We’ve all had minor accidental miscalculations when it comes to tax or financial matters. Perhaps you’ve slightly over-exaggerated how many office supplies you’ve purchased over the financial year? Or overestimated your petrol expenses slightly? We’ve all done it at some stage. Who hasn’t been guilty of working the system - just a tad?
Not to mention, sometimes it’s plain unavoidable. Financial matters can be confusing. Unless you’re an accountant, bookkeeper or business tycoon, financial processes that go further than paying a bill or owning a credit card can seem very foreign and scary. However, it might shock you (though, probably not) to find that there are big businesses and wealthy individuals out there who very intentionally forge their financial situation. Read on to find out about some of the most controversial financial scandals that became headlines over the years.
The Panama Papers
The Panama Papers refers to collection of 11.5 million leaked documents that reveal the financial information of accounts from Mossack Fonseca, a law firm and corporate services provider based in Panama. The papers, which were leaked by an internal whistleblower to German journalist Bastian Obermayor in 2016, contained private financial information regarding the off-shore accounts of politicians, public officials and wealthy individuals around the world. The individuals listed
were involved as shareholders, beneficiaries and directors of shell companies
created by Mossack Fonseca. The list of account holders consisted of 12 current or former world leaders, 128 public officials and politicians, and thousands of business people. You might be surprised to hear some of your favourite celebrities named and shamed as well. Celebs such as Simon Cowell, Jackie Chan, Tiger Wood, and even Emma Watson were identified within the Panama Papers. Emma was no doubt was channeling her inner Hermione and making her money disappear (to off-shore accounts). Abra-cadabra - no taxes!
Now, this is where the scandal can get a little confusing. Technically, what these people are doing isn’t completely illegal. It’s just a bit iffy. To fully comprehend the scandal, here’s an analogy using piggy banks
. Ideally, we could all go and create overseas business accounts (with the few spare thousands of dollars we have lying around), it’s what we use them for that deems whether the activity is illegal or not.
Some of the Panama Group claimed they were creating overseas accounts for reasons related to privacy
, or for other valid reasons someone may want to own an off-shore business entity. Despite the shadiness of the behaviour, these individuals are not in any legal turmoil as the activity is legally sound. However, some of the reported accounts have been connected to tax evasion, fraud and the evasion of international sanctions. Since the leak, four Panama account holders from across Europe and America have been charged with fraud and tax evasion for schemes that spanned over decades. On top of that, hundreds of investigations were taken out and a number of high profile figures were reviewed for their financial involvement.
Tech Tax Loopholes
You might remember back in 2016, Google and Apple got into a little trouble for exploiting some regulatory loopholes to get out of paying - or seriously discount - international tax rates. I know, like they couldn’t afford it? Using devious loopholes, namely the ‘double Irish’ and ‘Dutch sandwich’, Google managed to cut their tax back from a rate of 19.3% for corporate gross earnings, to a measly 6%. That’s a saving of about $3.7 billion over the decade.
How do they do this? By moving their overseas revenue to tax havens like Ireland, the Netherlands and Bermuda. Then, much like our friends in Panama, these tech giants create shell corporations which collect ad revenue received from overseas business proceedings.
Apple is also guilty of exploiting these same loopholes to cut back on tax paid on revenue. Instead of paying up to 29% on tax (depending on country), Apple diverts its profits to their base in Ireland, a country which very strategically taxes corporations at an extremely low rate of 0.005% (Nope, we didn’t add in any extra zeros). However, after much scrutiny, Google has agreed to close these loopholes and vows to shift these accounts by 2020. Of course, until then, they will keep exploiting them because, well, why not?
So, that’s one more year until they can complain about taxes just like us average folk.
This decision also undoubtedly comes as a result of the European Union proposing new tax policies across europe which outline that digital companies will have to pay tax in countries where they generate business, rather than where they are headquartered. Well guys, you had a good ride.
The Enron scandal is quite possibly the world’s most controversial tax scandal. It revolves around Enron Corporation, a massive Houston-based energy, communications and paper company with around 30,000 staff. Enron received many honorable mentions and praise for its success as a business. In fact, for six years in a row they were labelled "America’s most innovative company” by Fortune
magazine. In the year 2000, Enron claimed to be earning a revenue of almost $101 billion. ‘Claimed’ obviously being the key word there.
It all came tumbling down for Enron when they went bankrupt in 2001. How did it all go so wrong? Lot’s of fraud and a sprinkle of corruption - the perfect recipe for jail time. As it turns out, Enron was in massive debt from a bunch of failed business deals and projects. Of course, they reported none of this in their balance sheets. Enron executives used loopholes, forgery and special purpose entities to misdirect their financial problems. On top of this, the Chief Financial Officer also mislead the Board of Directors and Audit Committee, and pressured Arthur Anderson, one of the top five accounting and auditing firms at the time, to ignore their financial issues and fudge their reports. Yes, they really dug themselves a hole. A huge, $74 billion dollar hole. Ouch.
The sad part is that a large portion of this money was meant for the retirement of their employees and investors. On top of losing their retirement funds, many employees also lost their jobs. The CEOs responsible, of course, received their retribution. Both the former CEO, Ken Lay, and current CEO at the time, Jeff Skilling received a jail sentence. Lay died before serving jail time; however, Skilling was given a 24 year sentence. Enron definitely went down, and they took Arthur Anderson with them - shortly following the scandal, the firm suffered its own demise.
At their peak, Enron’s stock amounted to around $90USD per share in the market. Following their downfall, shares were valued at less than $1USD. The insurmountable loss led Enron shareholders to file a class action lawsuit amounting to $40 billion dollars in damages; however, unfortunately, these people received very limited compensation.
Some light did come of the situation, though. New regulations and legislation regarding financial reporting was implemented following the scandal. In particular, tougher penalties for altering, fabricating or destroying documentation were introduced, along with penalties for defrauding shareholders. Legislation also increased the accountability of accounting and auditing firms, stipulating their separation and independence from clients.
Tips for avoiding tax trouble
Errors can be critical and expensive. No one wants to make a mistake in calculating their business transactions, but sometimes they happen. The best way to avoid making these mistakes is to get a little help. Bookkeepers can be helpful for organising your business accounts. They record all your financial debts and credits, and can produce statements and reports for you as a business manager, or for an accountant to have a browse through. Make sure that if you’re bookkeeper is providing tax services
, such as lodging a Business Activity Statement (BAS), that they are registered as a BAS Agent with the Tax Practitioners Board.
There are also heaps of software
out there to save you from drowning in paperwork and documentation, making your bookkeeping processes easier. We highly recommend Xero and MYOB. These are online and cloud-based accounting platforms specifically designed to help out with small to medium sized businesses. These programs can help you with a majority of your business’ financial matters. Their features provide assistance in invoicing, inventory, payroll, paying bills, bank reconciliation, as well as other things. Also, as these are digital platforms, there’s less chance of you losing or forgetting any important documentation.
Need a little extra guidance? Read up on some common mistakes
you might be making. Unless of course, we’re a bit too late. In that case, read up on how we can help you fix this mess
We take care of bookkeeping and tax services for your small business and can provide you with that piece of mind, knowing that your accounts are being accurately organised and managed.