Trustee for the Starbrake Holdings Trust & Gucce Holdings Pty Ltd and Commissioner of Taxation (Taxation)
[2015] AATA 661
•1 September 2015
Trustee for the Starbrake Holdings Trust & Gucce Holdings Pty Ltd and Commissioner of Taxation (Taxation) [2015] AATA 661 (1 September 2015)
Division
TAXATION & COMMERCIAL DIVISION
File Number(s)
2014/3072-3073, 2014/3890, 2015/1155 & 2015/1958
Re
Trustee for the Starbrake Holdings Trust &
Gucce Holdings Pty Ltd
APPLICANTS
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Senior Member CR Walsh
Date 1 September 2015 Place Perth The Tribunal allows:
(i)Gucce Holdings Pty Ltd’s applications to have No. 2014/3890, No. 2015/1155 and No. 2015/1958, stayed, or held in abeyance, until Federal Court proceeding NSD 86 of 2015 is finally determined or otherwise disposed of; and
(ii)Starbrake Holdings Pty Ltd’s application (as trustee for the Starbrake Holdings Trust) to have No. 2014/3072-3073, stayed, or held in abeyance, until Federal Court Proceeding NSD 86 of 2015 is finally determined or otherwise disposed of.
The Tribunal DIRECTS:
1.In No. 2014/3072-3073, the hearing on 27 and 28 October be vacated.
2.Within 14 business days of Federal Court proceeding NSD 86 of 2015 being finally determined or otherwise disposed of:
(i)in No. 2014/3890, No. 2015/1155 and No. 2015/1958, the parties are to file and serve directions, by agreement, in relation to the filing of Statements of Facts, Issues and Contentions, evidence and Hearing Certificates (indicating unavailable dates for the hearing of these matters in the first half of 2016): see Practice Direction “Review of Taxation and Commercial Decisions”, dated 30 June 2015, at [4.5] and [4.6]; and
(ii)in No. 2014/3072-3073, the parties are to file and serve Hearing Certificates indicating unavailable dates for a two day hearing of this matter in November and December 2015 and January, February and March 2016.
The parties have leave to apply.
....(Sgd) CR Walsh..................................................................
Senior Member CR Walsh
CATCHWORDS
Goods and Services Tax – Administrative Penalties – applications for review stayed or held in abeyance pending Federal Court proceedings being determined or otherwise disposed of – Tribunal’s power to stay, or hold in abeyance, applications for review - applications allowed
LEGISLATION
Administrative Appeals Tribunal Act 1975 - s 33(1)
Taxation Administration Act 1953 - s 14ZZK(b)(iii)
SECONDARY MATERIALS
Practice Direction “Review of Taxation and Commercial Decisions”, dated 30 June 2015 – 4.5 – 4.6
CASES
Beecee Group v Barton (1980) 5 ACLR 33
Caesar v Sommer [1980] 2 NSWLR 929
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60
Hurley v Federal Commissioner of Taxation (1992) 37 FCR 11
Jefferson Ltd v Bhetcha (1979) 1 WLR 898
LLSY and Minister for Immigration and Citizenship [2011] AATA 334
McMahon v Gould (1982) 7 ACLR 202
Re A WB Limited [2008] VSC 473
Re Saltergate Insurance Co Ltd (1980) 4 ACLR 733
Rochfort v John Fairfax & Sons Ltd [1972] 1 NSWLR 16
Seller v Commissioner of Taxation [2013] FCA 1373; (2013) 308 ALR 376
Shi v Migration Agents Registration Authority [2008] HCA 31
Sogo Duty Free Pty Ltd and Anor and Commissioner of Taxation [2005] AATA 1298
Street Nation Pty Ltd v Australian Communications Authority [2004] AATA 1251
Websyte Corporation Pty Ltd v Alexander (No 2) [2012] FCA 562YFFM and Australian Securities and Investment Commission [2009] AATA 489
REASONS FOR DECISION
Senior Member CR Walsh
1 September 2015
INTRODUCTION
Gucce Holdings Pty Ltd (ACN 099 191 714) (Gucce Holdings) seeks to have applications for review, No. 2014/3890, No. 2015/1155, and No. 2015/1958, stayed, or held in abeyance, until Federal Court Proceeding NSD 86 of 2015 is finally determined or otherwise disposed of.[1] To date, none of these applications have been programmed and listed for hearing.
