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How tax dodgers do it

Wednesday, 06 April 2016   (0 Comments)
Posted by: Author: Graeme Hosken
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Author: Graeme Hosken (Times LIve)

Gold coins, artwork, exotic wines, rare animals, farms and luxury yachts are so yesteryear if you want to avoid or evade taxes.

Today's illicit offshore shell companies use a multitude of directors registered in various countries to shift profits to tax havens.

The Panama Papers - 11.5 million documents detailing dodgy transactions - have lifted the veil on the murky world of offshore accounts and claimed their first victim.

Iceland's prime minister, Sigmundur Gunnlaugsson, resigned yesterday after the leaks linked him to a hidden offshore company.

The Panama Papers show how dozens of world leaders, international businessmen and companies used law firm Mossack Fonseca to elude their home countries' revenue services and shift many millions of dollars into tax havens.

South African tax experts also revealed the loopholes in the country's revenue legislation.

Osman Mallagee, PricewaterhouseCoopers' international tax head, said a distinction needed to be drawn between tax evasion, which is illegal, and tax avoidance, which is not.

He said tax evasion involved not declaring one's income to SARS and transferring it to an offshore account and evading exchange controls.

Tax avoidance, Mallagee said, involved legally exploiting legislative loopholes.

He said: "The hottest topic at the moment in terms of big multinational corporations is the use of offshore locations for transfer pricing. This is where, for example, South African companies make 'payments' to other companies registered in low tax offshore jurisdictions."

He said while this was legal, the legitimacy of the payments and the offshore companies is questionable.

He said: "Often these companies exist on nothing more than paper."

He said other tax avoidance methods included purchasing high-value mobile assets, such as gold coins, yachts and art works.

But Mallagee said the appetite to avoid paying taxes through elaborate schemes was slowly decreasing, as such practices could harm an entity's reputation.

Eugene du Plessis, Grant Thornton's tax head, said: "You will always have people who dream up complicated schemes. 

"These schemes rely heavily on laying down structures within multiple countries involving multiple companies to make it difficult for revenue authorities to understand what's going on."

He said the majority of these schemes were based on non-disclosures.

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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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