TZSX and Commissioner of Taxation (Taxation)
[2018] AATA 1348
•24 May 2018
TZSX and Commissioner of Taxation (Taxation) [2018] AATA 1348 (24 May 2018)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2018/1780
Re:TZSX
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President S Boyle
Date:24 May 2018
Place:Perth
The decision under review is affirmed.
....[sgd]....................................................................
Deputy President S Boyle
CATCHWORDS
INCOME TAX – departure prohibition order – departure authorisation certificate – whether security given is satisfactory for the person’s return to Australia – decision under review is affirmed
LEGISLATION
Bankruptcy Act 1966 (Cth) – s 29(4)
Taxation Administration Act 1953 (Cth) – s 14S(1), s 14U, s 14U(1)(a), s 14U(b)(i), s 14U(b)(ii), s 14Y
CASES
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Garcia v National Australia Bank (1998) 194 CLR 649
Kay v Child Support Registrar [2015] AATA 429
Re Amies and Commissioner of Taxation [2015] AATA 777
Re Eid and Commissioner of Taxation [1998] AATA 73
Re Lui and Commissioner of Taxation [2009] AATA 626Yerkey v Jones (1939) 63 CLR 649
REASONS FOR DECISION
Deputy President S Boyle
24 May 2018
THE APPLICATION
This is an application under s 14Y of the Taxation Administration Act 1953 (Cth) (TAA Act) for the review of the decision of the Commissioner under s 14U of the TAA Act not to issue a departure authorisation certificate (DAC) to the Applicant.
BACKGROUND
On 21 September 2017 the Commissioner issued amended assessments to the Applicant for the income year ended 30 June 2007 totalling $33,335,667.22 (T20 and T21).
The Commissioner assessed the tax liability based on the transfer of US$21 million directed from a Singapore Registered Company to, a company incorporated in the British Virgin Islands (the First BVI Company). The amount had not been disclosed in the Applicant’s 2007 tax return (T23, p 119 and Commissioner’s SFIC, paragraph 11).
On 22 November 2017 the Commissioner issued a departure prohibition order under s 14S(1) of the TAA Act (T24).
By letter dated 23 November 2017, from his solicitors, the Applicant requested the issue of a DAC to permit the Applicant to travel to the United Kingdom (T25).
On 29 November 2017 the Commissioner issued a DAC (T30) permitting the Applicant to depart Australia between 29 November 2017 and 28 February 2018 on certain conditions including the provision of security as particularised in the schedule to the DAC (T30 at p 204).
On 29 November 2017 the Applicant departed Australia.
Subsequent to his departure from Australia the Applicant sought an extension of the return date specified in the DAC to 11 March 2018.
On 2 February 2018 the Commissioner issued a revised DAC which extended the Applicant’s return date to 11 March 2018 (T43).
On 11 March 2018 the Applicant returned to Australia.
By letter dated 21 March 2018 from the Applicant’s solicitors, (T71) the Applicant sought a further DAC for the period from 2 April 2018 to a date, not then fixed, in July or August 2018.
On 29 March 2018 (T2) the Commissioner decided to refuse the Applicant’s request for the issue of the further DAC. It is that decision which is the subject of this application to the Tribunal.
LEGISLATION
Section 14U of the TAA Act relevantly provides:
14U Departure authorisation certificates
(1)Where, on application made by a person in respect of whom a departure prohibition order is in force:
(a)the Commissioner is satisfied:
(i)that, if a departure authorization certificate is issued in respect of the person, it is likely that:
(A)the person will depart from Australia and will return to Australia within such period as the Commissioner considers to be appropriate in relation to the person; and
(B)circumstances of the kind referred to in paragraph 14T(1)(a) will come into existence within such period as the Commissioner considers to be appropriate in relation to the person; and
(ii)that it is not necessary or desirable for the person to give security under subsection (2) for the person's return to Australia; or
(b)in a case where the Commissioner is not satisfied with respect to the matters referred to in paragraph (a):
(i)the person has given security under subsection (2) to the satisfaction of the Commissioner for the person's return to Australia; or
(ii)if the person is unable to give such security, the Commissioner is satisfied that:
(A)a departure authorization certificate should be issued in respect of the person on humanitarian grounds; or
(B)a refusal to issue a departure authorization certificate in respect of the person would be detrimental to the interests of Australia;
the Commissioner shall issue a certificate authorizing the person to depart from Australia for a foreign country on or before the seventh day after a day (being a day later than, but not more than 7 days later than, the day on which the certificate is issued) specified in the certificate.
(2)For the purposes of this section:
(a)a person may give security, by bond, deposit or any other means, for the person's return to Australia by such day as is agreed between the person and the Commissioner;
(b)…
Section 14Y of the TAA Act provides:
14Y Applications for review of certain decisions
(1)Applications may be made to the Tribunal for review of decisions of the Commissioner under section 14T or 14U.
(2)In subsection (1), decision has the same meaning as in the Administrative Appeals Tribunal Act 1975.
THE ISSUES FOR DETERMINATION
It is not contended by the Applicant that subsection 14U(1)(a) of the TAA Act applies in the present case. Similarly, it is not contended by the Applicant that subsection 14U(b)(ii) of the TAA Act applies. The only issue for determination, therefore, is whether the Applicant “has given security under subsection (2) to the satisfaction of the Commissioner for the [Applicant’s] return to Australia” for the purposes of subsection 14U(1)(b)(i) of the TAA Act. In other words, as the Commissioner expresses it, correctly in the Tribunal’s view, has the Applicant given security to satisfy the Tribunal (standing in the shoes of the Commissioner) for the Applicant’s return to Australia?