[1] The “Witness Statement of Matthew Peter Sunits”, signed 3 August 2015 (Exhibit A2) and the “Further Witness Statement of Matthew Peter Sunits”, signed 24 August 2015 (Exhibit A3) were filed in support of these applications.
Starbrake Holdings Pty Ltd (ACN 116 485 682), as Trustee for the Starbrake Holdings Trust (Starbrake Holdings), seeks to have application for review, No. 2014/3072-3073, stayed, or held in abeyance, until Federal Court Proceeding NSD 86 of 2015 is finally determined or otherwise disposed of.[2] No. 2014/3072-3073 is currently listed to be heard on 27 and 28 October 2015.
[2] The “Witness Statement of Matthew Peter Sunits”, signed 3 August 2015 (Exhibit A1) was filed in support of this application.
Federal Court Proceeding NSD 86 of 2015 is set down for a five day hearing, commencing 19 October 2015.
Applications for review before the Tribunal
Broadly, the relevant applications for review concern the following:
· No. 2014/3890: GST assessments issued to Gucce Holdings for the nine quarterly periods from 1 October 2010 to 31 December 2012 (commenced on 24 July 2014);
· No. 2015/1155: input tax credits for three transactions involving Gucce Holdings and a related entity, Mammoth Nominees Pty Ltd (Mammoth Nominees), and input tax credits for the development work on Lot 1006 in the quarters ended 31 December 2009 and 31 March 2010 (commenced on 4 March 2015);
· No. 2015/1958: GST assessments issued to Gucce Holdings for the eight quarters ended 30 September 2009, 31 December 2009, 31 March 2010, 30 June 2010, 31 December 2010, 31 March 2011, 31 December 2011 and 31 December 2012 (commenced on 24 April 2015); and
· No. 2014/3072-3073: GST assessments issued to Starbrake Holdings for the quarters ended 31 March and 30 June 2010 and administrative penalty assessments for GST shortfalls issued to Starbrake Holdings for the quarters ended 30 September 2009, 31 December 2009, 31 March 2010, 30 June 2010, 31 March 2011 and 30 June 2011, in proceeding, (commenced on 16 June 2014).
The total amount of tax in issue in the Gucce Holdings applications is $4,612,564 and in the Starbrake Holdings application is $2,635,521.
AFP/ATO joint investigation – Operation Caballus
Mr Allan Caratti has been the sole director and secretary of Starbrake Holdings since October 2005.
Ms Tina Bazzo, Mr Carratti’s partner, has been the sole director and secretary of Gucce Holdings since January 2002.
Mr Caratti and Ms Bazzo, and various entities they are directors of, are presently the subject of a joint investigation by the Australian Federal Police (AFP) and the Australian Taxation Office (ATO), called “Operation Caballus” (Operation Caballus).
On 28 to 30 January 2015 and 5 March 2015, search warrants were executed by the AFP and the ATO and issued in relation to several premises and motor vehicles, including the business premises of Gucce Holdings and Starbrake Holdings and the residence of Mr Caratti and Ms Bazzo (Search Warrants).
The Search Warrants related to possible offences committed by Mr Caratti:
(i)in respect to Starbrake Pty Ltd (ACN 107 942 058) (Starbrake), now known as IME Nominees, in 2008, regarding the reclassification of royalty income paid from Mammoth Nominees to Starbrake, now known as IME Nominees[3];
(ii)in respect to Starbrake, now known as IME Nominees, in 2008, regarding GST;
(iii)in respect to Westend Asset Pty Ltd, in 2008 regarding income tax;
(iv)in respect to Whitby Land Company Pty Ltd, in the period 1 July 2010 to 31 December 2013, regarding GST; and
(v)along with Ms Bazzo, in respect to Gucce Holdings, in December 2011, regarding overstatement of input tax credits for GST.
[3] The similarly named entity, Starbrake Pty Ltd (ACN 107 942 058), now known as IME Nominees, which is under external administration and subject to a Deed of Company Arrangement, is not a party to or relevant to the Starbrake Holdings applications which have been filed with the Tribunal (i.e. 2014/3072-3073).
On 3 February 2015, Mr Caratti applied to the Federal Court of Australia, New South Wales Registry, to have the Search Warrants set aside (NSD 86 of 2015). As stated above, the hearing of NSD 86 of 2015 is listed for a five days, commencing on 19 October 2015.
