Tax Fraud: When is Tax Avoidance a Criminal...
Transcript of Tax Fraud: When is Tax Avoidance a Criminal...
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Tax Fraud: When is Tax Avoidance a Criminal Offence?
By Craig Elliffe
2 July 2010
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Tax Avoidance and Criminal Acts
“The difference between tax avoidance and tax evasion is the thickness of a prison wall.”
Denis Healey, former UK Chancellor of the Exchequer
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Observations
Unfamiliar Area of law
Recent Changes
Cases
•Tax Advisors• Tax Payers•Crown/ SFO
•Hayes (2008)•Changes to
statutes
•Misdirected Focus on investors
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Tax Avoidance and Criminal Acts
• Company director jailed for tax evasionThursday, 01 July 2010 13:55 • Evading tax of more than $700,000 has led to four years jail for
a Bay of Plenty labour hire company director.• Harbhajan Singh Kahlon had been found guilty on 23 charges of
GST-related tax fraud and later admitted a further 46 charges of tax evasion involving PAYE. He was sentenced last Friday in the Tauranga District Court.
• Inland Revenue Assurance manager investigations Jonathan Matthews says this sentence makes it crystal clear to others considering tax fraud and evasion, that they'd better think again.
• "We will catch them and there will be very serious consequences," he says.
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Clever Schemes and Criminality
Criminal Offences
Section 143B Tax Administration Act“Knowingly providing false, incomplete or
misleading information”
Intending to evade the assessment of tax
Obtaining a refund in the knowledge of no lawful
entitlement
Section 228Crimes Act
“intent to obtain any... pecuniary advantage..
Dishonestly and without claim of right uses any
document
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Section 228 Crimes Act 1961
Use of a document (tax return)•To obtain a pecuniary advantage
With the intention to obtain property•Through the dishonest use of the document
That the accused had no claim of right
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Dishonestly, without claim of right
Hayes v R (Supreme Court 2008)
“belief” assessed without reference
to reasonableness (Robin Hood) or honesty
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Reasonableness If belief was qualified by the word “honestly”- two problems
• Reasonableness: Genuine belief in lawfulness even if unreasonable is not caught by section 228
Overcomes the problem of someone framing their own moral code
• Will impact on the evidentiary credibility
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Application of section 228
Tax return used
To obtain a refund
(pecuniary advantage) Did not
believe entitled to a
refund
Assessment of the facts to see if the
taxpayer genuinely believed they were entitled to the claim (reasonable doubt
that they had a mistaken belief)
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Features of tax avoidance
Non-commerciality
Concealment
Artificiality
Difference between legal and economic
effects
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Australian decision R v Pearce
Investors$10000
Servcom
$39000(deducted)
MAGICA/Allied Securities
$29000Loan (NR)
Advisors and accountants
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Common Features of tax avoidance and criminal offences
Artifice
Lack of Commercial Rationale
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Common Features of tax avoidance and criminal offences
Role of the Advisor
Fees and Remuneration
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Conclusion
Risk associated with aggressive transactions
Cloaking the real transaction, artifice and dishonesty (may be consistent with both tax
avoidance and criminal activities)
Lack of belief in legality (from a section BG 1 perspective) could be sufficient establish
requisite criminal mens rea (intent)
This could be evidenced by clear statement that the transaction was for the sole purpose of tax