International tax authorities target sales tax scammers

The heads of tax authorities in five countries, including the U.S. and the U.K., met this week to discuss their efforts to crack down on companies using electronic sales suppression software to evade sales and value-added taxes.

The group of five joint chiefs, known as the J5, has been holding regular meetings in recent years to coordinate their efforts across borders to combat tax evasion in various areas, including cryptocurrency and financial technology. This week, the focus was on the global banking sector as part of a Global Financial Institutions Summit in New York. They include the Internal Revenue Service’s Criminal Investigation unit, as well as tax authorities in the U.K., Canada, Australia and the Netherlands. 

“Our commitment to each other has never been stronger, demonstrated by us sitting here together, and I’m incredibly impressed by the amount of operational work that’s been going on,” said IRS CI chief Jim Lee during a press conference Friday. 

“What I can share with you today is news of coordinated enforcement action that’s been taken in the U.K., the U.S., and in Australian tax agencies,” said Simon York, director of His Majesty’s Revenue and Customs in the U.K. “It actually targets a gang that’s suspected of being behind a multimillion-pound global fraud. We have more than 100 officers at His Majesty’s Revenue and Customs deployed across the U.K. arresting multiple suspects, searching multiple premises and making unannounced visits to 19 businesses. Investigators in our partner countries have also taken enforcement action in their jurisdictions. We suspect this gang of perpetrating a highly sophisticated cross-border attack on national tax systems. They’re suspected of supplying what we call an electronic sales suppression tool to businesses across the world. This tool enables High Street businesses to evade paying tax. Businesses can use the tool to manipulate their records by deleting sales, routing card payments through an offshore bank. Effectively it allows them to automate tax evasion. We believe the system was first introduced in the U.K., but then as is typical of these things, fairly quickly exported elsewhere, and that’s where our J5 partnership comes into [play]. We’ve been able to quickly share what we know and work across international boundaries to take synchronized action against the suspects and their organization.”

York declined to identify which company was behind the scheme or the names of the suspects. He noted that the latest action builds upon an enforcement effort earlier this year by the J5 against the purveyors of a similar electronic sales suppression operation, and they have other supplies of such tools in their sights. “My investigators have identified thousands of High Street businesses who are potentially using these tools, and now urging those businesses to come forward to tell us what’s been happening and allow us to ensure they’re paying the right tax,” said York. “HMRC will follow up with those who don’t come forward and that can lead to severe penalties.”

Australian tax authorities have been cracking down on similar activity. “Earlier this week, the Australian Taxation Office, in partnership with the Australian Federal Police, undertook search and seizure of 35 premises using both our civil and criminal powers,” said John Ford, assistant commissioner of the Australian Taxation Office. “Our inquiries are ongoing. The majority of businesses in Australia do the right thing, and we think this is an important piece of work to support those who do comply with their tax obligations. But I also feel that for those who aren’t complying with the law that they are now on notice that the international cooperation of the J5 agencies means we can purposely address tax crime across the globe. This firm action will bring to account those who abuse Australia’s and our partners’ tax systems.”

Accounting Today asked about the J5’s efforts to stem crypto tax evasion and whether the recent bankruptcies of several prominent crypto exchanges were helping uncover tax fraud. “As a J5 organization, we do have active investigations that involve tax,” said Lee. “I recently said in an annual report that, here in the U.S., we have hundreds of digital asset investigations in inventory. What I’ve seen over the past three years specific to the U.S. is they’ve gone from a money-laundering charging strategy to half of those hundreds in inventory involving tax these days. We are seeing it and I do expect to see more outward-facing results in the near future.”

“We’ve seen crypto assets and other technologies playing an increasing role in laundering the proceeds of tax crimes, sometimes in really quite complex schemes,” said Ford. “That’s obviously something of great concern to us, and the better we can understand it, the better we can share intelligence and insight across our five countries. It helps us get into that and ensure we can put a stop to it.”

During the banking summit, the international tax authorities shared input with the private sector.

“The J5 has put together a public-private partnership and several working groups,” said Eric Ferron, director general of the Criminal Investigations Directorate of the Canada Revenue Agency. “These PPPs have enabled the tax authorities to provide information to and to receive information from many partners. The tax authorities are sharing risk indicators and trends analysis and fraud methodologies that allow financial institutions to better detect suspicious activity. It also enables them to share actionable intelligence to tax authorities in the form of direct leads and suspicious transaction reports that are filed. Information shared by the financial sector contributes to increased attention to tax authorities’ understanding of the different criminal schemes that are used. It even enables the tax authorities to take action and gives us leads to investigate.”

During the meetings this week, the joint tax enforcement chiefs agreed on some common priorities and strategies.

“The main message of the event is that we have a joint effort in fighting crime,” said Niels Obbink, general director of the Dutch Fiscal Intelligence and Investigation Service. “With effective and speedy exchange of information, deploying appropriate tools and operational enforcement is our core business as well as our most powerful instrument.”