The AFP and ATO have undertaken not to review any of the material seized pursuant to the Search Warrants broadly pending resolution of NSD 86 of 2015. As such, the Commissioner does not presently have access to any documents which have been seized pursuant to the Search Warrants.
On 21 July 2015, Mr Caratti was provided with 25,518 “PDFs”, containing copies of some of the hard copy material seized by the AFP pursuant to the Search Warrants. In Exhibit A3, Mr Sunits, of Wilson & Atkinson (solicitors for Gucce Holdings and Starbrake Holdings), states (at [6]) that he has reviewed “part” of these PDFs and has:
Provided advice to [his] client that some of the documents located in the material are relevant to this application for review [i.e. No. 2014/3072-3072, No. 2014/3890, No. 2015/1155 and No. 2015/1958]. [His] client agreed with this advice.
Mr Sunits made a similar statement in Exhibit A1 and Exhibit A2 at [8]. In cross-examination, Mr Sunits stated that, in his opinion, the PDFs contained 100,000 pages “at the very least”.
On 16 May 2014, Gucce Holdings and others entered into a Deed of Agreement with the Commissioner of Taxation. On 19 June 2015, Starbrake Holdings and another entered into a Deed of Agreement, Guarantee and Indemnity with the Commissioner of Taxation.
Both of these deeds contain clauses to the effect that General Interest Charge will continue to accrue on the primary debt until such a time as the debt is paid in full or is disposed of through Part IVC proceedings (clause 5.4) and the Commissioner has agreed not to take any further recovery action until the Applicant has been given the opportunity to exercise its Part IVC rights (clause 5.3).
On 10 August 2015, Wilson & Atkinson, solicitors for Gucce Holdings and Starbrake Holdings, were provided with two hard disk drives containing some of the digital material seized by the AFP pursuant to the Search Warrants. In cross-examination, Mr Sunits stated that this one hard disk drive contained one “terra byte” of data and the other hard disk drive contained three “terra bytes” of data and that this material had not yet been reviewed by Wilson & Atkinson.
On 20 August 2015, Wigney J made an order allowing Mr Caratti to rely on a redacted copy of the affidavit of Federal Agent Mr Alexander Gordon Reginald Nicholson, affirmed on 11 May 2015 (Nicholson Affidavit), which was filed in NSD 86 of 2015, in these stay applications.[4]
[4] The Nicholson Affidavit is Annexure MPS-11 to Exhibit A3.
Operation Caballus – Investigation Plan
Annexure AN-5 to the Nicholson Affidavit is the AFP “Investigation Plan” for Operation Caballus (Investigation Plan). The Investigation Plan states (at p 57) that the “mission” is:
2. Mission
To investigate and prosecute members of the Caratti Group for alleged taxation fraud and money laundering offences, to disrupt their alleged illegal activity and prevent ongoing criminal activity.
The expression “Caratti Group” is not defined in the Investigation Plan.
The Investigation Plan then lists the following “critical objectives (at p 57)”:
3.1 Critical Objectives
·Identify the methodologies employed by the group to evade tax obligations [redacted]”.
·Identify members of the Caratti Group responsible for the criminal activity”.
·[Redacted].
·Arrest and prosecute persons identified as committing criminal offences in support of the alleged criminal activity of the Caratti Group.
At page 53, the Investigation Plan states:
Current ATO Referrals to the AFP:
Between May and December 2013, the ATO referred 11 incidents to the AFP alleging that the Caratti Group, and specifically entities relating to BAZZO and CARATTI, was evading the payment of lawful taxation through deliberate criminal actions. These incidents were:
Gucci Holdings – BAZZO
· Forrest Hope Joint Venture (Lot 9029 the Broadway Aveley – Omission of sales of land from subdivision.
· Lot 9029 the Broadway Aveley, WA Subdivision – Produced false invoices issued by Mammoth investments to the value of $24 million to reduce taxable income.
[Redacted]
…………
On 30 May 2014 a Joint Agency Agreement was signed between the ATO and the AFP to facilitate the criminal investigation of the Caratti Group’s involvement in false or misleading lodgement of business income tax returns and business activity statements, the non-declaration of income, the provision of forged documents and the deception of the ATO generate financial benefit.
