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OECD takes aim at software technologies used by businesses to evade taxes

Friday, 22 February 2013   (0 Comments)
Posted by: SAIT Technical
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Executive summary

POS systems can be equipped with specialist "sales suppression software" to facilitate elaborate tax fraud. The fraud in Canadian restaurants alone is estimate to amount to USD 2.4 bn per year. The OECD has released a study to help all countries understand and address this risk.

Full article

Electronic cash registers and other point of sales systems in retail stores and restaurants are generally assumed to contain accurate information but once they are equipped with specialist "sales suppression” software, they can be used to facilitate elaborate tax frauds. This poses a major risk in all countries and results in governments losing billions in tax revenue. It has been estimated that sales suppression in Canadian restaurants alone could amount to $2.4 billion in just one year.

The OECD has released a study to help all countries understand and address this risk. It describes some of the most common electronic sales suppression techniques used by businesses to evade tax, including "Zappers” and "Phantomware”, and shows how these methods can be detected by tax auditors. The report considers the approaches already adopted by countries in combating this risk and highlights a number of best practices. In particular, it makes a number of recommendations to countries for addressing this important area of risk.

Since the OECD began work to highlight the danger of electronic sales suppression, a number of countries have introduced measures to identify, investigate and prosecute businesses using these methods to commit tax evasion. Strategies that countries have adopted include raising public awareness of the illegal activity, working with industry bodies to strengthen voluntary compliance, improving audit and investigation skills of tax auditors to recognize electronic sales suppression software and devices, developing and sharing intelligence between government agencies and between countries, and the use of advanced technology to support traditional investigative techniques. Some jurisdictions have also criminalisied the provision, possession or use of electronic sales suppression software.



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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