About offshore tax evasion
While most Australian’s do the right thing, there are a small percentage who try to use offshore arrangements to avoid paying millions of dollars in tax.
These individuals create offshore structures to try to disguise beneficial ownership to evade their domestic tax obligations by using a combination of foreign entities, nominee arrangements and offshore service providers (OSP). These arrangements can be highly sophisticated and involve the creation of multiple entities across several jurisdictions.
If you know or suspect that someone may be committing tax crime you can report it by either:
- completing the tip-off form
- phoning us on 1800 060 062.
Previous case studies
Mr Smith’s avoidance of his offshore tax obligations
Mr Smith is an Australian resident, a qualified orthodontist and is the beneficial owner of two offshore companies. Both companies are registered in the British Virgin Islands and are administered by an offshore services provider (OSP) based in Hong Kong.
For 2 years, both offshore companies traded in Australian Stock Exchange (ASX) listed entity shares and derived a net profit of $2 million and $5 million.
Mr Smith used arrangements with third-parties to return some of the profits of the offshore companies to Australia for his own benefit.
Mr Smith provided information to the ATO in an attempt to explain the arrangements. As part of his explanation, he contended that the companies were established by his deceased father and that he had limited knowledge about the entities.
Some of the information provided didn’t make sense and the ATO’s enquiries continued. Though there was no information to suggest that Mr Smith was the legal owner of the share capital of the offshore entities, it was evident that nominee directors and shareholders were used and Mr Smith in fact held the right to receive the capital or profits of the offshore entities.
It was concluded by the ATO that Mr Smith failed to comply with his income tax reporting obligations and as a result the ATO raised assessments for outstanding tax liabilities on the basis that he was an attributable taxpayer of the controlled foreign companies (CFCs). Penalties and interest were also payable on the tax shortfalls. A referral for investigation for potential criminal behaviour was also made.
Ms Thompson’s undeclared offshore income
Ms Thompson is an accountant with many years’ experience in the industry and is the founding director of her own accounting firm.
Several external companies engage the services of Ms Thompson’s accounting firm as external auditors. The Annual Reports for these companies list entities linked to a known offshore service provider (OSP) in their top 20 shareholders.
Ms Thompson has also been personally linked with a foreign registered company administered through the same OSP. Information indicates that this foreign company has been trading in shares. Over a period of nearly 6 years this foreign company made payments directly to third parties for the benefit of Ms Thompson. For example, payments were made for the purchase of a luxury vehicle for Ms Thompson, for home renovations and for the payment of school fees for her children.
After analysing all available information, ATO compliance officers confirmed that the foreign company had derived active income and that the payments to third parties for the benefit of Ms Thompson were made from profits. No other parties were found to have benefited from the foreign company’s profits.
It was found that Ms Thompson had not declared this income in relevant income tax returns and amended assessments were raised to include the additional tax liabilities. Penalties and interest were also payable.
As Ms Thompson is a registered Tax Agent a referral to the Tax Practitioners Board was also made for potential breaches of the Code of Professional Conduct which could result in her tax agent’s registration being terminated.