The Investigation Plan states (at p 54):
….It is also likely that as the ATO audit project team continues their work, additional incidents will be identified for criminal investigation.
The Investigation Plan further states (at p 56) in relation to Mr Caratti and Ms Bazzo:
The investigation is considering the following substantive criminal charges
· S134.2 Criminal Code Act, obtaining a financial advantage by deception;
· S135.4 Criminal Code Act, conspiracy to defraud;
· S143.2 Criminal Code Act, use false documents;
· S144.1 Criminal Code Act, forgery; and
· [Redacted]
The “Concept of Investigation” is stated in the Investigation Plan (at p 58) as follows:
3.4 Investigation Strategy
Concept of Investigation
The focus of this investigation is to investigate and prosecute members of the Caratti Group for organised and persistent evasion of taxation [redacted]. It is assessed that much of the alleged activity has taken place in Western Australia and that most of the evidence will be located in Western Australia.
The alleged offending occurs through the Caratti’s Group property development operations. It is alleged that Caratti and Bazzo have deliberately created forged documentation to support taxation fraud and have engaged in business dealings in a manner designed to obfuscate their criminal purpose. By doing so, they have amassed significant wealth. [Emphasis added]
Annexure AN-3 to the Nicholson Affidavit is a document produced by the AFP, titled “Evaluation of ATO Project Caballus – Ten Additional Referrals” (Referral Evaluation). The Referral Evaluation states (at p 45) that in execution of the Search Warrants:
….evidence may be discovered in relation to other referrals or offences. If evidence should arise during the investigation of the commission of other Commonwealth offences these charges may be pursued at a later date.
The Referral Evaluation further states (at p 45):
….A. CARATTI and BAZZO. It appears that they have colluded to use of companies in their control to reduce taxable incomes, growing their wealth over the decades and [redacted].
Not all of the potential offences that formed the basis of referrals by the ATO to the AFP are revealed in the Nicholson Affidavit, with public interest immunity being the cause of some redaction. Annexure AN-1 to the Nicholas Affidavit is the “Joint Agency Agreement” between the AFP and the ATO (Joint Agency Agreement). At page 16, the Joint Agency Agreement lists forgery of legal documents and fraud upon the ATO as offences to be investigated. Annexure AN-2 to the Nicholas Affidavit is the AFP “Terms of Reference Operation: Caballus” (AFP Terms of Reference). The AFP Terms of Reference also lists (at p 25) forgery of legal documents and fraud upon the ATO as conduct to be investigated: see also pp 55 and 56 of the Investigation Plan.
The Joint Agency Agreement states (at p 15):
This Joint Agency Agreement (JAA) is an agreement between the participating agencies to conduct a joint investigation into suspected non-declaration of income, the deception of the ATO in order to refrain or limit the taxation paid by the CARATTI group and the deception of the ATO in order to dishonestly obtain tax refunds.
The expression “CARATTI group” is not defined in the Joint Agency Agreement.
The Joint Agency Agreement states (at p 16), by way of “Background”:
Operation CABALLUS will investigate the CARATTI Group’s involvement in false or misleading lodgement of business income tax returns and business activity statements, the non-declaration of income, the provision of forged documents, the deception of the ATO in order to refrain or limit the taxation paid by their companies and the deception of the ATO in order to dishonestly obtain refunds from the ATO.
It is estimated that the value of the alleged fraudulent activity is greater than $15 million. [Emphasis added]
The Joint Agency Agreement further states (at p 17):
3. Objectives
……….
e.The agencies will prosecute any persons of the CARATTI group where sufficient evidence exists, using the most applicable offences under the CCCA [i.e. the Criminal Code Act 1995] or the TAA [i.e. Taxation Administration Act 1953]. [Emphasis added]
Tribunal’s power to stay proceedings or hold them in abeyance
There is no express power in the Administrative Appeals Tribunal Act 1975 (AAT Act) which allows the Tribunal to stay, or hold in abeyance, an application for review which has been filed with the Tribunal. However, it is common ground that s 33(1)(a) of the AAT Act provides the Tribunal with the discretionary power to stay proceedings, or hold them in abeyance, in appropriate circumstances.
