Recently, after much debate, the Australian High Court officially ruled that the Australian Tax Office can legally use the information found in the Paradise Papers. This came after Glencore, a global mining giant, fought to prevent the Australian Tax Office from using that information.
The Arguments For and Against
According to Glencore, the Paradise papers contained information that would breach “secrecy of communications” with lawyers. Glencore argued that the legal privilege should include legal advice that was released via hacking or unintentionally.
The Australian Tax had told the High Court that it needed those documents to help it assess the tax obligations of Glencore. The second commissioner of the ATO, Jeremy Hirschhorn, also pointed out that the information is already in the public domain, so it would not have made sense to bar the ATO from using it. Additionally, the ATO references the Income Tax Assessment Act, which requires the ATO to use tax returns as well as other information it is aware of to determine taxes.
The High Court made its ruling on Wednesday, August 14. Its ruling indicated that the legal professional privilege of Glencore does not give the company the right to force others to stop using the documents.
The court ruled that legal professional privilege only provides immunity from powers that would require disclosure of communications of a privileged nature.
Further Details of the Case
The case specifically involved legal advice that Appleby, a premier offshore law firm, provided regarding the corporate restructuring for Project Everest. The Australian Tax Office had gotten the relevant documents and information via its November 2017 Paradise Papers investigation. Those documents included plans to transfer billions of dollars’ worth of assets offshore.
Additionally, the Paradise Papers showed that the Australian branch of Glencore participated in cross-currency swaps as high as $25 billion. The type of swap in question is under Australian Tax Office investigation. Those swaps are lawful but the ATO is investigating them as a potential way for companies to move their profits from high-tax zones to low-tax zones via non-commercial exchange rates.
Why It Matters
If Glencore had won the case, this would have led to alarm among regulators. Those regulators are already unhappy due to companies using legal professional privilege as a way to stop certain documents from being used, or even discovered, during investigations. A victory for Glencore would have also shown a break with other common law rulings.
Those in favor of the ruling call it a victory for the Australian Tax Office and all citizens who want the ATO to use all available information to ensure high-net-worth individuals and businesses pay proper taxes.
According to Hirschhorn, the main concern of the ATO was not the specific documents that Glencore wanted to bar from use. Instead, it was to confirm that the Australian Tax Office can legally use documents that are leaked, including banking details, board minutes, and contracts.
The Bottom Line
The ruling by the Australian High Court was a win for the Australian Tax Office and those in favor of regulation. Those who value their privacy and want to take advantage of lower tax rates in tax havens or offshore locations see it as a loss.
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