The challenges of dealing with tax havens: Can innovative uses of technology be part of the solution?

Abstract

This paper examines the impact of tax havens and bank secrecy laws in administering Australia’s taxation system, including an examination of the impact of electronic commerce. The Australian Taxation Office (ATO) estimates that in 2005-06 about $5.3 billion flowed from Australia to tax havens. A US Senate Committee recently estimated that offshore tax havens hold trillions of dollars in assets provided by citizens of other countries. The Commissioner of Taxation recently observed that: Tax havens seek to attract international trade and investment by establishing financial, legal and tax systems that may be beneficial to some activities. Modern communication methods, the internet and people’s mobility have made it easier for financial services to be provided from previously remote locations. Against this background, the Australian taxation system finds itself in unchartered waters, a situation that promises much potential, creates many opportunities and will present numerous challenges to the ATO. The overall thesis of the paper is to assert that tax havens, bank secrecy laws and electronic commerce present many challenges to tax administrators, and innovative uses of technology – though part of the problem – can arguably also be part of the solution in dealing with the challenges identified in the paper.