Cross-Border Financial Crime Group

The cross border financial crime working Group presented at the Antwerp conference a new online reference tool to find easily information on money laundering legislation in relation to the legal profession.

This information can be viewed on this website, please click here.

Visit the Microsite AML/CTF

Report on Inaugural Meeting Vienna 30 September 2005

The working group (WG) was officially born at the ECBA spring conference in Lisbon 2005. The gestation period had started at the autumn meeting in Dublin in 2003, the act of conception being the opposition to abuse of state power against individuals, designed ostensibly to combat inter-state VAT carousel fraud. The WG’s activities will not, however, be restricted to that particular issue.

Tax evasion or tax avoidance?

Definition:

A company containing only liquid assets is called a "shell company" or in Dutch "kasgeld vennootschap". For tax sheltering purposes, one may use this legitimate technique to avoid taxes.

However, all depends on the intentions of the buyer of the shell company. When the buyer transfers aU the liquid assets to his personal bank account, and disappears. he leaves an empty sleeping box behind with a tax debt. In that event, the technique will be seen as a fraudulent tax shelter. This operation results in a bidden liquidation of the company.

A "Shell company dealing":

A "shell company" in this context refers to a company which contains only liquid assets that derive directly from untaxed gains. These untaxed gains are the tax drive.

The fraudulent technique consists of 2 fazes: an "asset deal" followed by a "share deal":
I. The "asset deal":
A company sells all her assets. As a consequence she transforms herself into a "shell company". The gains which result from this sale should be taxed under Belgian Law.
2. The "share deal":
The shareholders of this company sell all their shares in a following "share deal" to a third person (new owner). This second sale is not taxable under Belgian Law.

Tax avoidance or tax evasion?

This form of "tax sheltering" maybe deemed legal as a construction to avoid tax pressure also known as "tax avoidance".

A shell company can avoid I postpone to pay taxes under Belgian Law by using the liquid assets for the following legal means:

(1) by investing in new assets and by amortising these invested assets in subsequent tax years,
(2) by contracting a loan in order to purchase shares. The interests due on the loan may neutralize the tax pressure. or
(3) by applying the system of "postponed spread taxes on gains",

The question remaining, is what the new owner will do with the company?
When the liquid assets are "simulated" to be inserted into one of these legal taxation means as described above (1-3), we are dealing with "tax evasion". The new owner empties the bank account of his company and leaves an empty sleeping box behind with a major tax debt (untaxed gains that resulted from the "asset deal").

It is possible that both the seller and the buyer are fraudulent:
To finance the "share deal", the gains and assets which resulted from the "asset deal" may be used / lent to the buyer by the original shareholders and the gains return "tax-free" to the original shareholders (back-to-back). The money marks a circular movement.

The Belgian policy:

As the Belgian State loses major tax revenues, and suppliers and creditors suffer heavy losses, the following institutions are combating the fraud:

At the Internal revenue service (in Dutch "fiscus") we find:
. the special tax-inspection (in Dutch "Bijzondere Belastinginspectie or BBf'),
. the "anti fraude comité" and
. the Administration of the collection procedure (in Dutch "invordering").

The special tax-inspection filed several complaints that leaded to judicial investigation, whereas the "anti fraude comité" detected about 700 fraude cases and identified over 13 shell company networks.

As the financing of a shell company often leads to money laundering, the Cell for processing financial information (CF!) , the central organ in the policy of combating money laundering, is keeping an eye open as well.

Judicial investigations have not only been started as a result of the work of the special tax­ inspection, but also following information provided by the Cell for processing financial information (CF!), by the official receiver in bankruptcies and by police services.

 

A contribution by Peter Engels and Katrien Van Damme