A recent case from Upper Austria once again shows how quickly aggressive tax structuring can cross the line into tax evasion.
According to the Austrian authorities, an entrepreneur is said to have shifted substantial profits abroad over several years while also booking private living expenses as business costs. The result: a significantly reduced tax burden in Austria and, reportedly, around €100,000 per year for private travel, restaurant visits and leisure activities.
The Cyprus structure
Investigators assume that from 2019 the entrepreneur set up several companies in Cyprus. On paper, these businesses provided services such as quality inspections, trade fair representation or market analyses.
However, according to the authorities, many of these services were never actually provided.
Foreign suppliers are said to have been instructed to transfer part of their payments to a Cypriot limited company. In return, invoices were issued for services that were not performed. These invoices were then recorded in Austria as business expenses, artificially reducing taxable profit.
Put simply: profits from Austria were shifted abroad while the domestic tax burden was minimised.
Repatriation of the funds
But the structure did not end there. The profits accumulated in Cyprus were allegedly later transferred back to Austria via an intermediate arrangement. According to investigators, this was done in a way intended to avoid taxation upon repatriation.
In addition, the accounts of the Cypriot company are said to have been used to finance a luxurious lifestyle.
What happens next?
The entrepreneur has partially admitted the allegations. He now faces tax criminal proceedings as well as a possible fine of up to twice the amount of the evaded tax. In addition, a comprehensive tax audit is to be expected.
The Austrian Minister of Finance emphasised that a zero-tolerance strategy would continue to be pursued in the fight against tax fraud.
The key takeaway
International structures, including in countries such as Cyprus, are not illegal in principle. When set up properly, they can be entirely legitimate and tax-efficient.
If you would like to set up your international structure in a legally robust and transparent way from the outset and avoid costly mistakes, arrange a free consultation with us now.