MATERIAL BEFORE THE TRIBUNAL
The following material was submitted by the parties:
(a)Exhibit A1 – the Applicant’s Statement of Facts, Issues and Contentions (Applicant’s SFIC) dated 19 April 2018 and includes annexures SFIC-1 to SFIC-21;
(b)Exhibit A2 – the Applicant’s Outline of Submissions dated 13 May 2018;
(c)Exhibit A3 – the affidavit of the Applicant sworn on 20 April 2018, including annexure PM1;
(d)Exhibit A4 – email from Mr Mehra Kazemi to the Applicant dated 15 November 2017;
(e)Exhibit A5 – applications to the Administrative Appeals Tribunal dated 11 April 2018 and received by the Tribunal on 14 May 2018;
(f)Exhibit R1 – the Commissioner’s Statement of Facts, Issues and Contentions (Commissioner’s SFIC) dated 27 April 2018;
(g)Exhibit R2.1 – the T-documents, including pages 1-793 (T1-T87);
(h)Exhibit R2.2 – the T-documents, including pages 794-1348 (T88-T136); and
(i)Exhibit R3 – a letter from the National Australian Bank (NAB) dated 3 May 2018 responding to the s 353-10 notice.
The matter was heard by the Tribunal on 14 May 2018. The Applicant was represented by Mr Crowley instructed by Sceales Lawyers and the Commissioner was represented by Mr Walker. The Applicant gave evidence at the hearing and was cross-examined.
CONSIDERAITON
The Applicant’s outline of submissions dated 13 May 2018 poses the question for the Tribunal as:
What is the minimum security necessary to satisfy the Tribunal that [the Applicant] would return to Australia?
With respect, the Tribunal does not consider that to be the appropriate question. The Commissioner, more correctly in the Tribunal’s view, states the question (Commissioner’s SFIC at [86]) to be:
Whether, for the purpose of s 14U(1)(b)(i) of the Taxation Administration Act 1953 (Cth) (TAA), the applicant has given security to the satisfaction of the Tribunal (standing in the shoes of the Commissioner) for the applicant’s return to Australia…
The Tribunal notes that in his SFIC the Applicant had identified the issue as follows:
1.The primary issue for determination by the Administrative Appeals Tribunal (Tribunal) is whether the [Applicant] ‘has given security to the satisfaction of [the Tribunal] for [his] return to Australia’: s14U(1)(b)(i) Taxation Administration Act 1953 (Cth) (TAA).
2.The subsidiary issues for determining the quantum of security necessary to secure against the risk of flight:…
While the difference between the formulations of the question for determination may seem insignificant, for reasons that will become apparent in what follows, the two questions require a different enquiry and a materially different outcome.
As is noted at [6] above, the Commissioner has previously issued a DAC to the Applicant subject to the Applicant providing certain identified security (T30 at pp 204 -205). The security which was provided, or was to be provided, in respect of the previous DAC comprised:
·the Applicant entering into what was described as a “Security Deed” giving effect to identified obligations being:
oa mortgage over a residential property in Subiaco (the First Subiaco Property);
oas trustee, a mortgage over a commercial property in Subiaco (the Second Subiaco Property);
oas director of the First Australian Business and the Second Australian Business (together the “Australian Businesses”), a mortgage over the shares in those companies;
oto provide written authority to require release of $170,000 held in trust by the Applicant’s lawyers; and
owithin 21 days of his departure, instructing his solicitors in the UK to prepare a mortgage by a UK Company of which the Applicant is a director over a property in the United Kingdom (UK) (the UK Property) in favour of the Commissioner;
·an undertaking that while the Applicant was outside Australia there would be no material change in his or any relevant entities assets or liabilities; and
·a warranty that he would not enter into any further encumbrances, guarantees, indemnities or loans.
Security offered
The security that the Applicant is putting forward in respect of the DAC now sought is different to that put forward for the previous DAC. The security proposed has changed since the initial request for the first DAC was made. There is correspondence between the Commissioner and the Applicant’s lawyers referred to in the Applicant’s SFIC at paragraphs 35-50, however, as far as the Tribunal can see, that correspondence does not specifically, or at least not clearly, set out the security that the Applicant is proposing to give.
The first mention of the DAC presently sought appears to have been made in a letter from Sceales Lawyer’s dated 6 March 2018 (T51) wherein at paragraph 8 the statement is made that:
8. We are further instructed that [the Applicant] has made arrangements to leave Australia on 2 April 2018 to return to the UK. In that regard, [the Applicant] has instructed us to find out from you what the Commissioner’s requirements are in relation to the Grant (sic) of a further Departure Authorisation Certificate, permitting his departure from Australia on 2 April 2018.
While there was a lot of correspondence between the parties following that letter, which itself dealt with a number of issues, it seems that the issue of what security was required by the Commissioner and what security was being offered by the Applicant in respect of the second DAC somehow got lost or confused. The correspondence following the 6 March 2018 letter dealt with a whole range of issues including:
(a)the provision of securities that had been required in relation to the first DAC issued in November 2017 (letter 6 March 2018 from Sceales Lawyers (T52));
(b)an update on the sale of the Second Subiaco Property and the negotiations of the sale of the Applicant’s interest in the Second Australian Business (Sceales Lawyers letter 8 March 2018 (T62));
(c)an update on the sale of the UK Property, meaning that the mortgage over that property that formed part of the security for the first DAC was no longer available (Sceales Lawyers letter dated 21 March 2018 (T71)); and
(d)the provision of bank statements and the Applicant’s interest in overseas companies and trusts (T66, T67, T68, T70).
