected outcome is not so surprising given the very nature of aggressive tax planning. Tax planning at its most aggressive is also at its most creative and entrepreneurial. The strategies that everyone, particularly the ATO, knows about will not be the most lucrative. When everyone is into the same aggressive tax planning strategy, the strategy will be highly visible and will draw the fire of the ATO. This will cause the smart money to move into more boutique strategies, and is a similar effect to the evolutionary ecology of predation in nature. While there are certain strategies of predation that can each inhabit a strong niche for predation, if all predators jumped into the same niche some would perish. It is thought that a new predation strategy is more likely to persist if it is different from that already used by other predators competing for the same resource (Cohen and Machalek, 1988). That is, under this scenario, the most successful strategies are the most idiosyncratic. Similarly with tax planning, the best tax planners are game players who are always coming up with new angles or games. There is no single best strategy that all the smart money gravitates towards. ATO analysts commonly identify a set of strategies, which could be conceived in an evolutionary ecology of tax planning as standard niches, each of which support a lot of players. In Australia in recent years these have included: (a) redefining income as capital by the use of multiple trust structures that conceal a common controlling mind; (b) creating artificial losses (e.g., by acquiring companies or trusts with accumulated losses); (c) disguising distributions to HWIs and family members as loans and other non-taxable benefits; (d) using off-shore trusts; (e) converting activities undertaken for private pleasure into tax losses (e.g., pleasure craft, horse breeding and racing); and (f) using charitable trusts to disguise benefits to HWIs and their families. Aggressive tax planning is to a degree recurrent and patterned into the above standard forms. However, it is also true that its leading edge is about finding new niches that are maximally lucrative because no one else is exploiting them and no law enforcers are watching them. At its most sophisticated, this leading edge involves engineering completely new financial products, mutations that are not covered by existing tax law (Tanzi, 2000). Faced with this evolution of tax planning, the belief
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216 Taxing Democracy
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  • Fall '16
  • tax authority, Australian Taxation Office, Tax Office, Compliance Model

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