Section 33(1)(a) of the AAT Act states:
(1) In a proceeding before the Tribunal:
(a)The procedure of the Tribunal is, subject to this Act and regulations and to any other enactment, within the discretion of the Tribunal;
In Seller v Commissioner of Taxation [2013] FCA 1373 (Seller), Robertson J adopted the 12 guidelines relevant to the exercise of the power to stay civil proceedings where there are pending or possible criminal proceedings, as stated by Wooten J in McMahon v Gould (1982) 7 ACLR 202 at 206 (McMahon v Gould), as follows:
(a) Prima facie a plaintiff is entitled to have his action tried in the ordinary course of the procedure and business of the court (Rochfort v John Fairfax & Sons Ltd [1972] 1NSWLR 16 at 20);
(b) It is a grave matter to interfere with this entitlement by a stay of proceedings, which requires justification on proper grounds (ibid);
(c) The burden is on the defendant in a civil action to show that it is just and convenient that the plaintiff’s ordinary rights should be interfered with (Jefferson Ltd v Bhetcha (1979) 1 WLR 898 at 905);
(d) Neither an accused (ibid) nor the Crown (Rochfort v John Fairfax & Sons Ltd at 21) are entitled as of right to have a civil proceeding stayed because of a pending or possible criminal proceeding;
(e) The court’s task is one of “the balancing of justice between the parties” (Jefferson Ltd v Bhetcha at 904), taking account of all relevant factors (ibid at 905);
(f) Each case must be judged on its own merits, and it would be wrong and undesirable to attempt to define in the abstract what are the relevant factors (ibid at 905);
(g) One factor to take into account where there are pending or possible criminal proceedings is what is sometimes referred to as the accused's “right of silence” and the reasons why that right, under the law as it stands, is a right of a defendant in a criminal proceeding (ibid at 904), I return to this subject below;
(h) However, the so-called “right of silence” does not extend to give such a defendant as a matter of right the same protection in contemporaneous civil proceedings. The plaintiff in a civil action is not debarred from pursuing action in accordance with the normal rules merely because to do so would, or might, result in the defendant, if he wished to defend the action, having to disclose, in resisting an application for summary judgment, in the pleading of his defence, or by way of discovery or otherwise, what his defence is likely to be in the criminal proceeding (ibid at 904—5);
(i) The court should consider whether there is a real and not merely notional danger of injustice in the criminal proceedings (ibid at 905);
(j) In this regard factors which may be relevant include;
(i)the possibility of publicity that might reach and influence jurors in the civil proceedings (ibid at 905);
(ii) the proximity of the criminal hearing (ibid at 905);
(iii)the possibility of miscarriage of justice eg by disclosure of a defence enabling the fabrication of evidence by prosecution witnesses, or interference with defence witnesses (ibid at 905);
(iv)the burden on the defendant of preparing for both sets of proceedings concurrently (Beecee Group v Barton (1980) 5 ACLR 33 at 39);
(v)whether the defendant has already disclosed his defence to the allegations (Caesar v Sommer [1980] 2 NSWLR 929 at 932; Re Saltergate Insurance Co Ltd (1980) 4 ACLR 733 at 736);
(vi)the conduct of the defendant, including his own prior invocation of civil process when it suited him (b/Re Saltergate Insurance Co Ltd at 735-6);
(k) The effect on the plaintiff must also be considered and weighed against the effect on the defendant. In this connection I suggest below that it may be relevant to consider the nature of the defendant's obligation to the plaintiff;
(l) In an appropriate case the proceedings may be allowed to proceed to a certain stage, eg, setting down for trial, and then stayed Beecee Group v Barton).
In Websyte Corporation Pty Ltd v Alexander (No 2) [2012] FCA 562 (Websyte), Dodds-Streeton J commented:
109. The court has a discretion to grant a stay of civil proceedings when criminal proceedings involving the same subject matter are on foot or “on the cards”. The court’s discretion should not be exercised lightly in this context, but each case will be determined on its merits. The overriding principle is balancing the interests of justice between the parties.
110. The court will consider, according to the various formulations, whether there is a real and not merely notional danger of injustice in the criminal proceedings, a likelihood of causing injustice in the criminal proceedings, or a real prospect of substantial injustice therein if the civil proceeding continues. The plaintiff’s entitlement to bring and prosecute its case is also an important consideration in this context. [Emphasis added]
In Re A WB Limited [2008] VSC 473 it (Re A WB) was held by Robson J at [86] that, in this context, “on the cards” takes the meaning that a future criminal prosecution is “a reasonable possibility”.
