ATO Warns On Samoan Offshore Tax Schemes

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

18 October 2010

The Australian Taxation Office (ATO) has warned taxpayers about bogus Samoan offshore tax schemes being used to underpay taxes.

“Promoters have established offshore structures based in Samoa designed for people to claim artificial tax deductions and conceal income or assets,” the Tax Commissioner, Michael D’Ascenzo said. “Australian residents who use offshore arrangements to conceal assets or income from the ATO face serious penalties.”

The current schemes under consideration by the ATO usually involve an Australian resident taxpayer entering into an arrangement with a promoter involving the use of offshore entities and structures in Samoa or other low tax jurisdictions. The arrangement involves the transfer of funds offshore as artificial expenses for services purportedly provided by the promoter or an associated offshore entity.

The arrangement may be used to generate a deduction for the expenditure that has purportedly been incurred, while the promoter or an associate subsequently returns the funds to the taxpayer through the use of purported loan arrangements or the use of offshore debit or credit cards.

The taxpayer may also seek further deductions in respect of interest on the purported loan used to effectively repatriate the funds. Frequently, the ATO said, the payment of purported interest is returned to the taxpayer, minus a small fee, as a further advance on the loan. This has the effect of increasing the loan balance and the amount of deductions in respect of purported interest over time.

The arrangement may also attempt to conceal the receipt of income or ownership of assets. An offshore entity would try to enable the taxpayer to hold assets offshore, while concealing the beneficial ownership of those assets and the income that may be generated from those assets.

In some cases, it was said, the offshore entity may generate profits or gains offshore (for example, by offshore passive investments) and/or in Australia (for example by trading in shares on the Australian Stock Exchange). These funds may be held offshore indefinitely, transferred to the taxpayer through the use of purported loan arrangements, or accessed through the use of debit or credit cards.

The ATO advised that anyone who has participated in these arrangements needs to come forward before they are contacted by the ATO. If they do, they will be entitled to a reduction in any tax penalties. “People who are unsure about their situation should seek independent advice or contact the ATO for a private ruling on their individual circumstances,” D’Ascenzo added.

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