The Applicant in his affidavit sworn on 29 March 2018 at paragraph 47 says (T73, p 583):
The only difference which has occurred in relation to the security provided to the Respondent for the purposes of s 14U is that [the UK Company], of which I am a director, is no longer willing to provide a mortgage over its property, because the property is the subject of a sale. I am not a shareholder of [the UK Company]. I have no legal or beneficial entitlement to its property or the proceeds on sale when those materialise.
The Applicant’s Outline of Submissions refers to “Additional security now available” (Exhibit A2, paragraphs 54 and 55). This is identified as the Applicant’s wife’s residential premises in New South Wales (New South Wales Property). At paragraph 55 of the Applicant’s Outline of Submissions the assertion is made that “the net equity in that premises is about $814,000. A more modest estimate is $368,000”. The Applicant cites Attachment SFIC-19 (see also T135) in support of those figures. That document is the Commissioner’s letter to Sceales Lawyers dated 18 April 2018. That reference to a value of $814,000, however, appears to be wrong. The Tribunal assumes that the reference in the Applicant’s Outline of Submissions to the New South Wales Property having an equity value of $814,000 is taken from the reference to that figure in the Commissioner’s letter of 18 April 2018 (T135 at p 1153). That figure in the Commissioner’s letter, however, is the value that the Commissioner puts on the total value of all property apparently being offered by the Applicant as security.
The Commissioner’s letter of 18 April 2018 puts the equity value of the New South Wales Property at $292,000 (T135 at p 1152) in which he states:
By emails dated 16 April 2018 you stated that the value of the property is approximately $1 million, and that the net equity in the property after taking an offset facility into account is $292,000.
The Commissioner’s calculation in that letter of the total value of the security offered appears to be based on the following:
(a)$350,000 from the sale of the Second Subiaco Property and the Applicant’s interest in the Second Australian Business;
(b)$170,000 cash held in trust by Sceales Lawyers; and
(c)$292,000 from the New South Wales Property.
Although the Tribunal notes that those figures add up to $812,000 rather than $814,000.
There is, unfortunately nowhere in the Applicant’s Outline of Submissions, the Applicant’s SFIC or in the Applicant’s affidavit a complete statement of the security that the Applicant proposes providing and the value of that security. Paragraphs 51-56 of the Applicant’s SFIC are as follows:
51. Pursuant to the invitation from the Respondent, the Applicant met with the Respondent officers at Northbridge on 4 April 2018 to provide further information required by the Respondent. At the conclusion of that meeting, the Applicant was asked to provide written details of my proposals as to the provision of security.
52. Annexure SFIC-16 is a copy of a letter dated 4 April 2018 my solicitors wrote to the Respondent following that meeting.
53. By letter dated 11 April 2018, Annexure SFIC-17, the Respondent, in response to the request dated 4 April 2018, refused to issue a Departure Authorisation Certificate.
54. Pursuant to the invitation set out in that letter, the Applicant wrote a further letter to the Respondent, dated 8 April 2018, a copy of which is Annexure SFIC-18.
55. In connection with that request, the Applicant offered additional security, by way of security over property owned by his wife, […], in New South Wales.
56. By letter dated 18 April 2018, a copy of which is Annexure SFIC-19, the Respondent refused that application.
The document attached as SFIC-18 to the Applicant’s SFIC, is a letter from the Applicant to the Commissioner dated 8 April 2018, and primarily sets out the history of the request for the issue of the DAC, the Applicant’s position in relation to certain matters in contention, such as the Commissioner’s claims that the Applicant moved assets overseas and failed to fully disclose his assets, however, it did not, as would seem to be suggested by paragraphs 51 and 54 of the Applicant’s SFIC, provide details of the security that the Applicant proposes to give.
The end result of the correspondence that went between the parties leading up to this application to the Tribunal seems to be that the Applicant proposes giving the same security that was given in respect of the November 2017 DAC, without the mortgage over the UK Property, plus a mortgage over the Applicant’s wife’s property in New South Wales.
The difficulty that the Tribunal has, and it appears to be the difficulty that the Commissioner had in determining whether the security offered was sufficient for the purpose of securing the Applicant’s return, is that there is little evidence, or little current evidence, as to the value of the security offered.
The Commissioner’s SFIC seeks to addresses the value of the elements of the security offered as follows:
(a)Paragraphs 46-51 –First Subiaco Property
In October 2017, based on a sale of the property for $1.36 million, “some $719.70 would remain for payment to the ATO”.
Those paragraphs also refer to the fact that the property is subject to a mortgage to NAB securing (indirectly through a guarantee given by the Applicant) a partnership facility which, as at 23 November 2017, had a balance owing of $5,208,333.10.
There is, however, no conclusion reached in those paragraphs as to what value can be placed on that security. On the numbers quoted by the Commissioner the Tribunal assumes that the net result is that no monetary value can be ascribed to this property.
(b)Paragraphs 52-55 – Second Subiaco Property
Paragraph 52 advises that “The applicant, along with [the First Australian Business], is the registered proprietor of the premises…”. The Commissioner refers to T62, which is a letter from Sceales Lawyers to the Commissioner dated 8 March 2018, which refers to this property having been on the market for some time but that the only offer received being “well below an acceptable price”.
