Are offshore tax havens worth it?
- Marguerite McKinnon
- 26 June 2008
Photo credit: Anthony Geernaert
When Christopher Columbus discovered the Cayman Islands in May of 1503, he could never have imagined that this hurricane-prone pod of islands would become the world’s fifth largest banking centre.
The world’s love affair with offshore accounts is a $US7 trillion business – and it’s mostly businesses who shuffle gazillions to tax havens around the world. In 2005-06, about $5.3 billion flowed from Australia to offshore tax havens.
Like moths to the flame, small businesses are seeking out tax havens and offshore accounts, but the Taxation Institute of Australia’s Chief Legal Counsel, Dr Michael Dirkis, says this practice is fraught with danger.
“Everyone wants to pay less tax, but some people are so desperate to avoid it they’ll take any dodgy advice. It’s quite bizarre and defies comprehension. It’s like going up to a man on the street corner, handing him $10,000 and saying, ‘Wait here, I’ll be back in a few days’.”
Tax havens and offshore accounts are legal, as long as you report your activities and pay tax on all worldwide income. That’s anything over $10,000. But if you’re caught doing the wrong thing, you could face big fines, possibly a criminal record or even gaol.
“If you’re an IT consultant who does a job in Singapore and gets paid there, into a local account, but doesn’t declare it here in Australia, that’s fraud,” says Dr Dirkis. “If you earn money in Australia and send it offshore, but don’t declare any interest earned. That’s fraud too.”
Offshore accounts and tax havens are designed to avoid tax, but are also used to hide money after a business failure, or the proceeds of crime. But, like playing hide-and-seek with infrared equipment, it’s getting harder to escape. Technological advances, the internet and now a series of international agreements mean practically everything can be traced.
This is what the Tax Office, the Australian Police, the Australian Crime Commission, ASIC and the Australian Transaction Reports and Analysis Centre (AUSTRAC) want small business owners to know.
The Commonwealth’s ‘Project Wickenby’ has targeted tax haven abuse since 2004. So far more than $51 million has been recovered in more than 20 criminal and 100 civil investigations.
The first to be charged were three Gold Coast businessmen in their 30s. Millions of dollars, a string of properties and a few Porsches were seized; booty authorities say these came from undeclared interest from overseas accounts. In July last year, music promoter Glenn Wheatley was sentenced to 15 months prison for not paying $318,000 in tax.
In March 2008, the Federal Government set up eight treaties with other countries to collect outstanding debts, and 42 doubletax agreements. And there are new laws allowing authorities to pursue accounts in offshore banks.
Australia has also entered into Taxation Information Exchange Agreements with Bermuda, Antigua and Barbuda, the Netherlands, Jersey and Guernsey in the Channel Islands, and the British Virgin Islands in the Caribbean.
Are you really surprised? We’re talking about the government here. It can search out missing tax payments better than a pig sniffing for truffles. Even the Irwins have been caught in the tax crackdown. Australia Zoo is facing a $12 million bill after making a tax minimisation deal with disgraced former Tax Commissioner, Nick Petroulias.
The final warning from Dr Dirkis: “It’s a stupid idea for small business. Tax is a sign your business is making money. A smart business owner should concentrate on growing the business, rather than worrying about trimming tax. Some of the worst mistakes in business have been about tax.”
Marguerite McKinnon is a journalist for Channel Seven’s Today Tonight.
