New Zealand businesses are being warned against using electronic suppression software (ESS) tools to understate their income and pay lower taxes in the wake of raids in Australia, the United States and the United Kingdom on businesses suspected of supplying and using the illegal tools.

Tony Morris, an Inland Revenue Department spokesman, said the tools pose a significant threat to the integrity of the tax system and there are severe consequences for those who use them.

“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.”

The tools allow point-of-sales data collected by a business to be understated or concealed so that less or no tax is paid on the income generated.

That could mean a customer orders a $60 steak and $100 bottle of wine and the software tool then puts it through the point-of-sale system as a $10 bowl of chips and a $4 bottle of soft drink.

Morris said IRD had 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.”

The Australian Tax Office raided 35 premises this week suspected of supplying and using ESS tools. The move was timed to coordinate with similar action in the UK and the US as part of a global crackdown called Operation Flutter.

Morris said Inland Revenue was aware of Operation Flutter, the coordinated global crackdown by the Joint Chiefs of Global Tax Enforcement known as J5 (Australia, Great Britain, the United States, Canada and the Netherlands) but New Zealand was not a member of the J5 group.

• Christchurch residents warn of IRD impersonators
• Crackdown on cashies working for IRD
• IRD left $800m short on under-reporting from self-employed

In New Zealand 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 and where ESS tools are used to evade paying tax people can face prosecution and up to five years in prison.

Morris said anyone caught using the tools to evade tax will be required to pay any evaded tax, plus 150 per cent 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.”