Since yesterday a growing number of news outlets have reported on the investigation by the Australian Taxation Office (ATO) of over 800 Australians individuals linked to Mossack Fonseca, a Panamanian law firm. The investigation follows the release of the firm's documents that, according to reports, disclose details of the affairs of several thousand Australians.

The increasingly global nature of commerce necessitates the use of offshore vehicles and transacting through such entities should not of itself excite revenue authorities. However, the ATO investigation encompasses a '...large number of taxpayers who haven't previously come forward'.

Given the ATO's offshore voluntary disclosure initiatives in 2007, 2009 and 2014, taxpayers whose names have now come to the ATO's attention will likely face an investigation of amplified intensity. The ATO's media release stated it is working closely with the Australian Federal Police, the Australian Crime Commission and Austrac to further cross-check data and strengthen their intelligence.

The Mossack Fonseca documents are said to date back to 1977 and taxpayers contacted by the ATO may face questions dealing with legacy issues resulting from dealings or transactions that occurred up to 40 years earlier. Affected taxpayers will need to be able to satisfy the ATO that:

  • they are able to fully document and explain the history of their family or corporate affairs, and
  • their affairs do not involve any tax mischief.

Given the ATO's previous offshore disclosure initiatives it can be expected that the ATO will take a strong line with those taxpayers who did not come forward under those initiatives.

In addition, and depending on the facts of each case, the ATO may make findings of fraud or evasion which can result in the ATO extending the number of years it can amend a tax payer's liability and potentially refer cases for criminal investigation.

It is critical that taxpayers with offshore dealings, particularly those who have had any involvement with the firm in question, conduct a review of their affairs and ensure they have a strategy in place for dealing with any ATO investigation or indeed seek advice regarding a voluntary disclosure and proactively engage with the ATO.