Plutus: the police raids, the ATO and the real plutocrats

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The mastermind and the Plutus gang

COMMENT

Loath as one is to invoke the utterances of Donald Trump, this “shocking”, “massive” and “disgusting” Plutus scandal which has “engulfed” the Australian Tax Office is, wait for it … #FakeNews.

It is a good story; and it is real news in that the “masterminds” have a case to answer. Yet it masks the big tax story. Yes, a bunch of cowboys got greedy, allegedly had a stab at a second-rate “Bottom of the Harbour” scheme by rigging up some phoney companies to cover their tracks, partied too hard and found themselves $165 million in debt for payroll tax.

It’s a big sum. Yet, as we beheld the breathless media coverage unfold over the past two days – the 28 intrepid police raids (somehow caught on camera) the luxury cars, seized aeroplanes, racing bikes, the “glamorous” beauty queen, the iconic Grange Hermitage, the regulation Scots College old boy, the leafy harbourside suburbs and the conspirators cuffed and led away to face grand old Lady Justice – we happened to be flicking through the latest financial statements of oil giant Exxon.

While gas prices have tripled over the past three years, ExxonMobil Australia Pty Ltd has racked up sales of more than $25 billion and paid a pittance in tax. Tax paid in 2014 and 2015 was zero, both years. And in 2016, total tax expense is recorded in the Exxon profit and loss statement as a “tax benefit” of $4 million (from a tax benefit of $36 million in the prior year).

Meanwhile back in the mainstream media, the Daily Telegraph was shrieking: “The massive investigation into an alleged $165 million rort that has ensnared a major tax boss and two of his kids has also roped in other high-ranking government officials”.

To be fair to Exxon, its cash-flow statement shows $341 million was paid in tax last year but its Directors’ Statement discloses that $111 million in income tax was paid overseas and $251 million was paid in PRRT (which is a tax but is supposed to capture its Bass Strait production as a kind of royalty).

Was this the tax Exxon actually paid? Finance charges of almost $600 million to related parties, raked offshore before the tax line, cut down the tax bill nicely. The oil giant owes $17.6 billion to its associates overseas. Convenient that. Nobody from the company was available for comment, even to address the mystery that its financial statements don’t match the figures in the ATO’s tax transparency data.

Exxon pays no tax, record dividends, as gas prices soar

It appears that this, the biggest oil company in the US, has paid virtually no tax in Australia for three years.

This is just one multinational mind you. Over the past two weeks, since embarking on a wrap of multinational reporting season, we have found Amex has paid no tax for nine years in Australia, eBay still books all its revenue to Switzerland (sans GST, sans income tax), Google and Facebook still regard most of their Australian revenue as Singaporean and Shell paid $US11.6 million tax last year as its related party trades and finance charges roughly doubled.

Back in mainstream media land, all this has been largely ignored as they work themselves into a lather of righteous indignation about “what has been described as the biggest white collar fraud case in Australian history”. Que?

Amid the hysteria, there was one sober mention of the fact that $350 million to $400 million in PAYG payments had been put through Plutus while $165 million was siphoned away. We are not defending the Plutus crew. It is all allegations at this point and of course the accused should be appropriately dealt with if found guilty.

The point of this story is scale. Who is costing the taxpayer 99.99 per cent more, multinational tax dodgers or a bunch of alleged recruitment company spivs?

Had they been methodical and advised by Ernst & Young, they could have “done a Google”, feigned all their Australian sales were actually Singaporean and skived out of paying both income tax and GST. Or a Chevron perhaps, and borrowed huge amounts of money at less than 2 per cent in the US, loaned it to themselves at 9 per cent in Australia and not just wiped out their taxable profit but even made a profit from the ATO.

How Amex paid no tax in nine years on $10 billion

The most sinister thing about this story is the timing. The coverage has sucked the Tax Office into a full-blown scandal just one day after it announced, to very little media fanfare, its clamp-down on multinationals hoovering billions of dollars out of Australia via related party loans.

Almost half of the $420 billion in related party borrowings were made in the energy and resources sector. Oil majors mostly, all advised by the Big Four accounting firms.

The Herald Sun appears to have missed that story but surely did not miss this one: “ATO chief son’s former secret lover tells of how she was showered with luxury gifts, trips”. Neither did the rest of the mainstream, though they were shamefully and comprehensively scooped by the Hun with the truly hard-hitting angle: the taxpayer-funded “liposculpture” to the “bottom” of the “former lover of an accused mastermind”.

One of the Plutus principals is Adam Cranston, the 30 year-old son of ATO deputy commissioner Michael Cranston who is subject, so far, to allegations of abuse of office during the act of trying to find out information about the case involving his son.

The Hun went on, “They (Adam Cranston and the former lover) would shop for his clothes together in Ralph Lauren and Hugo Boss stores.

“He had a nice Porsche, a late model Mercedes, and a light plane which he took her and her friend out in, Ms Brady said.

“He bought me jewellery. Diamond earrings, Hermes bracelets, handbags. My favourite are Dolce and Gabbana,” she said.”

Apart from trying to find out information, none of the media appears to have much idea about what Cranston actually did, including this reporter, but he was previously well regarded. He led the Tax Office taskforce to pursue high-net worthers hiding assets in tax havens and has been involved with Australia’s response to the Panama Papers imbroglio.

