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Wednesday, April 11, 2018

Chris Leech: Detect and deter or catch and release


There is intriguing evidence supporting various quotations in an anecdote recounted by a friend of Holmes named Felix Frankfurter who joined the Supreme Court in 1939 four years after Holmes died. In 1938 Frankfurter published the book “Mr. Justice Holmes and the Supreme Court”, and he also wrote an article for the Atlantic Monthly magazine. Both publications included this story about Holmes [ATFF] [LPFF]:

He did not have a curmudgeon’s feelings about his own taxes. A secretary who exclaimed ‘Don’t you hate to pay taxes!’ was rebuked with the hot response, ‘No, young feller. I like to pay taxes. With them I buy civilization.’
Important new independent research by our seconded researcher from ATO, Chris Leech, with newly released data, on the role and effectiveness of financial penalties for intentional evasion, on the blog and substantial working paper
Twitter by Miranda Stewart

Tax penalties play an important and often undervalued role in the tax system. They primarily serve two functions: to deter non-compliance, and to reinforce community perceptions that the tax system is fair because non-compliant taxpayers will suffer consequences. Most tax penalties are administrative financial penalties imposed by the tax authority, ranging from minor penalties to financial penalties imposed on deliberate tax evaders. This exploratory paper draws on new data relating to payment of tax penalties for false and misleading statements. The data is subject to limitations and qualifications as detailed in the paper. Overall, the data shows that the majority of financial penalties imposed on deliberate tax evaders are never paid. The paper then seeks to explain how this can serve to undermine the effectiveness of these penalties. The paper reviews literature explaining the role of tax penalties and the hallmarks of effective tax penalties. It also reflects on a chapter of Australian tax history where community perceptions that tax evaders were not being effectively penalised jeopardised the perceived fairness of the tax system. The paper argues that if the current tax penalty regime is not strengthened then this will likely pose a risk to the perceived fairness of Australia’s tax system, and it therefore proposes some potential solutions, including arguing for two new penalties to be introduced into the regime.


Chris Leech was seconded from the Australian Taxation Office to the ANU’s Tax and Transfer Policy Institute to work on an independent research project on the effectiveness of financial penalties for those taxpayers who intentionally disregard the tax law. The views expressed in the independent research paper are not an official ATO or government position. He holds a Bachelor of Arts/Law (Honours) degree from Monash University.


Detect and Deter or Catch and Release: Are Financial Penalties an Effective Way to Penalise Deliberate Tax Evaders? by Chris Leech :: SSRN - SSRN papers


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