Taxation Law - A Lesson from Vanuatu

The current Vanuatu experience has a number of important lessons for all of us. What is of interest is that where taxpayers are involved in a tax exploitation scheme(s) they run a high risk of exposure in today’s current climate. As the Tax Office has frequently said, they have adopted a whole of government approach which involves all the major agencies of the Australian Government. Specifically the ATO, ACC, AFP, ASIC, CDPP and any other prescribed agency. Where any scheme of arrangement compromises or affects the national security of this country then ASIO would also be involved. 

The agencies which have made a great contribution to Project Wickenby are: the AG’s department, Austrac, AGS and any prescribed agency. In other words, the big guns of government are being used to detect, deter, investigate and enforce the law with respect to the promotion of or participation in an arrangement of an international character or purported international character that relates to any one or more of the following:

After all, this is the subject matter of Operation Wickenby and Operation Starlifter. Essentially, most tax haven schemes involve rude, crude frauds which lack the sophistication and efficacy of aggressive tax planning which may fall within the guidelines set by the ATO. As has been said on many occasions these schemes basically involve an outbound flow of funds to an overseas entity where deductions are claimed or over-claimed for goods and/or services which are imaginary with the monies coming back to Australia dressed up as a loan or an inheritance or some other form of collateral benefit suggestive of a legitimate arrangement supported by an agreement(s) e.g. funds sent overseas to Vanuatu allegedly pursuant to an agreement with a bogus company to provide computer and web development services which are totally fictitious for a substantial consideration. When the money comes back dressed up as a loan interest is charged by the offshore entity which the taxpayer in Australia then claims as a deduction to support the loan. Incredibly when the funds go out and come back there is very little separation in terms of time and the amounts involved do not vary significantly with the difference normally reflecting the cost of services provided for the servicing of these overseas arrangements by well-known firms of accountants either in Australia and/or overseas. In some cases bank accounts are located in tax havens or in some other offshore location hidden behind a web of companies whose sole purpose is to hide or conceal the true identify of the taxpayer. This may involve a number of entities or other arrangements associated with the taxpayer or his associates such that anyone looking at the scheme initially would be unable to detect who was the beneficial owner. 

This web of companies normally involves companies located in Ireland or England (perhaps having an association with the Isle of Mann) or Delaware in the United States with funds being either diverted to these entities or directed to an international business company e.g. in Vanuatu with bank accounts in Vanuatu or elsewhere which allows for the overall servicing of the arrangement. Unfortunately most taxpayers still think of the ATO as a lumbering elephant who hasn’t learnt from its past mistakes and which couldn’t in a pink fit either detect or find out the true nature of those dealings. In essence this couldn’t be further from the truth as the ATO is now a very slick, sophisticated organization which real time computing so that at the blink of an eye it can pull up a full profile on any taxpayer anywhere at anytime it chooses to do so. The trap for many taxpayers is that by the time they come to the attention of the ATO it is already in possession of sufficient information indicating that the taxpayer is non-compliant