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Tuesday, October 29, 2024

The documents MinRes directors didn’t see - MinRes defends handling of Chris Ellison tax scandal claims

 How Chris Ellison’s secrets came to light





The documents MinRes directors didn’t see

Magic money, a disappearing depreciation claim – Chris Ellison’s excellent offshore adventure skips a few details.

Neil ChenowethSenior writer

The Mineral Resources board’s latest attempt to cauterise the company’s governance crisis underlines the timing and disclosure challenges facing its directors.

Are they satisfied with Ellison’s level of disclosure, and the extent of his co-operation with the board investigation involving Herbert Smith Freehills?

That is not the only question.

MinRes founder Chris Ellison: From the moment a Sydney accountant made the contact with the ATO in 2019, excess depreciation claims were discussed. Michaela Pollock

By the board’s own account, Mr Ellison took four years to tell directors that he had been negotiating a settlement with the Australian Tax Office over a decade-long tax evasion scheme involving former chairman Peter Wade and three founding executives. This was admitted in a reply to the ASX’s questions on Tuesday.

A disappearing depreciation claim is at the heart of conflicting evidence about the reach of the alleged scheme, which involved using a British Virgin Islands company, Far East Equipment Holdings Ltd, to buy used machinery resold to MinRes for a profit.


That raises questions not just about how MinRes officers could be so oblivious to the scheme’s existence, but also whether the ATO agreed to accept a settlement which masked how a listed company was enmeshed in what directors still call its chief executive’s “private tax affairs”.

Mr Ellison’s tax advisers approached the ATO in December 2019 with an offer to disclose the scheme.

The offer to self-report, at a time when the five execs feared the scheme was about to be revealed, was conditional on an 80 per cent reduction in any penalties and the ATO’s agreement not to share the information with regulators such as ASIC and the Federal Police.

MinRes says Ellison settled with the ATO by May 2023. But Ellison only confirmed his deal with the ATO to the MinRes board last November, after the board heard about it from other sources. His account skips a few details.

The obvious first step that directors could have taken when they learned of the offshore scheme was to ask for all documents supplied to the ATO and all correspondence in the settlement.

It appears from Tuesday’s statement that directors did not receive this, nor is it clear whether they asked.

An ATO analysis prepared earlier this year, based on documentation supplied by Mr Ellison’s advisers, concluded that from June 2003 to June 2013, Far East received – almost entirely from MinRes companies – payments of $11.5 million plus $US1.38 million.

From this, the ATO calculated that in the first three years after MinRes floated, Far East earned $1.82 million net profit in fiscal 2007; $1.9 million in 2008; and $2.9 million in 2009, a total $6.34 million.

Remarkably, MinRes claims it paid only $3.8 million to Far East during this time. What the statement doesn’t explain is how Far East earned more than what MinRes says it actually paid.

In fact, Far East had its best year in 2009 when it received precisely zero from MinRes, yet still notched up a $2.9 million profit.

MinRes was paying Far East well above market values for machinery, on which it could make an accelerated depreciation claim.

For example, with a crusher bought for $250,000 and then resold for $2 million, the depreciation claim applies to the $2 million.

But in its summary produced this year, the ATO concludes that Far East was a so-called controlled foreign company. As such, MinRes could not claim depreciation referencing the inflated price.

Inevitably, the Far East scheme left MinRes with a depreciation issue.

From the moment that Sydney accountant Chris Batten made the first contact with the ATO about a voluntary disclosure on December 16, 2019, excess depreciation claims were discussed.

On February 4, 2020, the ATO made it clear the deal was not just “a finding of evasion” by the five men who realised $10 million in income; but also “the excess depreciation claims of companies in relation to the mining equipment acquired from Hong Kong”.

This wasn’t Far East. It was MinRes making the excess depreciation claims.

After the December 2019 meeting, an Ellison adviser even noted that the ATO officer “confirmed that he is willing to allow Mr Ellison to pay the tax debt arising from the excess depreciation claim”.

