Labor wants to name and shame dodgy phoenix directors
Dodgy phoenix directors would be named and shamed under a Labor proposal to stamp out illegal phoenix activity — a problem that is costing the economy billions of dollars annually.
Labor, if elected, would grant the Tax Commissioner the powers to name and shame individuals and entities as a penalty for the most serious tax offences.
The Tax Commissioner would also have the power to apply to the Australian Securities and Investments Commission (ASIC) to have them formally seek disqualification orders for directors who engaged in or oversaw serious non-compliance.
The Commissioner would first warn people on the phoenix watch-list of his intention to name them, in order to prevent mistakes from occurring or naming innocent people.
Those engaging in tax evasion — through use of tax havens and offshore accounts — as well as black economy related tax fraud would also be caught up.
Economy is losing more than $5b
Shadow treasurer Andrew Leigh said fraudulent phoenix activity — transferring assets of an indebted company to a new company to avoid paying creditors, tax or employee entitlements — costs the economy billions.
A recent report for the interdepartmental Phoenix Taskforce estimated the direct cost to the Australian economy at $5.13 billion.
This includes a $3.2 billion cost to small businesses, a $300 million cost to employees, and a $1.6 billion cost to Australian Taxation Office (ATO) collections of government revenue.
“These new measures — along with previous [Labor] commitments such as requiring all company directors to obtain a unique Director Identification Number (DIN) with a 100-point identification check and increasing penalties associated with phoenix activity — will help protect Australian jobs and the economy,” Mr Leigh said.
In the May federal budget the Federal Government announced tens of millions of dollars for a range of measures to deter illegal phoenixing and more harshly punish those involved.
It has since introduced exposure draft legislation for consultation to increase the range of offences that would attract criminal and civil penalties available under the law, and would also give the regulator ASIC more power to detect and prevent illegal phoenix transaction.
Alleged tax evasion scheme
Both major political parties are taking a closer look at the phoenixing problem following high-profile cases reported in the media.
Accounting firm Pitcher Partners is currently investigating the activities of self-described “wealth creator”, bankrupt and banned accountant Philip Whiteman.
Mr Whiteman is accused of stripping businesses of their cash and assets in order to cheat the tax office and other creditors, then starting them up under a different name.
It is alleged the dummy directors are installed to shield the real directors from liquidators, creditors and ASIC.
Labor’s latest proposed policy is modelled on suggestions from groups such as the Tax Justice Network and academics.
The name and shame option was recently detailed in the Tax and Transfer Policy Institute paper “Detect and deter or catch and release: Are financial penalties an effective way to penalise deliberate tax evaders?” by Chris Leech.
Mr Leech argues in the paper that the average deliberate tax evader may be financially better off even after being caught and penalised.
“By publicly identifying phoenix operators, the Commissioner would be helping to protect the tax system from further abuse while also arming potential creditors with the knowledge to be careful in their dealings with named phoenix operators,” the paper said.
Labor’s announcement comes after a series of other measures unveiled in recent months as part of its $4.8 billion “multinational, tax haven and tax integrity package” that aims to clamp down on multinationals and wealthy people avoiding tax.