That letter of 8 March 2018 also advises that:
[The Applicant] has provided a personal guarantee to National Australia Bank to secure the mortgage of [the Second Subiaco Property] plus the practice funding.
Paragraphs 54 and 55 of the Commissioner’s SFIC state that this property is also subject to a mortgage to NAB and that “The amounts presently secured by the NAB mortgage are unknown.”
Paragraph 56 of the Commissioner’s SFIC asserts that the Applicant has disclosed that:
(a)(as at 6 March 2018) he expected to incur a considerable loss on sale of the [Second Subiaco Property] ([T-51/410] (p.411));
(b)(as at 6 March 2018) as part of the process to allow sale of the [Second Subiaco Property], he is selling his shares in [the Second Australian Business] [T-51/410] (p.411) and generally his interests “in the [Australian Business]” [T-62/505] (p.506);
(c)from “the entire transaction” (ie, sale of [the Second Subiaco Property] plus sale of interests in the [Second Australian Business]) the applicant expected to receive:
(i)(as at 6 March 2018) some $400,000 ([T-51/410] (p.411));
(ii)(as at 4 April 2018) some $350,000 ([T-80/721] (p.722).
(c)The Applicant’s wife’s New South Wales Property
The Commissioner sets out figures in relation to the value of this security by reference to material that is before the Tribunal, starting with the opinion provided by a real estate agent (T134 at p 1149) that the property was worth $1,050,000 to $1,100,000, that the mortgage over that property stood at $478,342.89 (as at 6 January 2018 see T133 at p 1143) with an offset account against that mortgage at $182,649.90 CR (as at 8 April 2018 see T133), giving, on the Tribunal’s calculation, a net value of around $750,000 - $800,000.
(d)Paragraphs 61-67 – Interest in the Australian Businesses
No conclusion is reached by the Commissioner on the nett value to be ascribed to this asset. The Commissioner accepts that the Applicant is indirectly the sole shareholder in the businesses but notes that the balance sheets of the trusts through which the shares are held, as at 23 November 2017 show either a negative or nil balance (T73) and that the balance sheet for the Second Australian Business as at 23 November 2017 recorded a negative balance (T73 at p 615-616).
In his closing submissions counsel for the Commissioner summed up the Commissioner’s position as being:
So in summary, sir, on the question of security, my submission is that the Tribunal cannot be satisfied that the value of the security on offer is any greater than the $170,000 that is in trust.
(Transcript, p 54)
The value of the security being offered is critical. It became clear at the hearing that there was little evidence of the value of the securities being offered, other than the $170,000 held in trust. It is not even a case of there being different valuations being put forward by the parties and the Tribunal having to make a determination of which valuations are to be preferred. This problem became apparent at the hearing at the conclusion of the Applicant’s case. The following exchange took place (Transcript, p 38):
DEPUTY PRESIDENT: So just to make it clear to me, when we’re looking at the monetary value of the security offer, taking into account other (indistinct), do you have a breakdown of what the value is? We can exclude the $170,000 that’s held in trust.
MR CROWLEY: Yes.
DEPUTY PRESIDENT: Just on that $170,000…
MR CROWLEY: We can include it.
DEPUTY PRESIDENT: Yes, it’s – what are the terms on which it’s held? Is it held as a stakeholder or as a trust?
MR CROWLEY: It’s in Mr Sceales’ trust fund, it’s held as trust funds, and I’m not sure if the deed that was previously provided is still current but it’s available on the same terms or equivalent terms as was previously put. May I make this suggestion? If we were to adjourn for 10 minutes or so, perhaps Mr Walker and I can sit down and put something in writing for your Honour that clarifies exactly what is currently on offer.
DEPUTY PRESIDENT: Yes, because I’ve heard a fair bit of to’ing and fro’ing, and I’m sure Mr Walker would like a chance to analyse what – where they’ve gotten to.
MR CROWLEY: It may well be we can present a unified front, and that might simplify this.
There was then a 30 minute adjournment for the parties to confer to see if some common ground could be found as to the value of the proposed security. Unfortunately that proved not to be the case. After the adjournment the following exchange took place:
MR CROWLEY: Too ambitious, Deputy President. We have some figures. The respondent has some figures.
DEPUTY PRESIDENT: Right.
MR CROWLEY: Not much overlap. A little bit of overlap. I think the sticking point is that the respondent says – the respondent’s position is that they’re not comfortable with ascribing any value at all to the practice because they say that they don’t have the evidence to make that calculation. But for that, I think we are all more or less on the same page about the valuation or the net equity in everything else.
…
MR CROWLEY: That is the sticking point. And if I could give you my figures, then Mr Walker
…
MR CROWLEY: We say that taking [the First Subiaco Property] in isolation, it has a value of around about one and a half million, and has equity of around about $900,000 to a million. Now, the respondent says that’s only half the picture because it’s part of the security for other loans, but I’ll deal with that in a moment. There is the $170,000 in cash in trust. There’s the [New South Wales Property] which is around about $621,000 equity. As to [the Second Subiaco Property] and [the Australian businesses], we deal with it compendiously because the building is worth around about $4.2 million. However, a loan of about $5.5 million – $5.1 million, sorry, is secured by it.
That therein lies the problem, because there’s a deficit unless you give the practice some value. Now, there was evidence today and it was evidence of [the Applicant] and evidence of Mr Kazemi, who’s a business marketing and valuation expert, who gives that figure. And the net result of that, if you accept that figure.
…
MR CROWLEY: $2.4 million.