MinRes denies this: “Mr Ellison did not agree to repay depreciation claims on behalf of MIN, and no such amounts were repaid as part of, or in connection with, the voluntary disclosure of his private tax affairs,” the company told the ASX.

Tax disputes of this sort are typically settled with an umbrella payment which can include dropping tax claims.

It’s possible that MinRes’ tax shortfall from the depreciation claims was settled in May 2023 without any action by the company – or even any evidence in its accounts.

And none of this, the board decided repeatedly since 2022 – when Far East surfaced in a whistleblower report – was worth sharing with shareholders.

MinRes defends handling of Chris Ellison tax scandal claims

The troubled miner has rejected claims it may have breached ASX rules around market disclosures over tax issues involving its managing director Chris Ellison.
Brad Thompson
October 29, 2024 
    Mineral Resources has defended its handling of a tax scandal involving managing director Chris Ellison and rejected claims it may have breached ASX rules around market disclosures. 
    In response to a series of questions from the market operator, the embattled company said some of the media reporting on the tax scandal was wrong. 
    MinRes hit back over transactions involving mining machinery that happened in the 2000s, as Mr Ellison continued to assure big investors he had no intention of stepping down
    The ASX compliance team had threatened to suspend trading in the stock unless MinRes shed light on why it opted not to tell the market about allegations around payments to an offshore entity linked to Mr Ellison, his self-reporting of personal tax evasion and subsequent settlement with the ATO, or MinRes hiring a law firm to investigate. 
    MinRes said on Tuesday it did not think any of the information would have had a material effect on the company’s share price. 
    The Australian Securities and Investments Commission has started a separate inquiry and more than $3bn has been stripped from the value of the company since October 20 when MinRes issued a statement in response to media reports on the tax scandal. 
    The share price was up almost 5 per cent by early afternoon on Tuesday as MinRes provided more details about a controversy that has led to AustralianSuper, HESTA and other backers seeking assurance about its governance standards. 
    Perth-headquartered MinRes said it first hired external lawyers to investigate allegations about Mr Ellison and deals involving companies registered in the British Virgin Islands in mid-2022. 
    More detailed allegations were received in June and November last year, including details of Mr Ellison’s dealings with the ATO. 
    MinRes said Mr Ellison “confirmed the facts” to the company in November 2023 and it again hired lawyers to investigate. The full board, excluding Mr Ellison, received a briefing on the investigation in June this year. 
    On the deals under the microscope, MinRes said there had been two payments to Far East Equipment Holdings Limited, an offshore company linked to Mr Ellison, under sales agreements made before the company listed on the ASX in 2006. 
    The first payment was made by MinRes subsidiary Crushing Services International Limited in August 2006 and the second by MinRes itself in January 2008, with the two payments totalling $3.79m. 
    MinRes said the pre-IPO sales contracts were recognised as liabilities in the company’s financial statements at the time and were in respect of mining equipment purchased from Far East Equipment in 2004. 
    It did not consider the information materially price sensitive on the basis that the payments were made more than 15 years ago to discharge a liability that was recognised in the prospectus and financial statements in 2006. 
    Mr Ellison reached a confidential settlement with the ATO after voluntarily disclosing undeclared income and agreeing to pay unpaid taxes, interest and penalties, with the matter settled in May 2023. 
    “Contrary to recent media commentary the ATO has not issued any amended assessments to MinRes with respect to depreciation claims made on assets acquired from Far East Equipment,” MinRes told the ASX. 
    “Mr Ellison did not agree to repay depreciation claims on behalf of MinRes, and no such amounts were repaid as part of, or in connection with, the voluntary disclosure of his private tax affairs.” 
    MinRes said Mr Ellison’s dealings with the ATO were over his personal tax affairs and he was not acting in his capacity as managing director. 
    “While Mr Ellison’s failure to declare income to the ATO was a serious error of judgment on his part, it did not displace the board’s confidence in his capacity to manage MinRes,” the company said. 
    The MinRes board plans to reveal its conclusions and plan of action in response to the recent revelations to the market next Monday