How the ATO protects billionaires like Chris Ellison
The deal mining billionaire Chris Ellison struck over his unpaid taxes epitomises what some describe as the tax office’s overly generous approach to wealthy evaders. By Mike Seccombe.The most striking thing about the revelations of Western Australian mining billionaire Chris Ellison’s tax evasion is not that he got away with it for more than a decade, from 2003 to 2014.
It is not that he continued doing it even after the Australian Taxation Office wrote to him in 2007, saying it wanted to discuss his personal tax returns spanning “a number of years”.
It is not that the same firm that provided Ellison’s personal tax services also acted as auditor for several of his companies, including Mineral Resources, the multibillion-dollar mining and mining services business he established and took public in 2006.
It is not even that Ellison and other senior executives used a company based in the British Virgin Islands to buy machinery cheaply and then onsell it at large mark-ups to Mineral Resources, dudding shareholders of more than $7 million.
All these matters – reported over recent days by Neil Chenoweth in TheAustralian Financial Review – are of concern. Yet the real shock – perhaps the most appalling part – is the way the tax office responded to them.
“The thing I find especially of concern, after my experience with PwC, is the negotiations between Ellison and the Australian tax office over liability,” says Barbara Pocock, the Greens senator and prime inquisitor on the Senate inquiry into the PwC tax scandal.
“To send in a lawyer to negotiate an 80 per cent deduction on the penalty for underpayment is just extraordinary. And more than that, to then ask the ATO … to keep it all secret, is astounding.”
As revealed in the Chenoweth reports, in late 2019 and early 2020, Sydney tax lawyer Christopher Batten negotiated with ATO officials terms under which five people, including Ellison, would agree to a “voluntary disclosure” of the details of their tax evasion.
Not only did these terms include an 80 per cent reduction in penalties, but also a demand by Batten that the ATO provide written assurance “not to refer a disclosure that my clients intend to make to law enforcement agencies as well as other Federal Government agencies”.
Batten spelt out the scope of that assurance: “The agencies are to include but not limited to the Australian Securities and Investment Commission, the Australian Federal Police and the office of the Director of Public Prosecutions.”
The ATO agreed to the penalty reduction, provided that the five executives would disclose previously undisclosed details of their tax arrangements and agree to a finding of evasion resulting in amended notices of assessment.
The reduced penalties, according to the AFR, saved the five executives at least $5.7 million, and probably considerably more.
The ATO agreed not to disclose the deal to other agencies, including ASIC, with the caveat that it would if there was an active investigation.
As one source with detailed knowledge of the matter says, however, there was little chance of that. “How could ASIC launch one if they didn’t know about the source material, held by the ATO, who had investigated at length?”
On Wednesday, after Chenoweth’s reporting, ASIC finally announced it had begun a preliminary investigation.
Pocock says the ATO’s actions suggest “one law for the rich and well connected and another for the battling and intimidated”.
“We saw through robodebt how lives are destroyed when battlers are hit with debts and fines that they feel they have no power to contest. Meanwhile, the big end of town, caught cheating on their tax, send in their lawyers to the ATO demanding an 80 per cent discount on what they owe, demanding protection from law enforcement and demanding secrecy. It is outrageous.”
Pocock has seen it before, in the case of PwC, when the consulting giant was caught using confidential information relating to the government’s efforts to combat corporate tax avoidance, to the commercial advantage of it and its clients.
The PwC scandal also became public through Chenoweth’s reporting, and Pocock pushed for the inquiry by the Senate Finance and Public Administration References Committee.
“Just remember who brought the PwC to account in relation to their misuse of confidential information,” she says.
It was the Tax Practitioners Board, which she calls “the little engine that could”, not the ATO. In fact, the ATO tried to frustrate the TPB’s efforts, she says.
“We made commentary in the report to the Senate out of that consultants inquiry about the measures that were taken, quite assertively, by the ATO against the head of the TPB, a range of measures that made his employment more precarious.”
