First they came for the partners of beneficiary fraudsters, and I was silent. Then they came for the professional advisors of corporate entities, and I thought "hang on - this is completely ridiculous!"

Minister of Revenue, Peter Dunne, has today announced new measures to prevent, detect and catch corporate tax evasion.

“We know that the vast majority of corporate tax payers are honest and do the right thing, but a small minority take advantage of the tax system. Let’s be clear – tax evasion is a crime, committed by criminals, for their own benefit at the taxpayer’s expense, and we treat it as such without excuse,” says Mr Dunne.

“This Government promised to clamp down on tax evasion, and I’m pleased to deliver on that promise today.”

The first initiative is to amend the law to create a new offence targeting professional advisors of corporate entities who are convicted of tax evasion.

“Currently there are few options available to prosecute professional advisors who know or benefit from such offending, leaving the entire debt with the corporate entity,” says Mr Dunne.

“Prosecuting professional advisors who profit from tax evasion committed by their corporate clients will ensure that all parties who profit from the crime are punished, and will help the taxpayer recover the lost money faster.”

Tax evasion last year cost tax payers between $1 and $6 billion, yet those convicted of such offending were far less likely to be imprisoned for their offending than individuals convicted for benefit fraud.

"The new measures this Government will introduce help drive home the message that tax evasion is a crime, and that all those who know of and benefit from it will be held fully to account," says Mr Dunne.

Under the new offence, any professional advisor providing services for a fee who learns that her or his corporate client is engaged in practices that amount to tax evasion must immediately cease providing such advice, or else report the corporate entity's actions to the IRD. A failure to do so will attract a potential jail sentence of up to 1 year in prison and a fine of $5000.

In addition, the law will be changed to expand the IRD’s ability to seize assets owned or jointly owned by a professional advisor under the Criminal Proceeds (Recovery) Act 2009, and to recover some of the tax debt and associated penalties from the professional advisor who has benefited from the fraud.

The President of the New Zealand Law Society, Johnathan Temm, welcomed the Government's announcement.

"In too many cases, lawyers and other professional advisors are pressured into giving advice for a very substantial hourly fee to corporate clients we know to be acting in breach of the law, yet are constrained by our code of ethics to remain silent. Then, if the client's actions are detected and prosecuted, the advisor is able to walk away without any liability," says Mr Temm.

"Any law change that permits us to refuse to give advice to such wrongdoers in spite of the forgone fees, and that punishes those lawyers who continue to do so knowing of the criminal activities of their clients, will help restore some equity into the relationship and recognise that both parties have responsibility for the offending."

The Government proposes introducing these measures by way of legislation as soon as ERMA gives the green light to research crossing the genes of pigs and white herons, with the aim of creating porcine aviators.

Comments (12)

by nommopilot on February 21, 2013
nommopilot

Nice.

Is this new policy discriminatory?  Borrows' argument is that it's justified on the basis that a spouse (or spouse-equivalent partner) knew or should have known about the crime.  But if this is the case, isn't it also the case with any other type of fraud (and many other crimes: yes, my wife did have a lot of new televisions, but I thought she won them...)? 

I suppose it will have a BORA assessment when they finally perfect those flying-heron-piggies, but what do you think?

It seems like the spouse of a benefit fraudster already pays for their partner's crimes, since presumably money for a fine is going to come out of their family's budget or, if their partner is incarcerated and they are left to manage solo...

 

by Graeme Edgeler on February 21, 2013
Graeme Edgeler

Is the reason we will never see a press release like that is that half-way through it becomes a news story getting quotes from others?

by Andrew Geddis on February 21, 2013
Andrew Geddis

@nommopilot,

I don't think there's any BORA issues with the Government's (real) proposal. Being in a relationship with a beneficiary is not a prohibited ground of discrimination under the Human RIghts Act.

@Graeme,

It's because no Government comms person is good enough to go to affected and sympathetic parties to proactively source quotes that can be processed for verbatim repetition in a "news" story. Only us clever bloggers can do this.

by stuart munro on February 21, 2013
stuart munro

Wouldn't the spouses (I maintain the plural should really be 'spice'), wouldn't the spouses of corporate tax-evaders be more appropriate? The damage to beneficiaries is not just pecuniary, the gummint is getting into bed and deciding who gets to be with whom. That's going to get real personal real fast, and poetic justice is like to see Dunne shot by an aggrieved beneficiary forced to separate by Winz document failure - the leading cause of 'benefit fraud' in NZ.

 

by Steve Thomson on February 21, 2013
Steve Thomson

Tax evasion and tax avoidance are legally two quite separate things, and I am not sure that your post recognises the difference between the two. 

Evasion is defined in the Tax Administration Act. s 141E. It includes acts like knowingly not keeping books required by tax law, knowingly not providing information, knowingly providing altered, false, incomplete or misleading information, pretending to be another person for any purpose or reason relating to a tax law, etc. etc. Bad stuff - tax evasion is criminal activity.