In Hurley v Federal Commissioner of Taxation (1992) 37 FCR 11 (Hurley), Hill J outlined the differences in the application of the principles from McMahon v Gould (which, as stated above, related to civil cases) to tax cases (at 13-14) as follows:
…….Indeed, Wilcox J, while listing various matters relevant to the exercise of the court's discretion as suggested by Wooten J in McMahon v Gould (1982) 7 ACLR 202, was at pains to point out that the matter was one of discretion for the court: (at 756). The true position, in my view, is that the court must weigh up against the Commissioner's right to have the taxpayer's application heard and decided, the danger that prejudice or injustice may be caused to the taxpayer in the criminal proceedings. What must be considered is what Sheppard J referred to in Sterling and in Baker as "the requirements of justice overall”.
Prima facie there are two distinguishing factors between an application to stay or adjourn a tax case and an application to stay or adjourn some other civil proceeding, pending a determination of a criminal trial. First, in a tax case it will be the applicant in this Court who will be seeking the stay or adjournment of his own proceedings………
Secondly, in the ordinary case of a civil proceeding, the applicant, whose case the respondent is seeking to delay, will not be entitled to relief until the case has been concluded, subject only to the right of any applicant to seek in an appropriate case a Mareva injunction to protect the status quo, until the proceedings are completed. However, the situation in a taxation case is quite different. Absent any stay to prevent the Commissioner from recovering outstanding tax, the Commissioner’s statutory right to recover tax is not affected by the institution by a taxpayer of his appeal...
This is not, however, to say that the principles to be applied in considering whether a taxation case should proceed in the face of a related criminal proceeding differ from those to be applied in other civil cases where the same dilemma arises. It is merely that the rights of recovery which Parliament has seen fit to confer upon the Commissioner are but another factor to be considered in the exercise of discretion by the court in determining where the interests of justice lie in the particular circumstances of the case.
In the present case, the prejudice to the applicants of the taxation appeals proceeding is patent. For them to give evidence in the taxation cases would almost inevitably involve them admitting an important ingredient in the criminal proceedings. For them to not give evidence in the taxation case would almost inevitably lead to their appeals being dismissed and the assessments against them being confirmed. Against this must be weighed the interests of the community in the efficient administration of justice and the interests of the Commissioner in having the appeal, which has been instituted by the applicants, disposed of.
Given that the Commissioner may, if he chooses, seek to enforce payment of the tax, it is hard to see that any prejudice to the Commissioner arises, save the delay of the proceedings. That prejudice is, in my view, clearly outweighed by the prejudice to the applicants if they are forced to a trial of the taxation appeals prior to the criminal trials being disposed of. [Emphasis added]
The guidelines found in McMahon v Gould have been applied in a number of Tribunal proceedings, albeit in a modified form because, as stated above, McMahon v Gould related to the stay of civil proceedings rather than the stay of an administrative proceeding: see, for example, Street Nation Pty Ltd v Australian Communications Authority [2004] AATA 1251, Sogo Duty Free Pty Ltd and Anor and Commissioner of Taxation [2005] AATA 1298, YFFM and Australian Securities and Investment Commission [2009] AATA 489 (YFFM).
Conclusion
On the evidence before it, the Tribunal is satisfied, on balance, that No.2014/3890, No. 2015/1155 and No. 2015/1958 (the Gucce Holdings applications) and No. 2014/3072-3073 (the Starbrake Holdings application) should be held in abeyance (pursuant to s 33(1)(a) of the AAT Act) until NSD 86 of 2015 is determined or otherwise disposed of. In making this finding, the Tribunal makes the following observations.
Applying the principles set out in the above cases (refer to paragraphs 35 to 39) and, in particular, what was said by Hill J in Hurley, the Tribunal’s task is to weigh the danger that prejudice or injustice may be caused to Gucce Holdings and Starbrake Holdings (the Applicants), and their directors (i.e. Mr Caratti is the sole director of Starbrake Holdings, the trustee for the Starbrake Holdings Trust, and Ms Bazzo is the sole director of Gucce Holdings) in criminal proceedings against the Commissioner’s right to have the applications heard and decided.