…
MR CROWLEY: So if you accept that figure, and the respondent does not – if you accept that figure, the net position to [the Applicant] is a surplus of about $350,000, after paying out the loan of $5.1 million. So we would have it that it’s just shy of $2 million worth of equity of financial assets available.
(Transcript, p 39)
The valuation of the business at $2.4 million relied on by the Applicant is based on an exercise undertaken by a Mr Mehra Kazemi. Exhibit A4 included an email dated 15 November 2017 from Mr Kazemi to the Applicant in which the following statement is made:
Based on what I have received it appears the under management adjusted net profit of the business will be in the $600K range and if an EBIT multiple of 4x is utilised we will arrive at approximately $2,400,000.
…
Therefore I think that we could be looking at an asking price Cents to the Dollar in the range of $1.10 to $1.15 with 80/20 payment split whereby 20% is retained for 12 months to allow for slippage.
Mr Kazemi’s signature block contains the description “Business Marketing & Valuation”. Mr Kazemi did not give evidence. The Applicant’s evidence in relation to the valuation of the business was:
Have you had the business valued? I did. It was my intention, down the track, to exit the Australian practice and I sat down with some business brokers who specialise in accounting practices, called Goodwin Mitchell O’Hehir I think they have just shortened their name now to GMO and they gave me a valuation of about $2.4 million.
And what does that valuation consist of? It’s effectively – with accounting practices of our size – it was based on our fees and a percentage of market value of fees and they take an average of the last three years and then try and extrapolate what the fees are likely to be in the future and the market value is essentially a cents in the dollar on fees.
(Transcript, p 24)
The value of the business is critical to the value of the security being offered by the Applicant. On the Applicant’s own calculation, even if one assumes that the shares (equating the value of the shares to the value of the business) can be sold for $2.4 million, once the debts attaching to the business and the Second Subiaco Property, which also secures the business debts, are paid out, the sale would only result in a net return of approximately $350,000 (Transcript, p 25).
It is not clear where the First Subiaco Property fits in to this consideration. That property has a mortgage over it to NAB which, as the Tribunal understands it, also secures the facility that the accounting business has with the bank. According to the settlement statement (T108, p 1004) relating to the aborted sale of that property in October 2017, the nett proceeds that would have been paid to the Applicant after the discharge of the NAB mortgage ($1,323,000 – “indicative”) was only $719.70.
On the figures as the Tribunal understand them, and they are not easy to follow, the whole value ascribed to the First Subiaco Property, Second Subiaco Property and the shares in the business is dependent on the shares in the accounting business being sold for a very substantial sum. Unless the shares can be sold for a substantial sum there is likely to be a shortfall in the value of the mortgaged properties paying out the debt owed to NAB. Counsel for the Applicant summarised the position as being:
MR CROWLEY: That’s right. All of which is personally guaranteed by [the Applicant] as well, and a personal guarantee – [the Applicant] is ultimately on the hook to the NAB for $5.5 million, but the property is worth $4.1. And if the calculations of Mr Kazemi are correct, $2.4 million is the value of the business.
(Transcript, p 4)
The question that this raises then is whether there is sufficient evidence to substantiate a valuation of the shares in the accounting business at $2.4 million, noting that on Mr Crowley’s summary any valuation less than $1.4 million would result in a shortfall. As noted above, the only evidence that the Applicant puts forward to substantiate the valuation of the shares in the business is the email from Mr Kazemi (Exhibit A4). As noted earlier, the Tribunal did not hear from Mr Kazemi. While counsel for the Applicant described Mr Kazemi as “a business marketing and valuation expert” (Transcript P-39), there is no evidence before the Tribunal to support that assertion.
Further, looking at Mr Kazemi’s email of 15 November 2017, there are a number of assumptions and material on which Mr Kazemi apparently relied on in reaching his conclusion which are not before the Tribunal. His valuation states that it is “Based on what I have received…”. We do not know what he received. Similarly, the assertion that “..the adjusted nett profit of the business will be in the $600K range…” is obviously vague and, at least on the material that the Tribunal’s attention has been drawn to, unsubstantiated. Further there was no evidence presented by the Applicant to substantiate the application of an EBIT multiplier of 4 being appropriate to valuing this business.
Further, insofar as one is looking at a value being given to the shares in the business, consideration needs to be given to whether there is any market for such shares. While someone buying the business as an ongoing operation, or a partner buying out another partner, might place a value on the business, that does not mean that there is a realisable value that would provide security to a third party.
The other concern that the Tribunal has in relation to the value of the shares in the business relied on by the Applicant, is that critical document being Mr Kazemi’s email of 15 November 2017 is now over 6 months old. There is no material before the Tribunal indicating the current value of the shares in the accounting business.
Based on the above considerations, the Tribunal considers that the only property being offered as security which can be ascribed any sort of value is the $170,000 held in trust and, subject to what is said below, the New South Wales Property.
The New South Wales Property
In relation to the above property, irrespective of the equity that the Applicant’s wife may have in it, the Commissioner raised the prospect of its value to the Commissioner as security being impacted by the principle arising for the case of Yerkey v Jones (1939) 63 CLR 649 as discussed by the High Court in Garcia v National Australia Bank (1998) 194 CLR 395 (Garcia). The judges in the Garcia case also refer to the principles enunciated by the High Court in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 .
