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Conviction and fines for failing to comply with the ATO's formal information gathering notice

07 March 2022

#Taxation

Published by:

Eugene Lam

Conviction and fines for failing to comply with the ATO's formal information gathering notice

On 14 January 2022, MacDonald’s Australia was convicted and fined for failing to provide documents requested by the Australian Taxation Office (ATO) under a formal information gathering notice. This matter shows that the ATO will pursue convictions and fines when taxpayers do not comply with formal information gathering notices and may publicly shame the relevant taxpayers.   

Taxpayers will need to reflect on this when they are asked to provide documents. Ideally, this should be done without the pressure of a formal notice unless the request relates to third party documents. If a formal notice is issued, taxpayers need to factor in the financial and reputational costs of non-compliance when deciding how to respond to the notice. 

The McDonald’s matter

On 26 July 2019, the ATO issued a formal notice requiring McDonald’s Australia to produce documents by 30 August 2019. However, the documents were not provided by the compliance date.

The matter was subsequently referred for prosecution by the Commonwealth Director of Public Prosecutions. McDonald’s Australia pleaded guilty at the Downing Centre Local Court in Sydney to one count of failing to comply with an information gathering notice. The fine amount was not disclosed. 

The penalties for non-compliance with a formal information gathering notice are set out in sections 8C and 8D and section 288-35 in schedule 1 of the Taxation Administration Act 1953. Broadly, a failure to comply with the formal notice attracts a financial penalty of 20, 40 and 250 penalty units, depending on the frequency of offence.

In cases where the court finds that the purpose of the refusal or failure to comply was to avoid tax liability, the court may order the entity to pay up to double the amount of tax avoided. Importantly, this is an offence of absolute liability and means that the conviction and/or penalty apply regardless of the reason for not complying. 

The Commissioner’s position towards a failure to comply with formal notices

The ATO’s media release emphasises the importance for taxpayers to be open and transparent in their dealings with the ATO. Specifically, the release quoted the following statements from Deputy Commissioner Will Day:

“The vast majority of taxpayers willingly engage with us and voluntarily provide the information we need to undertake reviews and audits.

We only issue formal notices to taxpayers to obtain information as a last resort; where a cooperative approach is no longer productive or where a taxpayers’ circumstances, history or behaviour warrant the use of our formal powers.

As such, we expect the taxpayer to treat them seriously and respond in a timely way.”

How should you approach providing information during a tax review or tax audit?

When dealing with tax reviews and tax audits, it is important to adopt a proactive approach in your response to the ATO to ensure that the information requested is provided in a timely manner.

As information requests are usually a voluminous exercise, we encourage you to reach out early to your tax advisors for advice on complying. This applies to both formal and informal information requests. Doing so early enables a proper assessment of the various risks and for consideration to be given to additional information that could be provided to reduce the risk of a dispute.

At Holding Redlich, we can provide you with a tailor-made dispute strategy for your dealings with the ATO. In particular, we have designed a process to ensure that document reviews can be undertaken efficiently to identify documents that fall within the scope of an information request and those that do not have to be provided (as they are subject to legal professional privilege or one of the ATO document concessions). 

If you have received a formal or informal notice to provide documents, please contact us or send us your details here. We will discuss your obligations with you and, if you are required to comply with the notice, recommend the most efficient way to proceed. 

Author: Eugene Lam

  • Eugene Lam is an associate in our national tax team. He has authored this article for the March edition of Holding Redlich's Junior In-House Monthly, which you can subscribe here.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Eugene Lam

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