Late on your tax? One rule for the small guy, another for Lendlease and the Big End of Town

by | Feb 23, 2022 | Finance & Tax

So, we had a call the other day from a nice woman at the Tax Office, or it might have been an outsourced call centre. In any case, there was apparently a late BAS statement or something, and we – that is the small business which operates Michael West Media – was in danger of incurring a fine. Michael West reports on the gaping double standards between government enforcement of big business and the rest.

Had ours not been a small company, indeed it is one which had always paid its taxes, to the cent, at the full corporate rate of 30%, we might have been able to play this tax caper differently. Had we been Lendlease, for example, we might have not just been late to send the cheque but been able to never send it.

We might have concocted a billion-dollar scam and had our auditor KPMG and our tax deal advisers PwC sign off on it. Then we might have inveigled the Law Council of Australia and the Tax Institute to endorse our position by making submissions to the Tax Office in our favour, to say that black was white, up was down; whatever it took to skim the public purse and skirt enforcement action.

We might have told this nice woman at the Tax Office that we were terribly sorry but we had advice from KPMG that we should not pay our BAS statements, that this learned advice confirmed our position that no monies were owed, at all, that we did not have to adhere to the ruling in question; so sorry, but we won’t be paying. How’s John by the way?

Of course, a normal citizen would soon be fined, cracked down upon, but not Lendlease. This multinational which pays no income tax whatsoever in Australia is not subject to the same enforcement vigour as are we, the hoi polloi.

A significant difference in approach is that big companies can negotiate, blather on about their legal and professional advice to the contrary, whereas an ordinary citizen is unlikely to get far telling the ATO it did not agree with their evaluation and would therefore fight the matter in court at vast expense to somebody else. And that somebody else is, you guessed it, us again; us via our superannuation.

Since the Tax Transparency Reports came in in 2014, Lendlease has disclosed income over $53 billion and paid nothing in income tax; in Australia that is, fat donut nothing, although it has paid a bit to other governments. Moreover, It has executed a $1 billion tax fraud on Australian taxpayers, as reported here:

That Lendlease has carried out a huge tax fraud is not in serious dispute. The tax return which under-declared the gain the company made on the partial sale of its retirement village business to the Dutch fund APG would have hit the ATO’s desk in April or May 2019. 

(MW note to self: reminder to inform nice tax person at ATO that we shall require three years to consider the matter, having taken advice and found that, despite your ruling, we still don’t agree with it so we will play chicken with you and allow you, with all due respect, to threaten to take us, with our humungous balance sheet and cash reserves, to take us to court at high expense, indeed further expense, to the public.)

The ATO published draft tax determination TD 2019/D11 on October 30, 2019. Since then, Lendlease, KPMG and PwC have spent a truckload of time and shareholder money attacking the determination.  

Lendlease even organised for the Law Council and the Tax Institute to lodge submissions criticising the ruling. The Tax Institute, to its credit, withdrew the original submission, and published a new one, acknowledging the correctness of the ATO’s view. Yet still nothing by Lendlease, no public action that is, just a small admission by the group that there was an “audit” by the ATO.

Lendlease has consistently denied any wrongdoing vis-a-vis its retirement village business. Earlier, they had denied they were in dispute with the ATO, and denied their accounts were wrong.  

Just last Wednesday however the ATO’s Second Commissioner, Jeremy Hirschhorn, in answer to Senator Rex Patrick on Lendlease’s double-dipping, said: “My understanding is Lendlease has disclosed that it is some form of dispute with us on this issue”.

The ATO has repeatedly confirmed that a taxpayer does not get cost-base and a deduction for the same amount, which is what Lendlease has done, in an amount estimated at $1 billion.

Lendlease released its accounts this week. They were interim accounts, yet there was nary a mention of any ATO audit, let alone a contingency note. Almost three years down the track, nothing.

It’s one or the other …

This means the directors of Lendlease and their auditors at KPMG have concluded the ATO’s prospects in its dispute with Lendlease are no better than remote. Their duty as directors is to make a realistic assessment of legal risk (bear in mind it might cost them $300m and the restatement of 6 years of statutory financial statements, they are being audited and the draft ruling is not in their favour). 

In turn, this view from directors either means the ATO is wasting its time, and public money in auditing Lendlease, or else the denials of the board and auditors are deceptive or delusional.

It is to be hoped the ATO is not deterred by the big Lendlease bluff. They are the tactics used by other big corporate wrongdoers: the gunmakers, the polluters, and the Enrons of the world.

Last November, Deputy Commissioner Rebecca Saint gave a speech in which she said:

Disputes

Whilst we have seen positive trends in transparency of tax risks and tax profiles, disclosure of tax disputes to the community could benefit from greater transparency.

We continue to see low numbers of disclosures of disputes in financial statements and tax transparency reports. We find it particularly strange where disputes are not disclosed in financial statements are subsequently settled for significant sums of money.

Similarly, we often see a reluctance by business to publicly disclose that they have settled a dispute with the Commissioner.”

As usual, the big corporates are keen to publish the good news but not the bad. 

Detection of tax wrongdoers comes from ATO oversight and whistleblowers. Public confidence in the oversight system requires that the public perceive that the law is working and that the ATO has the ability and willingness to enforce the oversight as promised.  

Not just hammer the small guy for GST frauds that is. Not just pester people such as the operator of this website, which has paid every cent. If corporations know if they are caught and that their actions will be published, such would yield the dual benefits of deterrence and enhancing public confidence in the system.  

The big corporations and the ATO should be required to publish significant disputes and all settlements with any revenue authority above a certain level; say $250k.

How will they play it?

When the ATO concludes its audit, Lendlease is likely to state the ATO is wrong, and that it has top tier advice which says so. The company may admit that its “retained earnings” are overstated by a year’s profit (when in fact six years of accounts need to be restated). 

Directors will then spend a whatever-it-takes amount of their shareholders’ money in an effort to argue the indefensible and save their own skin. The reality is that they have attempted a significant tax and accounting fraud, and having been discovered, will then seek to dress it up as a genuine dispute.  

In situations like this, where shareholder funds used to protect an undeserving board, directors should at least go without fees when their defences are found to be baseless. In fact, shareholders ought to be reimbursed.

Frankly, the board ought to show leadership, and go.

Michael West established michaelwest.com.au to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences.

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