Transcript
Page 1: Tax Fraud: When is Tax Avoidance a Criminal Offence?docs.business.auckland.ac.nz/Doc/Presentation-Tax... · Tax Avoidance and Criminal Acts • Company director jailed for tax evasion

Tax Fraud: When is Tax Avoidance a Criminal Offence?

By Craig Elliffe

2 July 2010

Page 2: Tax Fraud: When is Tax Avoidance a Criminal Offence?docs.business.auckland.ac.nz/Doc/Presentation-Tax... · Tax Avoidance and Criminal Acts • Company director jailed for tax evasion

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

Page 3: Tax Fraud: When is Tax Avoidance a Criminal Offence?docs.business.auckland.ac.nz/Doc/Presentation-Tax... · Tax Avoidance and Criminal Acts • Company director jailed for tax evasion

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

Page 6: Tax Fraud: When is Tax Avoidance a Criminal Offence?docs.business.auckland.ac.nz/Doc/Presentation-Tax... · Tax Avoidance and Criminal Acts • Company director jailed for tax evasion

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

Page 7: Tax Fraud: When is Tax Avoidance a Criminal Offence?docs.business.auckland.ac.nz/Doc/Presentation-Tax... · Tax Avoidance and Criminal Acts • Company director jailed for tax evasion

Dishonestly, without claim of right

Hayes v R (Supreme Court 2008)

“belief” assessed without reference

to reasonableness (Robin Hood) or honesty

Page 8: Tax Fraud: When is Tax Avoidance a Criminal Offence?docs.business.auckland.ac.nz/Doc/Presentation-Tax... · Tax Avoidance and Criminal Acts • Company director jailed for tax evasion

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

Page 9: Tax Fraud: When is Tax Avoidance a Criminal Offence?docs.business.auckland.ac.nz/Doc/Presentation-Tax... · Tax Avoidance and Criminal Acts • Company director jailed for tax evasion

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


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