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Tax Avoidance |
Danger for directors in illegal tax advantage schemes |
The Tax Office has been telling company directors for several years that they should think of tax more often than they do. Currently, its focus is on anti-tax avoidance. Tax is complex, and the tax consequences of a company entering into a transaction may not be obvious, but the tax cost if something goes wrong will be high - 30 per cent tax, plus penalties which could see directors going to jail. |
Managing the tax affairs of a company is usually the job of its executives, not its directors. However, directors are expected to take reasonable steps to guide and monitor the company's management. Also, a director may have to make a declaration that the financial statements and notes of a company are true and fair. This will not be possible if the company is subject to an unrecognised, even though unassessed, tax liability. |
There are situations where a company director is liable for the tax or tax penalty a company incurs. Directors - in fact, all professionals - should not forget the conspiracy to defraud the revenue provisions of the Criminal Code. If there has been an evasion, rather than mere avoidance of tax, and a director is party to the evasion, he or she might be guilty of a charge of conspiracy to defraud the Commonwealth and could be sent to jail. |
Directors should ask a variety of questions when considering tax arrangements placed before them by managers:
- Are they of the sort ordinarily used to achieve that particular commercial objective?
- Do they seem more complex than necessary?
- Are there steps in the arrangement that appear to serve no real purpose other than to gain a tax advantage?
- Does the tax result appear at odds with the commercial or economic result?
- Does the company have little or no risk in circumstances where significant commercial risk would normally be expected?
Or, alternatively, does it need to eliminate substantial risks that arise because of steps introduced to secure a tax advantage?
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Directors uneasy about the answers they receive should consider obtaining further advice. Directors do not have to be tax experts, but someone on the board should have the capacity to ask the right questions and evaluate the answers. |
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