Avoidance is defined (or rather, an attempt at definition is made) in the Income Tax Act 2007 and at common law, Essentially, it is using legal means to come to an not-legal end - (ab)using the provisions of the ITA in a particular way in order to minimise tax liability in a way that Parliament could not have intended (Penny & Hooper... roughly). Tax avoidance is a moral grey area, and not legal (you have to pay up tax otherwise saved, plus extra penalties in particularly egregious cases). But it's not a criminal matter.

Knowing evasion currently carries a maximum penalty of up to 5 years (TAA s 143B), and aiding and abetting knowing evasion carries the same maximum penalty (TAA s 148). A lawyer has a professional obligation to disclose confidential information disclose confidential information which  relates to the anticipated or proposed commission of a crime  punishable by imprisonment for 3 years or more  (ROCCC 8.2(a)). So a lawyer can't walk away from counselling tax evasion - the lawyer has committed a crime under the TAA and has breached professional obligations if she fails to report that crime.

Tax avoidance, on the other hand, does not carry a possibility of imprisonment for either the taxpayer or for her much opprobriated advisers.

Did you mean to write about tax avoidance rather than tax evasion?

by Andrew Geddis on February 22, 2013
Andrew Geddis

Steve,

Point taken ... I hadn't paid much attention to the technicalities of the post, mainly because it was intended for satiric effect rather than being a serious policy proposal. Although I would note that the post didn't mention counselling tax evasion (which is already an offence under the Crimes Act parties provision - just like counselling a partner to fail to notify WINZ that she/he has entered into a relationship in the nature of marriage is already an offence.) Instead, it (or, rather, a fictional Peter Dunne) proposes criminalising simply knowing that a client who is paying you fees is evading tax (which I chose precisely because it is a criminal offence, rather than the "greyer area" of avoidance).

I'd also overlooked the Rules of Conduct and Client Care - so I guess the post's proposal is to make a breach of Rule 8.2(a) in regards tax evasion a criminal offence punishable by up to a year in jail. Fair enough, right?

by Tim Watkin on February 22, 2013
Tim Watkin

This is what a similar press release really looks like:

http://www.beehive.govt.nz/release/dunne-new-agreement-makes-mockery-tax-haven-claims

To be fair to Dunne, IRD under his tenure has initiated a crackdown on evasion and has been raking in millions we wouldn't otherwise have got... can't remember seeing many prosecutions though.

What always got me was that the very rich folk I met always used tax avoidance as a reason to cut the top tax rate - if you don't keep it level with other tax rates and as low as they want it to be, those who can afford clever accountants would just dodge it. Seems to me that if you turned that on its head and applied it to benefits, you'd argue that you really need to increase benefit levels or else people will just dodge their duties as beneficiary recipients, with a bit of fraud, the odd burg or a bit of dope selling.

 

by BeShakey on February 22, 2013
BeShakey

That only makes sense if you make the error of assuming the same rules apply to the rich and the poor.

by Tim Watkin on February 22, 2013
Tim Watkin

Silly me Shakey... Knew I was missing something!

by Matthew Percival on February 22, 2013
Matthew Percival

@Tim I think you may be slightly misrepresenting the argument to cut the top tax rate. The argument is that it should not exceed the Trust tax rate as by doing so it encourages people affected to move their income earning assets into Trusts for tax reasons. Indeed the truely rich did not receive a tax cut when the top tax rate decreased from 39% to 33% as they don't receive income in the form of salary/wages (or at least only receive a small portion of their total income as salary/wages). 

In any case this whole argument is redundant as the loss of reputation for a professional firm who has a client caught for tax evasion would cost the firm far more than $5,000. NZ is a small country and word gets around sooner or later in despite of court orders.

I suppose you could always increase the fine but BeShakey wants the same rules for rich and poor so if it's a $5,000 fine for the poor it should be a $5,000 fine for the rich.

by Tobias Barkley on February 22, 2013
Tobias Barkley

@Matthew

You are right that lowering the top tax rate was about aligning it with the trust rate. John Key said as much in this speech.

However, your argument that the truly rich did not receive a tax cut is entirely reliant on the dubious argument that they had no property relationship with "their trusts". If this were more than a technicality the rich would not be rich at all - and we know they are. For all practical purposes "their trust" was their property and thus the trust income was their property as well, but taxed at a lower rate. Unfortunately for my argument the Law Commission's latest review of trust law credulously accepts this technicality.

FYI a lesser known point of the trust tax dodge is that the income taxed at the trust rate could be spent by the truly rich without paying any more tax. All you had to do was say in your accounts that you were keeping this year's income in the trust (and pay the 33% rate) and say that any money you paid out was capital from previous years. Capital payments are tax free. As long as you didn't pay yourself more cash in one year than you had on deposit at the start of it fine and dandy.

by DeepRed on March 02, 2013
DeepRed

And it's not just NZ. The Tax Justice Network estimates no less than USD$21 trillion is hoarded in global tax havens - and little if any of it is being used productively. As with NZ, it's within the law, but it's not exactly in the spirit of society.

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