Australian Authorities Act On Offshore Tax Schemes

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

13 June 2005

The Australian Tax Office has acted on information suggesting that individuals have entered into offshore schemes directed at creating fictitious deductions or concealing income for tax purposes.

“The information indicates that in some cases deductions are claimed for payments for expenses and services that are fictitious,” Tax Commissioner Michael Carmody stated.

“In other cases assessable income derived offshore is not brought to account in Australia. This income is secretly returned to Australia disguised as a loan, an inheritance, a gift, or through credit and debit cards," he added.

During the ATO's initial enquiries it emerged that not only were there possible serious breaches of the tax law in this behaviour, but potential criminal activity. In some cases the information indicates that false documents and transactions are used in setting up the arrangements in the first place.

“Cases involving potential criminal activity were referred to the Australian Crime Commission (ACC) for investigation,” Mr Carmody stated.

As part of their investigation of these cases, over the last few days the ACC, assisted by the Australian Federal Police and tax officers, has executed warrants at 48 sites around Australia.

In addition the Tax Office exercised its powers of access to conduct unannounced visits at 37 sites. These were cases where there is information and material to justify audits of possible breaches of the tax law, that is, undisclosed income or improperly claimed deductions.

According to reports, the ACC has revealed that the schemes were used by "high-wealth individuals at the big end of town" and have deprived the Treasury of A$300 million (US$229 million).

Carmody went on to explain that: “In considering whether to use the access powers under the tax law and whether they should be unannounced visits, we took advice from independent legal counsel. Each case was examined individually and the decision to make an unannounced visit to a particular residence or business was taken by a senior officer. Decisions were not taken lightly."

He added that:

“Our decisions to use unannounced visits under our access powers were made taking into consideration the characteristics of these schemes such as document integrity, secrecy and concealment.

“It is important to note that these access visits are being conducted as part of audits of possible breaches of the law. The fact that a visit is undertaken does not mean that a breach has occurred."

“Our enquiries are continuing. We will continue to refer matters where there is potential criminal activity to the ACC."

“I would encourage people who may have got caught up in these schemes to come forward and clear up their tax position."

The law provides significant penalty discounts where taxpayers make a full and true voluntary disclosure, explained in Taxation Ruling 94/6. The ATO expects any voluntary disclosure to include the provision of known details of the promoter(s) who designed, sold or implemented the schemes, and known details of the methodology employed.

The Commonwealth Director of Public Prosecutions has indicated he will give favourable consideration to the granting of an indemnity from criminal prosecution in relation to the taxpayer’s involvement in the scheme where:

• The case does not exhibit a significant degree of criminality;
• The taxpayer provides information about how the arrangements worked, including the role and identity of the promoter; and
• The taxpayer cooperates with the investigation and consequential proceedings.

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