Photo: RNZ / Richard Tindiller
A Wellington brothel owner who pocketed a third of his worker's earnings and only took cash payments has been sentenced to 11 months home detention on tax evasion charges.
Zhi Rong Zhou was today sentenced in the Wellington District Court on two charges of tax evasion, after pleading guilty to the charges last August.
An IRD spokesperson said the 40-year-old arrived in New Zealand in 2000, where he became involved in a number of businesses including the brothel, Pillow Talk.
IRD began investigating his tax affairs in 2020, during which the agency said Zhou was on an income tested benefit and receiving Working for Families Tax Credits, despite owning four properties worth nearly $4 million.
Two of his properties were searched and text messages from his phone dating back to 2015 were analysed as part of the IRD investigation.
Zhou was found to have rented out two of his properties, but declaring no income for tax purposes for this.
As the boss of Pillow Talk, Zhou pocketed a third of the workers earnings and the brothel only used cash, with no EFTPOS or credit card facilities available.
"Zhou knowingly failed to account for all of the business activity he was involved in to evade the assessment and payment of income tax and GST of $663,513," an IRD spokesperson said.
That was made up of income tax, GST and Working for Families Tax Credits.
"There was dispute about how much the average daily gross earnings of the business were, but the courts accepted Inland Revenue's method," IRD said.
"IR assumed all the cash deposited into Zhou's New Zealand bank accounts represented one-third of the cash payments made by Pillow Talk clients.
"IR also used other sources such as text messages, sex worker rosters and hand-written records of customers to work out what the average daily gross earnings of the business were."
Zhou has already repaid $300,000 but has been ordered to pay a further $150,000 in reparations and undertake community work.