Tax Evasion Software Prompts Stern Warning

Inland Revenue has issued a new Revenue Alert warning of severe consequences for anyone who has or uses Electronic Suppression Software Tools (ESST) to try to evade tax.

Inland Revenue spokesperson Tony Morris says the threat that ESS tools pose to the integrity of the tax system is significant.

“These tools create the electronic version of two sets of books. Using this software amounts to tax evasion, and an aggressive form of tax evasion at that.”

“There is no other purpose to ESST other than to facilitate tax evasion or money laundering. ESST seriously undermines the integrity of the tax system and IRD has an obligation to honest businesses to stamp out its use.

“The ESS methodology is clearly designed to facilitate money laundering and depending on the facts of a case, Inland Revenue may consider money laundering charges.

” Inland Revenue has already identified a number of customers in New Zealand who may have been exposed to ESS tools. That number is expected to grow so IR is working hard to identify who else has been exposed. When we find them, we will come knocking.”

“ESS tools are being used globally to systematically alter point-of-sale data collected by a business in order to understate or completely conceal revenue for the purpose of evading tax. “

“In response to the growing threat, a number of stiff measures were introduced into law in April this year. Inland Revenue will consider using all available options to respond whenever these tools are found, to protect the veracity of our tax system.

“It is an offence to manufacture, develop or provide a suppression tool to anyone in New Zealand. The penalty is a fine up to a maximum of $250,000. Where ESS tools are used to evade paying tax people can face prosecution and up to five years in prison.

“Where we identify specific instances of ESS tools being used to evade tax, Inland Revenue will require payment of any evaded tax, plus 150% shortfall penalties and use of money interest. Where payment is not made, the Commissioner will consider applying for the taxpayer to be put into bankruptcy or liquidation.”

ESS works by targeting the integrity of transactions, software, internal memory, external filing, or reporting to delete, change, or simply not record select sales data and transactions.

Tony Morris says “Anyone who believes they may have become involved with ESS tools, should discuss the matter with their tax advisor or Inland Revenue. They should also consider whether they may need to make a voluntary disclosure.”

Guidelines for making a voluntary disclosure are contained in Standard Practice Statement SPS 19/02 and on the Inland Revenue website Voluntary disclosures (ird.govt.nz).

Background:

The term “electronic sales suppression tool” is defined in section 3 of the Tax Administration Act 1994 as meaning:

A software program, device, tool, or other thing, part of a thing, or combination of things or parts,—

(a) that can hide, conceal, modify, falsify, destroy, or prevent the creation of a record that—

(i) a person is required under a tax law to make or keep; and

(ii) is, or would be, created by a system that is or includes an electronic point of sale system; and

(b) the use of which would lead to a reasonable conclusion that 1 of its principal functions is to facilitate the concealment, modification, falsification, destruction, or prevention of the creation of a record.

A new civil penalty and two new offences have been introduced in relation to involvement with ESS tools:

• New section 141EE establishes the ESS penalty of $5,000 for the acquisition or possession of a suppression tool.
• New section 143BB establishes an offence of manufacturing or supplying a suppression tool. A person convicted of such an offence is liable to a fine of up to $250,000.
• New section 143BC establishes an offence of acquiring or possessing a suppression tool. A person convicted of such an offence is liable to a fine of up to $50,000.

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