ATO Wins Australia's Largest Tax Case

by Mary Swire, Tax-News.com, Hong Kong

09 December 2003

Australian Tax Commissioner Michael Carmody has welcomed the verdict of a Federal Court which has ruled in favour of the ATO in the country’s largest ever tax case.

In the case of ‘Spassked Pty Ltd and others v. Commissioner of Taxation’, a complex set of intra group transactions within the then IEL group generated interest expense claims of almost $900 million in one year alone.

Under the arrangements, Spassked Pty Ltd, an IEL subsidiary, used loans from an in-house group financier to buy shares in a related company. While holding those shares for over seven years, Spassked Pty Ltd only twice earned 'cosmetic' or 'nominal' dividends.

In confirming the decision of Justice Lindgren that deductions were not allowable, Justices Hill and Lander said: "It is not surprising that the learned Primary Judge noted that the payment of the two dividends to Spassked may have been an attempt to create an appearance."

Meanwhile, in a statement released by the ATO yesterday, Mr Carmody commented: "The outcome in this case is evidence that the Tax Office will not be deterred by extreme complexity when dealing with tax arrangements that overstep the mark under our tax laws."

He warned the business community that: "The Tax Office made extensive use of forensic accounting techniques in investigating and supporting its position in this case."

According to the ATO, amended assessments of more than $2 billion in tax and penalties were issued under the audit program for large corporates and high wealth individuals last year.

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