ATO Targeting False Invoicing

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ATO Targeting False Invoicing

The ATO-led Serious Financial Crime Taskforce (SFCT) is warning businesses against using illegal financial arrangements such as false invoicing to avoid tax obligations and/or inflate their deductions. As an overview, the SFCT was established in 2015 as a collaborative effort among various law enforcement and regulatory agencies, including the Australian Federal Police, Australian Criminal Intelligence Commission, and Australian Securities and Investments Commission, among others.

The taskforce aims to address the most complex and detrimental forms of financial crimes, such as fraud, tax evasion, and money laundering by employing a unified approach that combines expertise, intelligence-sharing, and advanced technological methods. Since its inception, the SFCT has made substantial progress in reducing the impact of serious financial crime in Australia, as evidenced by successful audits, investigations, and prosecutions that have led to significant convictions and the recovery of large sums of money.

Currently, the SFCT is turning its focus on some businesses using false invoicing arrangements where no goods or services are provided. Most commonly, these arrangements have the following features:

  • an entity (usually a promoter of the scheme) issues invoices to a legitimate business but no goods or services are provided;
  • the business pays the invoices, by cheque or direct transfer, and the promoter returns most of the amount paid to the owners of the business as cash;
  • the promoter keeps a small amount as a commission;
  • the business then illegally claims deductions and GST input tax credits from the false invoice;
  • the owners of the business use the cash they have received for private purposes or to pay cash wages to workers and amounts are not properly reported in their tax returns.

The ATO and AFP have already executed search warrants at 7 residential and business properties in various Sydney suburbs in relation to an investigation into a Sydney-based cheque-cashing entity suspected of false invoicing. The suspected criminal operation is believed to have laundered money for about 1,200 businesses from a range of industries and laundered more than $1bn to facilitate tax fraud.

In further examples cited by the SFCT, it is made clear that businesses that use these types of arrangements are either caught by data-matching which may indicate anomalies in expenses compared to previous periods, or from tip-offs from the general public. Businesses that have been persuaded into these types of arrangements by promoters are encouraged to make a voluntary disclosure to the ATO which may reduce penalties involved.

Penalties resulting from investigations by the SFCT can be severe, reflecting the serious nature of the financial crimes being addressed. The consequences for individuals and entities found guilty of serious financial crimes can include criminal charges which may lead to convictions and prison sentences, financial penalties such as fines, confiscation of proceeds of crime which may involve assets, and recovery of unpaid taxes including interest and penalties.

Businesses involved in promoting these schemes may be subject to promoter penalty laws, which are not only restricted to widely offered schemes and can apply in cases where there is only one client in the arrangement. Penalties under the promoter penalty laws range from voluntary self-correction to the imposition of civil penalties of up to 5,000 penalty units for an individual (currently equating to $1,565,000) or 25,000 penalty units for a body corporate (currently equating to $7,825,000). It is important to note that specific penalties imposed will depend on the details of each case and the discretion of the courts.