Then the most significant flag from this analysis is removed from the potential

Then the most significant flag from this analysis is

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Then the most significant flag from this analysis is removed from the potential pool of flags as well, and so on. This iterated method also identifies the best predictors of high risk when used on their own as the first step in the analysis. Further, there is the advantage of excluding the ‘other miscellaneous items – other’ issue (Issue 9, Table 10.1) from the potential pool of flags, since having a miscellaneous ‘catch-all’ issue as the best predictor of high risk can be difficult to interpret. When ‘other miscellaneous items – other’ was excluded from the potential pool of flags, ‘use of an offshore entity in an unlisted country’ (Issue 2, Table 10.1) became the top predictor, followed by ‘other significant deduction issues’, a subheading of ‘miscellaneous income and deduction items’ (Issue 4, Table 10.1). Interestingly, a slightly more specific catch-all issue has been substituted for another category of catch-all issues. ‘Trust distributions – capital distributions in cash (to the HWI)’ (Issue 13, Table 10.1) remained the third most significant predictor once these other flags were included (see Table 10.4). When ‘other miscellaneous items – other’ and ‘use of an offshore entity in an unlisted country’ were excluded from the pool of potential flags, ‘trust distributions – capital distributions in cash (to the HWI)’ became the top predictor, followed by ‘miscellaneous income and deduction items – other significant deduction issues’ (again) and another issue that looks like a proxy for ‘use of an offshore entity in an unlisted country’, that is, ‘evidence of funds coming onshore irregularly’ (as opposed to ‘regularly’). This is not one of the most common high risk issues and therefore does not appear in Table 10.1. When ‘trust distributions – capital distributions in cash (to the HWI)’ was removed from the pool of potential flags the ‘utilisation of revenue losses via intra group transfers’ (within the group of HWI entities) (Issue 1, Table 10.1) became the top predictor. 8 This means moving losses from one entity controlled by the HWI to wipe out or reduce the profits recorded in another entity that it controls (or vice versa), so that tax does not have to be paid on these profits. Three new ‘other’ issues became the next best predictors of high risk: ‘group structures – use of multiple entities (other)’, ‘group structures – evidence of value shifting/unusual transactions in group (other)’ and ‘other miscellaneous items – disposal of significant capital items (non-assessable profit)’. In our first proxy
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214 Taxing Democracy analysis an ‘other’ variable is replaced by a different ‘other’ variable. When this second ‘other’ is deleted from the analysis, two different kinds of ‘other’ variables are prominent in alternative sets 2 and 3. In short, as we delete one ‘other’ variable, another keeps popping up across all the proxy analyses. There is a stable ‘other’ effect.
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  • Fall '16
  • tax authority, Australian Taxation Office, Tax Office, Compliance Model

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