The Federal Court ruled last week that Billabong founder Gordon Merchant must pay the Australian Tax Office $50M to settle outstanding taxes on the sale of a company in 2015. What’s the scam?
The scam is that Merchant was acting on advice from Big Four consultancy EY, who had suggested a complex scheme of inter-company borrowings, debt forgiveness and other transactions that significantly reduced the actual profits earned on the sale of Plantic Technologies, a bioplastics manufacturer. The ATO later reassessed the annual reports from the various company entities and trusts involved and issued Merchant and two of his companies an additional $43.5M tax bill, plus a $6.8M fine on top.
The AFR reports ($) that Merchant appealed the ATO decision, but in his Federal Court judgement, Justice Thomas Thawley concluded that “Mr Merchant’s participation in the [Billabong share sale] transaction was undertaken because it was recommended to him by EY as part of what EY considered desirable for the structure of the anticipated sale of shares in Plantic.”
In particular, because [it] would crystallise a capital loss which could be used against the capital gain which was anticipated to be higher by reason of the proposed forgiveness of the Plantic Loans.
Merchant is not as forgiving of EY and has sued the consultancy giant separately.
Sometimes, the tax advice is just too clever.
The Big Four accountants and the $480 billion global tax evasion industry
Kim Wingerei is a businessman turned writer and commentator. He is passionate about free speech, human rights, democracy and the politics of change. Originally from Norway, Kim has lived in Australia for 30 years. Author of ‘Why Democracy is Broken – A Blueprint for Change’.