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Taxation Law – Offshore Funds and Offshore Structures

Often bogus/fabricated documents are relied upon by taxpayers to defend overseas interests/structures and locally claimed deductions.  Why would anyone in their right mind enter into a multi million dollar contract for overseas IT consultancy, for example, in the Cook Islands, a tax haven, given that they are not known as a supplier of IT consultancy services like India.  How could anyone seriously claim a multi million dollar R&D expenditure in Ireland, for example, with respect to their local business and claim concessional treatment for R&D expenditure relying on sham documentation.  How could anyone enter into overseas insurance arrangements with a tax haven insurer for local indemnities at rates far in excess of what is available in the local market for a non existent risk weighting.  Essentially the Tax Office are not fools.  Remember where the taxpayer is suggesting the source of funds is a gift or inheritance then they will require credible substantiation which they will use as a basis for further inquiry.  They are serious about collecting overseas diverted, omitted or non-declared monies which fall within the scope of the various Australian Tax Acts.

The ATO is fully alive to the part played by trying to legitimise transactions and the type of offshore structures involved, e.g.

  1. International Business Companies
  2. Offshore Trusts
  3. Offshore Captive Insurers
  4. Offshore Superannuation Funds
  5. Mutual Discretionary Funds
  6. Offshore Foundations or Stiftungs
  7. Offshore Finance Entities
  8. Protected Call or Segregated Portfolio Companies
  9. Anstalts
  10. Nominee Companies

Of course the ATO always looks to the source and application of funds and substantiation.  Many tax advisers and promoters tend to be unaware of the timing differentials involving documents for entities and these may be two, four, five, seven, eight years or longer.  Do not believe for a moment that no documents mean no tax.  If you cannot produce the documents the ATO is perfectly within its rights to claim all monies are subject to tax and no deductions are available.  Of course the ATO adopts the principle conciliation first force remaining and where the adviser takes a reasonable approach they may be prepared to accept reasonable assumptions in the absence of documents where it is fair to do so.  Don’t forget the obvious the message is in the gesture. The Taxpayers’ Charter is always a good starting point.  Remember an offshore structure which is a sham means absolutely nothing particularly where the payment of commission to advisers is associated with it.

Payments, loans and debt forgiveness which are or may be recorded in your accounts is another area which the ATO investigates not only for Div.7A irregularities but to examine any interposed foreign entities to ascertain whether payments are being made to a CFC or to a target entity.  Much of what non-complying taxpayers are trying to hide is already in their accounts e.g. payments to offshore promoters or other professionals apart from the foregoing.  If the ATO is not looking at you perhaps ASIO or the Australian Federal Police or ASIC is due to overseas information exchanges.

Every government agency around the world today is concentrating on the flow of inbound and outbound funds.  They watch money flows and the larger and more frequent these are the greater the level of scrutiny.  Blinds through offshore banks, insurance companies, insurance companies, originators, remitters, money exchanges, bartering etc. does not go unnoticed.  The new anti-money laundering laws now make it far easier for all entities’ affairs to be investigated including individuals.  Did you know that for money laundering you can be incarcerated for up to 25 years where as for tax-related fraud offences it is 10 years?  The onus of proof favours the investigating authorities and not the taxpayer which has entered into arrangements to wash money which falls under our new anti-money laundering laws.  Are you fully aware of what you may be involved in?   Should you have any concerns contact LAC Lawyers for competent tax advice and representation.

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