SMEs face offshore tax haven crackdown

SMEs in the export sector will be a key focus of a tax office crackdown on the use of offshore tax havens to minimise income taxable in Australia.

In a speech to the Institute of Chartered Accountants technical conference in Sydney yesterday, acting Australian Tax Commissioner Penny Grainger said that the ATO is concerned that many small and medium exporters don’t fully understand the implications of dealing in tax havens.

“We are about to increase our compliance work in this area, but it’s not too late to put things right and receive a reduced penalty,” Grainger says.

Tax havens are defined as low-tax nations that allow funds to move with a lack of transparency and that do not have information sharing arrangements with Australia. The Bahamas, the Cayman Islands, British Virgin Islands and Nauru are all well-known tax havens.

Since July this year, the ATO has operated a limited amnesty to encourage the voluntary disclosure of undeclared foreign income by individuals and SMEs. More than 91 disclosures have been made totalling almost $5 million.

Grainger warned that time is running out to take advantage of the amnesty, under which up to $20,000 in undisclosed income can be declared without penalty, and larger sums with a reduce penalty.

According to a booklet on tax havens released yesterday, the ATO says it is concerned that some SMEs are attempting to conceal the ownership of business entities in tax havens or fabricating tax deductions. A “significant number” may also be making errors or failing to properly report unusual or complex international transactions.

Lynda Slavinskis is the principal of Lynda Slavinskis Lawyers and Consultants and often advises SME clients considering exporting. She says she does not believe tax haven dealings are on the radar of most SMEs.

“Most SMEs I deal with, that are exporting and making money overseas, are declaring that income through their general business structure in Australia. It’s very rare in my experience that an SME would establish an offshore business structure,” Slavinskis says.

And, she says, it is unlikely that SME owners will fall into the trap of not properly declaring foreign income accidentally.

“I think you’d have to do it on purpose, you’d have to have something set up expressly. Anything monetary – I can’t imagine you would do anything like that without a reason and to avoid laws.”