Taxation Law - Tax Havens & Criminality

Although every revenue authority around the world is trying to corral, limit and in some cases neuter the influence of tax havens they will continue to prosper. High net worth individuals are not averse to taking risks and often assess their situation with respect to the ability of the authorities to detect them including any offshore activities. Of course the difference between tax avoidance and tax evasion needs to be kept in mind and those who legitimately minimise their taxation liabilities through the use of tax effective structures or entities including the use of tax havens are not subject to prosecution. It is where activities are illegal and they rely upon secrecy for their efficacy which is of great concern to the authorities at the very least. 

Tax fraud has been with us ever since the advent of taxation. In order to meet the increasing level of abuse revenue authorities have become more inventive creating a number of offences which will allow them to more effectively deal with the erosion of their revenue base. The Crimes (Taxation Offences) Act 1980 (Taxation Offences Act) created a number of criminal offences relating to the fraudulent evasion of various Commonwealth Government taxes. These offences involve criminal penalties as well as fines. A custodial sentence for up to 10 years may be imposed together with a fine of $110,000 and where the person is convicted they may still have to pay some or all of the tax evaded. What is of interest here is that it is an offence to enter into an arrangement which allows that a company or trust will be or is likely to be unable to pay income tax that is either payable now or in the future.  It is also an offence to aid, abet, counsel or procure another person to enter into such an arrangement. 

Tax havens rely for their success on promoters or professionals/intermediaries to bring overseas taxpayers to their front door. In an attempt to reverse this trend the Australian Government and the ATO have entered into a number of consultative arrangements on a worldwide basis allowing for the free flow of taxation information involving persons of interest where funds have been diverted without any tax being paid on them.   The ATO has made no secret that it is mainly focusing on schemes where people use tax havens to hide assets and income on which Australian tax should have been paid. As part of its armoury to prevent these abuses the ATO has traditionally relied upon tax fraud and more recently upon the introduction of a number of more modern offences designed to deal with these activities. Revenue Authorities are of the view that where there is tax evasion there is also likely to be money laundering. Traditionally one of the problems has been that where money is sent overseas to tax havens the vast majority of these do not recognise tax evasion as being a criminal offence and therefore the ability of the Australian Government and like revenue authorities to brook this activity has been significantly hampered. Despite this there has been a greater concentration on money laundering offences and it is obvious that, although tax evasion is not recognised by the majority of tax havens, in many cases money laundering is, particularly since the advent of September 11. 

In other words, the formalisation of money laundering as part of the taxation armoury together with its more laudable aim of preventing terrorism, has significantly strengthened the hand of revenue authorities worldwide including the Australian Government and the ATO. In earlier articles we have spoken of taxation information exchange agreements and mutual legal assistance treaties. Essentially, where one or both of these exists with a tax haven it significantly strengthens the ability of the Australian Government and therefore the ATO to obtain information possibly leading to the apprehension and charging of persons of interest and their conviction for offences relevant to the agreement leading to their arrest. Where tax havens have not signed a taxation information exchange agreement but a mutual legal assistance treaty then tax evasion may be dealt with on the basis of money laundering leading to arrest and possible conviction should the information on which the authorities rely be proven.   The resolve of revenue authorities is hardening daily and as always the only thing that we can all be sure about is death and taxes and the ability of certain individuals to divine ways of either reducing or not paying tax at all. Irrespective of how this is done these schemes or arrangements are normally directed at creating deductions for payment of expenses and services that are fictitious with money being sent offshore and then being secretly returned to Australia disguised as loans, inheritances, gifts, insurance proceeds with these funds being accessed by either credit or debit cards.