It took seven years of expensive, drawn-out legal battles, but one of the oldest and biggest private precious metals companies in Australia closed a dark chapter in the gold refining industry with a recent win against the Australian Tax Office in the Administrative Appeals Tribunal (ATT).
That tumultuous period included police raids, garnishee notices, tax assessments and a string of company collapses as the ATO tried to stop a GST scam that had run rampant in the gold industry and involved an estimated $1 billion, criminal gangs and links to terrorism.
It comes as the government announced a new Commissioner of Taxation, Rob Heferen, a career public servant, who will replace Chris Jordan, who spent much of his working life in the private sector, including more than 25 years at big accounting firm KPMG, before taking the top job a decade ago.
Heferen will face a series of challenges when he steps into the role in March, including the fallout of the gold scandal and the trial of ATO whistleblower Richard Boyle, who was raided and charged with criminal offences after blowing the whistle on what he saw as heavy-handed debt-collection practices in the Adelaide branch of the ATO.
In the case of the gold industry, the judgement handed down by the AAT on November 30 and made public more recently was claimed as a victory for the industry by Pallion Group, which bankrolled the legal action.
How the scam worked
The saga began a decade ago with revelations that the gold refining sector was the target of an international GST rort involving dodgy gold traders and organised criminal syndicates that exploited loopholes in our GST laws.
Gold refiners buy objects that consist of gold for the purpose of extracting the gold to create a final product, usually bullion.
The GST scam was simple. Under the GST Act, investment-grade gold bullion, or gold stamped into bars and coins, is classified as currency and therefore exempt from GST. Scrap gold, or gold that has been defaced, damaged or came from jewellery then sold to refiners, attracts GST.
Criminals bought GST-free bullion, defaced it, then on-sold it to refiners as scrap, attracting GST which they collected. They should have remitted the GST to the ATO but they pocketed it and disappeared. The refiners, who bought the scrap, claimed back the GST in the business activity statement (BAS) and were paid by the ATO, which is legal.
But what was happening in Australia from about 2010 is that the same gold started going around and around, recycled from bullion to scrap, to bullion again, and each time the crooks collected 10 per cent GST that wasn’t remitted to the ATO and the refiners claimed the GST from the ATO.
It was a fraud, pure and simple. The surge in gold refining activity from 2010 led the ATO to believe that some refiners were part of the GST scam, which they described in court documents as a gold tax carousel fraud arrangement “aimed at manipulating the GST treatment of gold”.
To this end, the ATO issued retrospective assessments for GST to most of the refining industry.
An industry under pressure
Hundreds of millions of dollars of assessments were made, plus penalties, which crippled the industry, with many members claiming they were innocent.
Most didn’t have the funds to challenge the ATO, but the Pallion Group did.
The AAT proceedings began seven years ago to challenge assessments issued by the ATO against ACN 154 520 199 (formerly known as EBS & Associates or HNMF), a former subsidiary of the Pallion Group, which was put into liquidation a few years ago.
The case was run by the liquidator Schon Condon and funded by the Pallion Group.
The latest judgement found the fraudsters, not the taxpayer, profited from the fraud, the taxpayer was unrelated to the fraudsters and the taxpayer did not participate in the fraud. Accordingly, the ATT held that the tax assessment should be set aside.
The AAT found that where the ATO fails to collect taxes from people who owe that tax the ATO cannot use Division 165 of the GST Act by seeking to collect that tax from an unrelated party.
“The community neither expects nor requires the recipient of a supply from a defaulting taxpayer to act as a GST system compliance agency to fill that gap,” the judgement said.
Loading
Loopholes left wide open
There are lessons that can be learned from the case in terms of the slowness to act from politicians.
When Britain introduced its value-added tax (VAT) regime, fraudsters exploited a loophole. In 2003, Britain amended the law.
Interestingly, Australia based its GST model on the British system but it failed to close the loopholes and by 2010 the crooks were exploiting it in droves.
Instead of fixing the law immediately and taking note of what happened in Britain, it would take years to amend the law. Meanwhile, the ATO turned the refining industry upside down. It was smeared, attacked and many lost their livelihood.
Some say they warned the ATO they had suspected fraud. AUSTRAC was also tipped off. It would take until April 2017 for the government to amend the GST Act to close the loopholes. By then it was too late. Some innocent refiners had gone belly up and some fraudsters were long gone.
All up it is estimated to have cost millions of dollars in taxpayers’ funds to pursue this case, which included a series of other legal battles in other courts.
It is not known how much it has cost the ATO in settlements to some of the companies it pursued.
This, coupled with the amount of money swiped by the crooks, has left a hole in the budget.
In a statement, the ATO said it was considering the decision of the AAT, including whether any appeal may be appropriate. It said it couldn’t comment any further because of confidentiality and privacy obligations and it was inappropriate while the case was still within an appeal period.
It cited a few legal successes: “In February 2023, the Full Federal Court overturned an unfavourable tribunal decision, finding for the ATO that the GST anti-avoidance provisions applied to cancel GST refunds arising from a gold bullion defacement scheme and ordered a new hearing in that case … In July 2023, after an ATO criminal investigation, two individuals were found guilty on two counts each of conspiring to cause loss to the Commonwealth in relation to their involvement in gold schemes.”
The ATO said since the GST Act was amended in April 2017, no litigation about GST liabilities had arisen within the industry. It said current matters before courts and tribunals related to arrangements entered into before the law was amended.
“The ATO is committed to ensuring the integrity of the GST system while making it as easy as possible for honest businesses to comply,” it said in a statement.
Tax cheats are reviled. In the case of the gold GST scam, crooks robbed the country of a fortune, while some of the refiners, who contend they were innocent parties, got caught in the crossfire.
The AAT judgement should give the ATO and the incoming tax commissioner pause for thought about its handling of this sorry saga.
Credit: Source link