The criminal proceedings do not need to be “on foot”. They need to be possible (McMahon v Gould), “on the cards” (Websyte) or a “reasonable possibility” (Re A WB). It is readily apparent from the Nicholson Affidavit and its Annexures that there is a broad based joint investigation between the AFP and the ATO (i.e. Operation Caballus) into what they refer to as the “Caratti Group”, of which Gucce Holdings, Starbrake Holdings and their respective directors are members: refer to paragraphs 19 to 32 above.
In particular, it is clear from the Investigation Plan and the Joint Agency Agreement that the AFP/ATO joint investigation anticipates further criminal inquiries of the Caratti Group, of which Gucce Holdings and Starbrake Holdings and their respective directors are members: refer to paragraphs 19 to 32 above. Consequently, whilst criminal proceedings are not yet “on foot” in relation to Gucce Holdings and Starbrake Holdings (the Applicants) they certainly appear to be “on the cards” or a “reasonable possibility”.
This conclusion would appear to be supported by various statements made by the Commissioner in his “Reasons for Decision” attached to the objection decisions which are the subject of the relevant Tribunal applications.
For example, in No. 2014/3890, the Commissioner’s “Reasons for Decision”, dated 27 May 2014, state that Gucce Holdings’ BAS for the December 2010 to December 2012 quarterly tax periods were revised to include additional GST from sales of subdivided property, in which the credibility of Ms Bazzo will be in question.[5]
[5] No 2014/3890 (T2).
Further, in No. 2015/1155, the Commissioner’s “Reasons for Decision”, dated 12 January 2015, refer to Gucce Holdings’ purported transactions being a “sham and an attempt to gain a tax benefit” and in relation to Lot 1006 it is said “contract and invoice do not reflect the actual work undertaken by Paramount and is an attempt to gain a tax benefit you are not entitled to”.[6]
[6] No. 2015/1155 (T2).
Similarly, in No. 2015/1958, the Commissioner’s “Reasons for Decision”, dated 23 February 2015, state (at p 20) ”we do not accept that the transaction listings that you have provided at objection are authentic” and (at p 24) “we agree with the audit findings that there was a sham arrangement to create these tax invoices and claim the corresponding input tax credits”.[7]
[7] No. 2015/1958 (T2).
Finally, in No. 2014/3072-3073, the Commissioner’s “Reasons for Decision” (undated) state (at p 17):
……we have concluded that the director of your trustee company [i.e Mr Caratti] and your advisors have not made a genuine attempt to provide correct statements. We considered that you have demonstrated either a systematic failure or intentional purpose in recording the transactions of a related entity as yours across multiple activity statements when it is clear that they were not. We considered that the director of your trustee company [i.e. Mr Caratti] and your advisors have a history of creating doubt and confusion as to the correct entity liable to tax. We concluded you have demonstrated an indifference to or a disregard of the risk of making a false and misleading statement regarding your taxation obligations.[8]
[8] No 2014/3072-3073 (T2).
Counsel for the Commissioner emphasised in submission that Gucce Holdings and Starbrake Holdings must establish a commonality of issues between the relevant Tribunal proceedings and any possible criminal proceedings based on the approach taken by Robertson J in Seller V Commissioner of Taxation (2013) 308 ALR 376 at [40] and the Tribunal in YFFM. Counsel for the Commissioner submitted that of the various offences listed in the Search Warrants, only that identified, in paragraph 10(v) above, has any potential cross-over with any issue before this Tribunal, and that cross-over, if indeed it is real, is extremely limited. According to Counsel for the Commissioner the only issue in respect to an input tax credit in December 2011 regarding Gucce Holdings is tax invoice 13145 raised by Mammoth Nominees on 18 December 2011, which is part of the factual matters which are the subject of No. 2015/1958. With respect, until NSD 86 of 2015 has been resolved it is difficult to see how this conclusion can be reached with certainty.
Counsel for the Commissioner submitted that since Starbrake Holdings was not the subject of the Search Warrants there was basis on which No. 2014/3072-3073 should be stayed or held in abeyance. Whilst it is true that Starbrake Holdings was not the subject of the Search Warrants (see to paragraph 10 above) it is, as already stated, apparent from the Nicholson Affidavit and its Annexures that there is a broad based joint AFP/ATO investigation (i.e. Operation Caballus) into the “Caratti Group”, of which Starbrake Holdings (and Mr Caratti) is a member, and that this joint investigation anticipates further criminal inquiries of the “Caratti Group”, including Starbrake Holdings (and its sole director Mr Caratti): refer to paragraphs 19 to 32 above. Consequently, whilst criminal proceedings against Starbrake Holdings are not yet “on foot” they would appear to be “reasonably possible”. Further, until NSD 86 of 2015 has been decided, the extent of the relevance of the material the subject of the Search Warrants to the relevant Tribunal applications in the Tribunal remains uncertain. Although Starbrake Holdings was not the subject of the Search Warrants, the question whether any of the material seized pursuant to those Search Warrants is relevant to Starbrake Holdings application in the Tribunal is unclear.
