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ATO Investigating Foreign Trust Tax Avoidance Schemes

by Mary Swire, Tax-News.com, Hong Kong

16 February 2004

The Australian Tax Office warned last week that it is investigating foreign trust arrangements in a bid to stamp out tax evasion.

Under scrutiny by the ATO are activities which involve the creation of a trust in New Zealand that agrees to provide staff and other services at cost price plus a mark-up to an associated Australian company. The Australian-based business then claims tax deductions for the cost of these services.

The Tax Office points out that no tax is paid by the trust or its beneficiaries on this service income either in Australia or New Zealand, and has observed that service fees are paid into a bank account controlled by the trust to which the owners of Australian businesses also have access.

Tax Commissioner Michael Carmody noted that: "These arrangements may breach a number of provisions of the Tax Act, including the general anti-avoidance rules," and warned that substantial fines are levied where the ATO’s concerns are justified.

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