Often it is a claim that succeeds simply because it is not contested Even if it

Often it is a claim that succeeds simply because it

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Often it is a claim that succeeds simply because it is not contested. Even if it is successfully challenged, the fact that it is a case based on applying the law rather than ignoring it 7 provides protection from the sanctions and stigma associated with simple non-compliance. A tax planning device may fail in court without being branded a tax fraud. 8 It is an essential element and attraction of creative compliance that it can claim to be ‘not illegal’, to be quite distinct from non-compliance. But the line between the two is not always so clear as that suggests (McBarnet, 1992). The Australian Commissioner of Taxation (2000) has recognised that aggressive tax planning can in practice slip over the line into evasion: ‘The competition in the market has also stretched the boundaries of arrangements, with some edging to the fraudulent’ (p. 5). What is more, creative compliance and non-compliance can intertwine. There has recently been a furore over Australian barristers going bankrupt with one creditor, the ATO, to whom they owed debts in unpaid taxes to the tune of millions of dollars (Commissioner of Taxation, 2000, pp. 6-7). In this case the actual non- payment of tax would not appear to be a matter of creative compliance, but of simple non-compliance under tax law. But resort to a different branch of the law,
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When Compliance is not the Solution but the Problem 233 bankruptcy, permitted escape from the sanctions of tax law. Of course no one can go into bankruptcy unless they have run out of assets. But the reason for the furore was concern that assets remained in the family, accessible to and enjoyed by the bankrupt, despite the bankruptcy and the protection it offered regarding the enforcement of tax law. In short, there was concern that bankruptcy law had been used creatively. Certainly, bankruptcy can be planned and creatively constructed. The ATO Auditor-General Audit Report (1999) observed (on a broader base than the bankrupt barristers mentioned in the press) that the individuals concerned ‘are generally well prepared for bankruptcy’ (Auditor-General, 1999, p. 113). Tackling Creative Compliance: ‘Big Powers’ How is creative compliance to be dealt with? In the ATO Compliance Model, if a taxpayer is not won over to compliance via gentle cooperative control, there is a next step – a shift of gear from gentle persuasion to legal force, from cooperation to sanctions. The Compliance Model has two sides. It involves not just cooperation but ‘big sticks’. Despite the primary consensual approach, there is a need to remember the power of the punch behind this velvet gloved approach (Clayton Utz, 1997). In the Compliance Model, law and sanctions may be a matter of last resort, but they are there, and they are there to be used. But what happens when it is the taxpayer who is resorting, as a matter of first resort, to the law, and using it, whatever the enforcement agency’s view, to claim compliance? Big sticks are for dealing with non-compliance. How do enforcers bring in legal sanctions to deal with what is claimed to be legal compliance? In this
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  • Fall '16
  • tax authority, Australian Taxation Office, Tax Office, Compliance Model

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