Talking Tax – Issue 144

Phoenixing labour hire operator sentenced to jail in WA

In brief

A labour hire business operator who fraudulently obtained more than $890,000 through illegal phoenix activity (involving business debts, GST and PAYG obligations) has been jailed for five years and four months and ordered to repay the money.

The operator, located in Western Australia, provided contract welders to engineering construction companies in and around Perth. Over two decades, the operator engaged in ‘phoenixing’ by liquidating four different corporate entities to avoid paying his businesses’ debts, GST and PAYG obligations.

Broadly, the operator’s business was considered to have displayed the hallmarks of illegal activity as the operator:

• carried on a business through one corporate entity which intentionally accumulated but did not repay debts;
• liquidated the business to avoid paying the debt;
• continued the business through a different corporate entity, which was still under his control; and
• failed to report and remit GST and PAYG withholding whilst having full control of the relevant entities.

Phoenix activity is estimated to cost the Australian economy more than $3 billion a year.

Reforms to anti-phoenixing measures were announced in the 2018/19 Budget, including proposed changes to the Director Penalty Notice scheme for GST compliance.

OECD - latest BEPS report on preferential regimes: changes to zero tax jurisdictions

The OECD has released a progress report from the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), revealing the impact of international efforts to prevent the abuse of preferential and no/nominal tax regimes (also known as ‘tax havens’). The report indicates the extent of continuing work to end harmful tax practices and seeks to ensure that in future all preferential regimes require real substance. Key updates include the amendment of Australia’s offshore banking unit regime and that parking mobile business income in no/nominal tax jurisdictions will become more difficult.

For more information about BEPS, please contact Anthony Bradica.

Consultation open: ATO compliance to be mandatory for Commonwealth tenders over $4 million

In brief

The Federal Government’s ‘Draft Procurement Connected Policy Guidelines’ (Draft PCP) are subject to review and consultation until 21 December 2018. Broadly, the Draft PCP aims to ensure that businesses (and some sub-contractors) who seek to tender for contracts over $4 million (GST inclusive) must obtain a statement from the ATO reflecting their compliance with tax laws.

Further to the Black Economy measures announced in the 2018-19 Federal Budget, the Draft PCP will require businesses seeking to tender for Federal Government procurement contracts over $4 million (GST inclusive) to provide an ATO statement confirming that the tenderer:

• is up-to-date with ABN, GST and TFN registration requirements;
• has lodged at least 90% of all income tax returns, Fringe Benefit Tax returns and Business Activity Statements for the last four years (subject to ‘reasonable delays’ in lodgements that have been agreed to by the ATO);
• has no more than $10,000 in outstanding debt due to the ATO.

These requirements will also apply to ‘first-tier subcontractors’ (those working directly for the tenderer) undertaking work valued at over $4 million (GST inclusive). Also, directors, partners, trustees or appropriate officers who are authorised to act on behalf of foreign tenderers will be required to essentially take on the tender’s obligations in respect of tax and provide statements in respect of the foreign tenderers compliance status (both within Australian and Internationally).

If passed, the proposal will take effect on 1 July 2019. If you are involved in the Government tender process and wish to provide input on the Draft PCP during the consultation process, please contact our team.

Multinationals tax Bill: Senate report due date extended

The due date for the Senate Committee report on the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018 (Bill) has been extended to 11 February 2019. Submissions are now closed.

The Bill recommends a variety of changes including changes to thin capitalisation, the R&D Tax Incentive, GST on online hotel bookings, the definition of ‘significant global entity’ (SGE) and the luxury car tax. This Bill was discussed in Issue 135 of Talking Tax.