Although that principle was referred to in passing only and not developed by the counsel for the Commissioner, the Tribunal assumes that the concern being raised by the Commissioner is the issues that can arise when a spouse or someone not involved directly in a business provides security. While the Tribunal notes the potential for such issues to arise, it is difficult to raise the potential application of that principle as a general objection against a spouse or third party providing a security. Further, steps can be taken at the time that the security is given to guard against the sort of mischief that give rise to the application of those principles. While it is a factor, the Tribunal does not consider the possibility of such issues arising as something that weighs to any significant extent against the Applicant’s wife’s security being considered available.
However, a concern that the Tribunal has with the New South Wales Property being offered as security is that it is not the Applicant’s to offer. As was noted in the case of Re Eid and Commissioner of Taxation [1998] AATA 73 (Eid), s 14U(1)(b)(i) of the TAA Act requires that “the person has given security …to the satisfaction of the Commissioner for the person’s return to Australia” (emphasis added). Deputy President McMahon observed in Eid at [23]:
The fourth and most important objection however, is that the applicant has not “given” security, nor is he to give that security in the future. Others are to give security voluntarily. … I see no reason in logic, nor has any reason been given in the evidence why the applicant should return to Australia simply because four other people, or groups of people, have given security over their assets. It was suggested that the applicant had funds overseas from which he could reimburse these people if their assets were lost. This was denied by Mr Eid. It is not necessary to enquire into the plausibility of such a suggestion. The fact is, that on the face of the proposals, there is nothing before me which would tend to secure the applicant’s return to Australia simply by virtue of the charges to be given over the four houses.
The same consideration applies in the present case. The security is to secure the Applicant’s return to Australia, not to reimburse or indemnify the Commissioner. It is for that reason, amongst others, that the security does not have to match the tax debt. It is not securing the tax debt, it is “securing” the return to Australia of the person. In that sense the word “secure” is used in a different sense to the normal use of that term in commercial transactions. In the context in which the word “secure” is used in s 14U(1)(b)(i) of the TAA Act, it is denoting a sufficiently high level of discomfort that the person will return because the consequences of him not returning are sufficiently severe to make his non-return unlikely.
The Commissioner in his SFIC at paragraph 91 put it as follows:
The purpose of requiring security under s 14U(1)(b)(i) is to incentivise the DAC applicant to return to Australia to discharge his or her tax liability (cf Kay v Child Support Registrar [2015] AATA 429 [52]-[53]). The capacity of the security offered to act as a sufficient incentive is naturally influenced by the amount of the tax liability.
While the pecuniary consequences to the Applicant’s wife in forfeiting the New South Wales Property if the Applicant were not to return would obviously be severe on the Applicant’s wife, it would have no direct pecuniary impact on the Applicant. While such a course would very likely have severe consequences on the relationship between the Applicant and his wife, the lack of a direct pecuniary consequence on the Applicant must be taken into account in considering the value of the property to “secure” the Applicant’s return.
The likelihood of the Applicant returning to Australia
The Applicant’s submissions
The Applicant identifies the following relevant to this consideration:
·the Applicant returned to Australia when previously issued a DAC;
·the Applicant has two children, a brother and an elderly mother resident in Western Australia;
·the tax debt is capable of collection in the UK;
·if the need arose, the Applicant could be extradited;
·the Multilateral Convention on Mutual Assistance in Tax Matters would assist the Commissioner in collecting the tax if the Applicant did not return;
·a trustee in bankruptcy can request assistance from a foreign court in recovering assets under s 29(4) of the Bankruptcy Act 1966 (Cth);
·under the UK-Australia Double Taxation Agreement this would enable the Applicant’s assets and activities in the UK to be examined without the requirement for the Applicant to return to Australia;
·the Applicant has proceedings under Part IVC of the TAA Act challenging the Commissioner’s assessment and has applied to the Supreme Court for a stay of the Commissioner’s debt recovery proceedings; and
·the Applicant “is required” in Australia to conduct proceedings on behalf of the Second Australian Property in the tribunal against the Australian Trade and Investment Commission relating to a research and development grant.
The Commissioner’s submissions
The Commissioner points to the following factors as being relevant to the Tribunal’s consideration of the likelihood of the Applicant not returning to Australia:
·the Applicant’s financial position is opaque and the Tribunal cannot be satisfied that the Applicant has provided a full and frank disclosure of his assets, particularly his overseas assets;
·the Applicant has failed to provide an updated statement of his financial position for the purposes of these proceedings;
·the Applicant is a resident of the UK;
·the Applicant has professional ties in the UK as well as assets in that country;
·the Applicant is in the process of selling all of his assets in Australia;
·there is no reason why the Applicant could not manage the liquidation of his remaining assets in Australia from the UK;
·there is no basis for the Applicant’s assertion that he needs to be in Australia to run the various court and tribunal proceedings currently on foot; and
·the fact that the Applicant returned to Australia following the issue of the first DAC does not negative the existence of the significant risk that he will fail to return this time.
The Commissioner at paragraph 99 of his SFIC summarises his position as follows:
In summary, in circumstances where: (1) the applicant has a significant tax liability of some $34.5 million; (2) the applicant has not provided full and frank disclosure of his financial position as aforesaid; and (3) there is a significant risk of the applicant failing to return to Australia if the DAC is issued, the Tribunal should not be satisfied that the security offered (some $170,000 plus an uncertain further amount (if any)) is adequate or sufficient for the applicant’s return to Australia. To put it differently, the Tribunal should not be satisfied in the circumstances that the security offered is a sufficient incentive for the applicant to return to Australia to discharge his tax liability.