In other words, he has posed a threat to the big end of town but at this point seems to be accused of the heinous act of “accessing restricted information on an ATO audit of his 30-year-old son Adam Cranston”. And royally dragged through the mud.

Yes, ATO officials are bound by strict laws on accessing information to which they are not privy and – unlike other branches of government – they seem to take the privacy laws seriously. From the tenor of the press, Cranston Senior doesn’t appear to have known about the Plutus caper but tried to find out what was going on after some of the second tier companies received garnishee orders regarding unpaid PAYG in January. There may be more, who knows, but right now that’s it.

Coverage in the SMH, which appears to have been part of a broader, tactical police drop, noted: “In an intercepted phone call, Adam Cranston said he was getting his father to “look into it”.

“He is looking into it but considering he doesn’t know about it, it can’t be like the biggest thing since Ben Hur,” he allegedly told Mr Menon.”

Nonetheless, the blanket coverage has “engulfed” and “tainted” the Tax Office in every main media outlet.

“We have zero tolerance for this type of conspiracy,” thundered Prime Minister Malcolm Turnbull this week. “This type of fraud, this type of abuse of public office.

“Nobody should imagine they can escape our law enforcement agencies no matter how high they may be in a government department.

“No matter how high they may be, they are being watched.”

It’s a pity multinationals aren’t being “watched” with such vigour or rhetorical flair. When the appeal by tax avoider Chevron was dismissed in an historic court case earlier this year – for lending billions to itself at 9 per cent after borrowing it at 1.2 per cent – we didn’t hear a shred of condemnation; nary a proclamation of guilt even after the trial. Okay, it was civil case, not criminal (these ones never are), but you get the picture. The higher you are, the more immune you are to prosecution.

We won’t get to the nub of Plutus for some time but it seems to be a gargantuan red herring, a tour de force of political chicanery designed to distract the gaze of the public from the serious tax culprits.

It was not a “sophisticated” operation as the police claimed. The Plutus crew appears not to have handed over all the PAYG tax which was due. They interposed entities with dummy directors to set up a little confusion, much like the big end of town does but without the savoir faire, the offshore opacity or the counsel of blue-chip accounting firms. And they lost control of the thing.

Tilting at windmills: the boom in dummy directors

As far as ATO procedure goes, the normal sequence of events is:

1. The employee finds out that his or her PAYG tax has not been paid (they may have received a fraudulent group certificate which did not match ATO receipts for their Tax File Numbers).

2. The ATO sends a letter demanding the missing tax be paid.

3. After a long time (perhaps six months or a year), the ATO gets a court order addressed to a bank (a garnishee order) where the employee has a deposit ordering that the bank take the deposit and give it to the ATO to pay the tax.

In the case of Plutus, events played out this way:

1. Plutus was running a legitimate recruitment business then set up its dummy companies last July and began withholding small bites of PAYG. In the coming months, there was greed and bickering among the crew and some recruitment clients began to complain something was wrong.

2. In January this year, the Tier 2 companies were the subject of garnishee orders.

3. All hell breaks loose this week with no less than 28 police raids. The media goes to town on cars, planes, lovers, masterminds, a Miss World contestant and liposculpture of a starry-eyed lover’s backside.

If this is, as is the spin would have it, one of the worst white collar crimes in Australia’s history, it is worse, not in magnitude, but in execution.

As for the Tax Office, it used to be criticised for being too close to big business and the big accounting firms. Perhaps it is no longer close enough.

This month, michaelwest.com.au is conducting an analysis of the tax affairs of 20 multinational companies operating in Australia. The series is sponsored by GetUp and Tax Justice Network.

ATO puts tax poachers in charge of the game park

  • slorter

    Good article Michael you certainly demonstrate how easy it is to be distracted from other agendas one should be focusing!

    • mark

      and that distraction is widespread,.. except for here!
      cheers again MrWest

  • michael

    Obviously I’ve been around too long!

  • Neale Murden

    The normal ATO procedure may be a bit different to what is outlined in the article regarding Plutus. The ATO normally gives employees the full benefit of the tax deducted from their pay. The employees are not penalised for the employer’s failure to remit the PAYG to the ATO. That is the way it works in every insolvency administration.

    The issue for the genuine employers dealing through Plutus is whether paying PAYG amounts to Plutus was enough to discharge the employer’s liability to the ATO, if the funds don’t actually get paid to the ATO. A further complication is that the ATO has a director penalty regime which may impose personal liability for the missing PAYG on directors of the genuine employer companies.

    The directors of the genuine employers had better hope that the confiscated property of the alleged fraudsters gets channelled to the ATO in reduction of the PAYG outstanding, rather than pocketed by the Government as proceeds of crime.

    • michael

      Hi Neale, excellent comments as usual thank you. Will be interesting to see whether government moves to capture the money from the bank accounts as proceeds of crime! Will put the question in

  • Rainer the cabbie

    Thanks Micheal, another sign of the smoke and mirrors world we live in. Being a working class person with limited funds, I hereby pledge my five bucks a month to you, as the welfare of our society depends on keeping the bastards honest.

  • JohnPassant

    Well said Michael.

  • Michael West

    thanks to all