Tax avoidance schemes that utilize cryptocurrencies are being actively targeted by a group of tax authorities in an attempt to halt their use and growth. The Joint Chiefs of Global Tax Enforcement (J5), a collection of tax authorities from Australia, the United States, Britain, Canada, and the Netherlands, was formed in July 2018 due to growing concern that tax avoidance, cybercrime, and cryptocurrency abuse was on the rise among criminal elements, who used them to exploit differences between national tax laws. Now, the data gathered as part of the initiative has allowed the five jurisdictions to open investigations into high-end schemes through which seven figure sums are routinely run in order to avoid paying tax.
60 Investigations Underway
During the eleven months in which the J5 has been working, the five nations have shared more data between them than they did in the whole of the previous decade, with the result that 60 investigations are currently underway. The Netherlands’ Tax and Customs Administration recently took down a cryptocurrency ‘mixer’ or ‘tumbler’, which uses an algorithm to mix data that might identify the holder of the currency with others, making it extremely hard to track ultimate ownership of the asset. This was possible due to information being analysed and shared with other J5 members.
New Use of Cryptocurrencies
According to Australian Tax Office deputy commissioner Will Day, at least one of the schemes being investigated involves a “global financial institution”, who, along with intermediaries, are believed to have enabled taxpayers to hide income details and assets. Speaking to the Sydney Morning Herald, Day said that links between cryptocurrency and money laundering were a particular concern, with criminals using the digital currencies to avoid detection:
We’re seeing the use of cryptocurrencies in ways that we haven’t seen before. At the Australian level, there is definitely legitimate use for investment in cryptocurrencies, but we’re also seeing the use of them to facilitate tax crimes.
Information within the J5 network is now being shared in a “more organised” manner according to Day, including through an automated process that enables the agencies to compare, analyse, and exchange data anonymously. Hopefully the actions of groups like the J5 can make such schemes less enticing to would-be tax avoiders who continue to give crypto a bad name.