The Commissioner referred to a number of previous decisions of the Tribunal in which the Tribunal had considered the adequacy of the security being offered to secure a person’s return. The Commissioner referred to:
(a)Eid, referred to at [50] above involved a tax liability of around $40 million where real properties to a claimed value of $690,000 were offered as security, the applicant had no substantial ties to Australia and had business and commercial interests overseas. The value of the properties offered was disputed. The Tribunal found the security to be insufficient;
(b)Re Lui and Commissioner of Taxation [2009] AATA 626 concerned a tax liability of $16.4 million (Commissioner calculated total liability with penalties and interest at over $23 million), the security offered valued at around $350,000. That matter was primarily considering whether a DAC should have been issued under s 14U(1)(b)(ii)(A) of the TAA Act on humanitarian grounds, however, it seems to have proceeded on the basis that the security offered was insufficient.
(c)Re Amies v Commissioner of Taxation [2015] AATA 777 concerned a tax liability of around $3 million, the security offered was $200,000 and deposited into trust account of the solicitors. That was considered to be sufficient by the Tribunal, however, that was on the basis the Tribunal found that the risk of Mrs Amies not returning to be very low. At [13] the Tribunal observed:
First, I regard the risk that Ms Amies might not return to Australia as required as very slight. The material shows that she has considerable family and emotional ties in Brisbane as well as a new business and considerable real property. They are set out at length in the material. Ms Amies has no family ties overseas. The ties in this country strongly suggest that she is likely to return to Australia as and when required. But that is not the end of it; a failure or refusal to return would likely cause Ms Amies considerable prejudice in the proceedings in the Supreme Court and the Tribunal. As Mr Bickford’s submissions point out, she has everything to lose and nothing to gain by not returning to Australia.
The Tribunal also took into account (at [16]) that;
Ms Amies is the registered proprietor of properties at Manning Street, South Brisbane, Tank Street, Brisbane, and Admiral Place, Noosaville. Of the latter two, on the material available, she has equity in excess of $330,000. Whilst the claimed debt is $3.2 million, I am satisfied that it is highly unlikely that she will fail to return…
Consideration
While the level of the tax liability is not determinative of the level of security which should satisfy the Commissioner, it is obviously a relevant consideration in the assessment of the likelihood of the Applicant failing to return to Australia. In the present case the prospect of returning to Australia to face proceedings for the recovery of over $33 million is a daunting one. Given that the security is not to secure the claimed tax debt, but rather to secure the Applicant’s return, the question is whether the security offered provides a sufficient incentive for the Applicant to return or, put another way, is its forfeiture too high a price to pay for non-return.
This consideration must be made in light of the particular circumstances that apply to the Applicant. The Tribunal considers the following to be the relevant circumstances:
(a)the Applicant is already resident in London where he lives with his wife (paragraph 2 of the Applicant’s Affidavit of 20 April 2018);
(b)the Applicant’s family live in Western Australia including his two children and his mother. The Applicant’s children are both adults. There was no evidence that the Applicant’s children could not or would not visit the Applicant if he remained outside Australia;
(c)the Applicant’s mother is 82 years old. She was born in Italy. She can apparently travel as the Applicant said in his evidence that he was trying to get her to go back to Italy to see her remaining relatives (Transcript p 27);
(d)the Applicant has sold or is in the process of selling his assets and business interests in Australia;
(e)the Applicant has established a chartered accountancy business in the UK;
(f)the Applicant has assets outside Australia. In this regard the Commissioner makes the following submissions (Exhibit R1):
80.The applicant appears to have, or to have had, an interest in at least three entities incorporated in the British Virgin Islands […]:
…
81.Austrac records summarised at [T-69/548] (see also [T-135/1164], [T- 136/1221] record that:
(a)between 20 December 2008 and 27 January 2010 [the Second BVI Company] paid $9,775,966 to [the Second Australian Company], [the First Australian Company] and associated entities; and
(b)between 9 July 2008 and 2013, [the Third BVI Company] paid $4,583,818 in aggregate to [the Second Australian Company] and the applicant personally.
82.In his statutory declaration dated 23 November 2017 [T-26/155] (p.155, 159) and in his Federal Court affidavit sworn 29 March 2018 [T-73/575] (p.578, 581), the applicant declared that he had (ie at that time) “no assets or liabilities” in the BVI and that he had “no interests in trusts or similar entities, either of a beneficial or financial nature” in the BVI.
83.The applicant informed the Commissioner on 9 March 2018 that he “never had any interest in” [the First BVI Company], “never had any access to bank accounts” of [the First BVI Company] and “did not and does not have access to” the bank accounts of [the Second or Third BVI Company] [T-66/543]. Further, the applicant informed the Commissioner that he “had” (ie, once held, but did not then hold) a 10% interest in [the Third BVI Company] and [the Second BVI Company].
84.By letter dated 16 March 2018 [T-70/551] the Commissioner drew the applicant’s attention to inconsistencies between his statements in the 9 March 2018 letter and the materials referred to in paragraph 80 above. The applicant has not explained the inconsistencies.
85.In an email of 13 April 2018 [T-132/1130] (p.1133), the applicant informed the Commissioner that he had (ie, held at that time) “a 10% beneficial interest in [the Third BVI Company] which I believe owns [the Second BVI Company]”.