Pursuant to s 14ZZK(b)(iii) of the Taxation Administration Act 1953, both Gucce Holdings and Starbrake Holdings bear the burden of proving that the objection decisions, the subject of the relevant Tribunal applications, “should not have been made or should have been made differently”. If the relevant applications are not held in abeyance pending the resolution of NSD 86 of 2015, there is a real possibility that Gucce Holdings and Starbrake Holdings may not be afforded the opportunity to properly to discharge their respective burdens of proof in their respective Tribunal applications. If the Search Warrants are set aside in NSD 86 of 2015 and the seized material returned it is possible that the seized material may contain evidence relevant to the Tribunal proceedings.
To allow the applications concerned to be held in abeyance pending the outcome of NDS 86 of 2015 will, therefore, preserve the integrity of the Tribunal’s process and ensure that the correct and preferable decision is achieved: Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60; Shi v Migration Agents Registration Authority [2008] HCA 31; (2008) 235 CLR 286 and LLSY and Minister for Immigration and Citizenship [2011] AATA 334 at [18] and [48]. Regard should also be had to s 33(1)(c) of the AAT Act, which states:
(c)The Tribunal is not bound by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate. [Emphasis added]
There is limited prejudice to the Commissioner if the relevant Tribunal applications are held in abeyance until NSD 86 of 2015 is resolved. As discussed by Hill J in Hurley, unlike in a civil dispute context, the Commissioner is not required to await the Tribunal’s decision on the applications prior to the Commissioner gaining enforcement rights. The Commissioner will not be prevented by the stay from continuing to recover on the tax liability the subject of the applications. The only real prejudice that the Commissioner will suffer is a delay in having the Tribunal applications concerned heard and determined: see also paragraphs 15 and 16 above, which refers to the deeds which have been entered into between Gucce Holdings and the Commissioner and Starbrake Holdings and the Commissioner.
Consequently, on balance, the Tribunal considers that the prejudice which may be suffered by Gucce Holdings and Starbrake Holdings if they are required to continue with their relevant Tribunal applications before NSD 86 of 2015 has been decided, outweighs any prejudice which is likely to be suffered by the Commissioner in this case.
DECISION
For the above reasons, the Tribunal allows:
(i)Gucce Holdings’ applications to have No. 2014/3890, No. 2015/1155 and No. 2015/1958, stayed, or held in abeyance, until NSD 86 of 2015 is finally determined or otherwise disposed of; and
(ii)Starbrake Holdings’ application to have No. 2014/3072-3073, stayed, or held in abeyance, until NSD 86 of 2015 is finally determined or otherwise disposed of.
The Tribunal directs that in No. 2014/3072-3073 the hearing on 27 and 28 October be vacated.
The Tribunal further directs that within 14 business days of NSD 86 of 2015 being finally determined or otherwise disposed of:
(i)in No. 2014/3890, No. 2015/1155 and No. 2015/1958, the parties are to file and serve agreed directions programming the matters to hearing and Hearing Certificates (indicating unavailable dates for the hearing of these matters in the first half of 2016): see Practice Direction “Review of Taxation and Commercial Decisions”, dated 30 June 2015, at [4.5] and [4.6]; and
(ii)in No. 2014/3072-3073, the parties are to file and serve Hearing Certificates indicating unavailable dates for a two day hearing of this matter in November and December 2015 and January, February and March 2016.
I certify that the preceding 57 (fifty seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member CR Walsh ..(Sgd) A Tran......................................................................
Administrative Assistant
Dated 1 September 2015
Date of hearing 25 August 2015 Counsel for the Applicant Ms R Lee Solicitor for the Applicant Mr M Sunits Counsel for the Respondent Ms C Thompson Solicitor for the Respondent Mr R McGrade
Australian Taxation Office
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