The Guide to Legal Tax Evasion

Discussion in 'Accounting & Tax' started by Redwing, 24th May, 2016.

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  1. Redwing

    Redwing Well-Known Member

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    From The Undercurrent

    While everyone's in a flap over the Panama Papers, we're way more pissed off about the legal and more-or-less out-in-the-open ways that multinational corporations avoid paying tax in the countries from which they generate staggering profits

     
  2. Marg4000

    Marg4000 Well-Known Member

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    Oxymoron.

    If done legally, it is tax avoidance. As Kerry Packer famously said, why would anyone pay more tax than they legally have to. Do you?

    Tax evasion is illegal.
    Marg
     
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  3. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent Business Member

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    it is done by many companies even some sme's. an example of how it can be done.

    1. architectural firm setups a PEZA registered company in the Philippines.
    2. it has a permanent establishment in the Philippines (a physical office) along with 10 draftpersons doing work for the Philippines entity.
    3. An appropriate transfer pricing document is completed
    4. costs plus markup based on the transfer pricing document is done between the Philippines entity and the Australian entity.

    Results. Profits plus markup are shifted offshore to a PEZA entity which for the first 5 years is tax free and after that 5% on gross revenue. Could even consider an export development zone like Clark to achieve something similar.

    Profits are reinvested back into the Philippines entity to build the back end operations.

    Be careful of the CFC rules as this needs to be factored into the analysis. Having a permanent establishment is also a key not just a registered office and address without any substance to the arrangement.

    I've helped a few clients now setup the same thing for their own Australian operations with offshore admin resources.
     
    Last edited: 24th May, 2016
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  4. Redwing

    Redwing Well-Known Member

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  5. House

    House Well-Known Member

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  6. wogitalia

    wogitalia Well-Known Member

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    This is a government problem...

    When you want to set your tax rates at 2-3x the rate of many other countries you're asking for people to actively do what they can to not pay tax in your jurisdiction. It displays a fundamental misunderstanding of how capitalism and business enterprise works to expect a smart business to want to pay more than it has to for anything, especially something it gets zero return from.

    Throw in that it shows a fundamental misunderstanding of the modern world and how business is conducted to think that rules designed in the 1930s or even the 1990s are still relevant.

    It's just another example of how entirely broken the Australian tax system. We have a system designed for an island you can't escape, that only offers products that also can't escape that has heavy tariffs in place to protect everything and stop others competing with it in a world where everyone can escape, half the products aren't even tangible and any tariffs still existing don't work.

    It's not just our corporate tax system either, stamp duty, payroll tax and plenty of other taxes are also absurd relics of a bygone era where they made sense as the way to collect but now just impede actual economic activity and growth instead and are actually harder to collect than more efficient taxes in their place.
     
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  7. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

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    Thats a great video!
     
  8. Greyghost

    Greyghost Well-Known Member

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    I liked this video until 2 minutes from the end it talked about what the lost tax funds could be used for in Australia.
    - labour greeny agenda..
     
  9. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent Business Member

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    reading the tax assessment graphs where your money goes to then most of it will end up in welfare
     
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  10. MTR

    MTR Well-Known Member Premium Member

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    Thanks for sharing

    I don't know how this all works but have heard a strategy where someone sets up a company in Hong Kong where tax is only 12%, this HK company invoices their Australian company ie Consultant fee?, significantly reducing their tax in Australia. I may have missed something, and be totally off the mark???

    I don't believe its just the larger company looking for different ways to reduce their tax bill.

    MTR
     
  11. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Member

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    The commercial arrangements are essential to international transfer pricing. Old schemes used to use a haven and just transfer profits offshore. Like HK, Vanuatu, Monaco etc Thats a serious concern. Especially if its a consulting fee. Post Wickenby such offshore arrangements are under focus and may render parties liable to serious tax and criminal charges.

    However Mike was referring in his description to a outsource arrangement where part of the work is performed offshore and so some of the profits are repatriated to that location. Legally. The These sorts of arrangements are under G20 / OECD focus and most major nations are adopting measures to apply "google / Netflix taxes" on income attributable to consumer use of services rather than the old concepts of income tax based on profit.