The Applicant was cross-examined (Transcript, p 33) on the inconsistency between his statement in paragraph 27 of his affidavit of 29 March 2018 (T73 at p 581) that, other than as disclosed in an earlier statutory declaration he had “…no shareholding in corporate entities in Australia, United Kingdom, the British Virgin Islands, Luxembourg and the United States of America” and at paragraph 28 “I have no interest in trusts or similar entities, either of a beneficial or financial nature, in Australia, United Kingdom, British Virgin Islands, Luxembourg and in the United States of America” and the email dated 13 April 2018 appearing in T132 at p 1133 in which the Applicant advises that “I have a 10% beneficial interest in [the Third BVI Company] which I believe owns [the Second BVI Company]”.
The Applicant’s explanation for the discrepancy was not convincing. At page 34 of the Transcript the Applicant explained it as follows:
How is what you’ve just told the tribunal consistent with what is said in the second paragraph? It’s not, in that the interest I have is held on trust for me, and it’s not direct. And, as I said, I made an assumption that [the Second BVI Company] was wholly owned by [the Third BVI Company]. My interest has always been, from day one, a 10 per cent beneficial interest. That’s what I believed. And there was a declaration of trust; I accept and acknowledge that. I can no longer locate it.
And later at page 34 of the Transcript:
And you’re telling the tribunal that what is said in Mr Sceales’ email is false? It’s not false. So it was a misstatement. It’s not false at all. It was a misstatement. I’ve said all the way along, and in fact my tax returns from going back to 2008, 2009, acknowledge that I had an interest in a foreign investment fund, and that’s the 10 per cent in [the Third BVI Company].
So you say it’s a misstatement, the statement in the earlier email from Mr Sceales? Correct.
The Tribunal is satisfied that the Applicant does have assets outside Australia and that he has not been totally fulsome in his disclosures to the Commissioner;
(g)the Applicant points to his return to Australia when previously issued with a DAC. It is undoubtedly the case that the Applicant did return when issued a DAC last time. As set out above, the security offered by the Applicant this time is not the same as that which supported the previous DAC. As is also noted by the Commissioner (paragraph 96 Commissioner’s SFIC) the financial information that is before the Tribunal is largely 6 months old and relates to the financial picture in November 2017. The Commissioner also notes that one of the reasons given by the Applicant as to why he would return if granted the DAC in November 2017 was that he had arranged a wedding reception in March 2018 for which he had made catering arrangements and had sent out 50 invitations. The fact that the Applicant did return to Australia when previously issued a DAC is a factor that weighs in favour of the Applicant. The issue is, however, the weight that is to be given to that consideration;
(h)the Applicant also points to his involvement in a number of court proceedings and other applications before this Tribunal as supporting a conclusion that he is likely to return to Australia. While it would most likely be easier to run these proceedings if the Applicant were in the jurisdiction, there is no legal reason why he has to be within the jurisdiction to run the proceedings. The Tribunal does not consider this factor to be of any particular weight in considering the likelihood of the Applicant returning if a DAC were issued to him; and
(i)the Applicant also set out in some detail various treaties and legislation which would enable the Commissioner to still pursue the Applicant in relation to the tax liability and even the possible extradition of the Applicant if the Applicant were not to return. That, in the Tribunal’s view is not a particularly relevant factor in considering whether satisfactory security has been given to secure the Applicant’s return if a DAC was to be issued. While on one view the ability of the Commissioner to still pursue the Applicant if the Applicant failed to return might be a relevant consideration for the Applicant if he was looking at the advantages of not returning, the Tribunal does not consider it to be a matter to which much weight can be given when looking at the adequacy of the security given to secure the Applicant’s return.
Taking into account all of the factors, but in particular:
(a)the size of the tax liability compared to the value of the security offered;
(b)the lack of certainty as to the value, either to the Applicant or the Commissioner if the Commissioner had to realise the security, of all but the $170,000 held in trust;
(c)that the Applicant and his wife are residents of the UK;
(d)that the Applicant’s assets and business are outside Australia; and
(e)the Applicant has, or is in the process, of divesting himself of his Australian assets,
the Tribunal is not satisfied that the Applicant has given, or is proposing to give, sufficient security for his return to Australia.
As noted at [18]-[22] above, the Tribunal does not consider its role to be, as suggested by the Applicant, to “determine the quantum of security necessary to secure against the risk of flight” (Applicant’s SFIC paragraph 2). The task to be undertaken by the Tribunal, standing in the shoes of the Commissioner in discharging his obligations under s 14U(1)(b)(i) of the TAA Act, is to determine whether the person “has given security under subsection (2) to the satisfaction of the Commissioner for the person’s return to Australia.”
In this case the Tribunal does not consider that the security that has been offered by the Applicant is sufficient to secure the Applicant’s return to Australia if a DAC on the security proposed is issued. There seemed to be some suggestion in the Applicant’s submissions and at the hearing that, if the Tribunal found the security offered to be insufficient to serve the Applicant’s return, the Tribunal could indicate what security would be sufficient. That, however, would be going beyond the exercise to be undertaken by the decision-maker under s 14U(1)(b)(i) of the TAA Act which is to determine whether the person “has given security” to the satisfaction of the decision-maker.
DECISION
The decision under review is affirmed.
I certify that the preceding 63 (sixty-three) paragraphs are a true copy of the reasons for the decision herein of Deputy President S Boyle
....[sgd]...................................................................
Associate
Dated: 9 July 2018
Date of hearing: 14 May 2018 Counsel for the Applicant: Mr Crowley Representative for the Applicant: Mr Sceales Solicitors for the Applicant: Sceales Lawyers Counsel for the Respondent: Mr Walker Representative for the Respondent: Ms Jennings Solicitors for the Respondent: Commissioner of Taxation
5
0