The fallout of the inquiry included the loss of millions of dollars’ worth of government work for PwC – as well as the revelation that the ATO had cut PwC a sweet deal in relation to penalties for its misuse of legal professional privilege.
“PwC was fined,” says Pocock. “But the ATO, in a confidential settlement ... shaved $785,400 off the original penalty of $1.4 million, according to a copy of the settlement deed provided to the inquiry.”
The ATO does this sort of deal a lot, she says, but does not give detail of the individuals or entities involved. They argue that to do so would act as a deterrent to negotiating with the ATO.
According to summary data that is published, in 2022-23 the tax office secured $3.16 billion of tax revenue from settlements entered into with 251 entities. That year, the ATO recorded “total settlement variance for public and multinational businesses was 44%, meaning we secured 56% of the disputed amount we considered payable under our starting position”.
Pocock can see no reason for the secrecy, and questions the deterrent effect of “fines that are seriously reduced and secret”.
“I think there is a really strong argument for policy reform here,” she says. “Other countries don’t keep such tax settlements secret. They should be published.”
The Mineral Resources example, she tells The Saturday Paper, “points to a strengthened case for that”.
Pocock is far from alone in the view that the ATO is unnecessarily generous and secretive in its dealings with tax cheats. Geoffrey Watson, SC, former counsel assisting the Independent Commission Against Corruption (ICAC) in New South Wales and director of The Centre for Public Integrity, is strongly critical of the deal done in the case of MinRes.
“I just find it extraordinary that they would enter into what seems to me two arrangements which are contrary to public interest,” he says.
“First, it’s hard to understand how this would be a case which would attract an abatement. This seems to have been a very, very contrived tax arrangement, carefully organised, persistently pursued over years. Why, in any sane world, would this attract any reduction in penalty?
“Second thing is, I find it surprising, maybe even a little shocking, that our tax office would see matters which could be of importance to other agencies and agree … not to reveal that.”
Andy Schmulow, an associate professor in the school of law at the University of Wollongong, argues that the ATO’s approach could actually encourage tax avoiders.
“When the penalties for not paying tax are less than the money saved by not paying tax,” he says, “that provides a perverse incentive for others, because if you get caught, you still come out ahead.”
There’s no great mystery about why the ATO takes such a supine approach to wealthy corporate tax cheats, he says. “What it boils down to is nervousness about taking on very well-resourced defendants … [able] to match or surpass the budget that the ATO might have to prosecute,” he says.
“Unfortunately, this is also a feature of ASIC. They go for low-hanging fruit. They won’t take on the big boys.”
In response to this week’s revelations, Ellison released a statement explaining some of his dealings.
“MinRes was established in 2006 with the merger and public listing of several private proprietary limited companies operated by me and my business partners,” the statement said. “More than 20 years ago, and prior to MinRes’ listing, we also operated entities overseas for acquiring mining equipment and parts to import into Australia and on sell. Some equipment, prior to MinRes’ listing, was sold to our then-privately owned Australian businesses.
“Regrettably, revenue generated by the overseas entities that we were beneficiaries of was not disclosed to the Australian Taxation Office at that time. This was a poor decision and a serious lapse of judgement.”
Coincident with Ellison’s statement, the independent chairman of the Mineral Resources board, James McClements, announced it had “engaged external legal counsel to conduct an investigation into this matter and advise the Board”.
McClements said the investigation was “well-advanced”.
Since the AFR published its first story last weekend, the company’s share price has fallen by almost a quarter.
When Chenoweth’s story appeared, he called MinRes “a $9 billion company”.
It was right when he wrote it. Not now, though. As of Thursday this week, it was a $7 billion company.
Perhaps that is the best indicator of how serious this scandal is – $2 billion worth of serious.
It’s not just serious for the shareholders, though. It’s also serious for Australian taxpayers, who miss out on billions of dollars when the ATO cuts secret deals with corporate tax evaders.
This enrages Barbara Pocock. “And every Australian should share my outrage,” she says.
This article was first published in the print edition of The Saturday Paper on October 26, 2024 as "Big boys’ breaks".