    Nobody disputes that (eg) Microsoft has a substantial presence in Singapore and some of the Australian arm profit is sent to Singapore etc. The key focus is on the transfer pricing mechanisms that lead to that. Its very co-incidental that NO multinational ever sends profit to its high tax locations. It always finds its way to zero or near zero jurisdictions.

    ie You watch Netflix and subscribe here. Your card is paid offshore somewhere and billed somewhere offshore. But you use and consume Netflix here. Australia wants to impose GST on this supply in Australia and also impose a form of tax.
     
  12. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent Business Member

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    MTR

    a few people where doing the same and got caught up as part of Project Wickenby. I know because I was assisting Frank Egan on many on those cases.

    Those type of artificial arrangements are tax avoidance and don't work in practice.

    If however you had a team working for you in Hong Kong with a permanent establishment in Hong Kong then it is different story. Issue with Hong Kong it doesn't have a double tax treaty with Australia.
     
  13. Redwing

    Redwing Well-Known Member

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    The ATO just dropped corporate tax data and more than 700 companies paid nothing

    There were 732 companies who paid no tax in Australia in the 2015-16 financial year. Collectively, their income was more than $500 billion.

    It's all in a dataset on corporate tax just released by the Australian Tax Office.

    You can see who's paying what by searching the full database below.

    There are some things we need to tell you about the dataset:

    • This information contains the total income, taxable income and tax payable of more then 2,043 entities
    • They include 1,693 Australian public entities and foreign-owned entities — including privately owned foreign companies — with a total income of $100 million or more
    • They also include 350 Australian-owned private entities with a total income of $200 million or more
    • The information is from Australian tax returns for the 2015-16 financial year
    • This from the ATO: "As the legislation does not allow for the reporting of an amount of zero or less, these fields are left blank."
    upload_2018-3-21_9-43-8.png
     
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  14. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

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    There may be legitimate reasons for a company to make a profit yet pay no tax. Carried forward losses for example.
     
  15. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent Business Member

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    could be mitigated with a minimum corporate income tax rate based on turnover for companies who dont make a profit after year 3.

    but easier to go after the pensioners franking credits
     
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  16. sdprop

    sdprop Member

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    It maybe legal but is it right.
    From my point of view the larger the dollar amounts earned, the more opportunity to legally minimise tax.
    Low income earners dont really care if cashed up retirees have fully franked dividends. They care that huge multinational companies and Aust companies are not paying tax on the income earned here in Australia.
    This money isnt just used on pot heads, its also used for educating kids in low socio area so they can break the cycle, for research into cancer, for better services in rural area, for a better country for us all.
    Before you tell me to shut up and work harder, keep in mind i have never been employed ever since I left school, currently work as a carpenter and work on my own house 15 hrs/wk.
     
  17. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Member

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    Qantas is a good example.
     
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  18. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Member

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    I dont think anyone should disrespect your work ethic.

    Large companies often incur trading losses to employ people and as a result lose money...short term. A good example is Coles. It has present losses but should produce future profit and will offset its loss against profits. Not entirely unfair. And legal.
     
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  19. sdprop

    sdprop Member

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    I understand companies having bad years and offseting the lose. I think big companies like coles and qantas should be giving a chance to trade out of difficulty.
    Explain Bluescope Steel and Lendlease to me? They did ok last year didnt they? Why did they not pay any tax as the post indicates above? I have no doubt its legal but how is it right for billion dollar companies to pay no tax?
     
  20. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent Business Member

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    many pay no tax in Australia as the profits are legally shifted to a lower tax jurisdiction via a transfer pricing arrangement. Now sometimes its not correct to say they pay NO taxes as they may pay no company tax but may pay a royalty fee.

    Lets say Bing Pty Ltd operates through a permanent establishment in Australia. They have intellectual property and a software development team sitting over in Singapore where the company tax rate is 17%. Sing Bing Co charges a royalty fee plus a management fee to Bing Pty Ltd for the licensing rights plus costs incurred in Singapore plus an appropriate markup as per their transfer pricing document.

    Singapore and Australia have a double tax treaty so rate for the royalty payments will probably be 10%. the management fee is a tax deduction to Bing Pty Ltd. So it is possible all profits are reduced to nil under such arrangements.