High Court confirms tax evasion by companies linked to wealthy businessman Vanda Gould

A series of companies associated with high-flying Sydney accountant who had scores of wealthy clients in Sydney’s eastern suburbs have been found to have avoided paying tax by the High Court, in a case that the tax office has described as “blatant tax evasion”.

Four companies linked to accountant, Vanda Gould, used a complex structure that gave the impression there was offshore control. Three of those companies were linked to Mr Gould’s business associate Swiss-based businessman, Peter Borgas, to give the appearance Borgas was in control of the businesses and therefore Mr Gould’s businesses did not need to pay tax in Australia. Another was linked to a company incorporated in Samoa.

However, in an unanimous decision – which is a huge win for the Australian Taxation Office – the High Court found Mr Borgas’s role was fake and Mr Gould actually controlled the companies. It also found Mr Gould was an Australian resident for taxation purposes.

The companies controlled by Mr Gould will now have to pay just over $16 million in outstanding tax and penalties to the ATO. He will also have to cover the tax office’s costs, which is expected to be several million dollars.

Tax Commissioner Chris Jordan said in a statement provided to Fairfax Media: “the decision means that any parties who set up complex structures offshore with the clear intent to avoid paying tax in Australia, should take a hard look at what they are doing and whether they want to run the risk of being caught and seriously penalised.”

He said the case was not “a one-off decision”.

“Today’s High Court decision affirms that we will maintain our resolve to pursue cases of blatant tax evasion – we can and will catch this type of contrived behaviour,” Mr Jordan said.

“We will use all our available powers and resources to deal with such schemes and ensure all Australian residents pay the right amount of tax.”

‘Not an easy process’

Mr Jordan said the case has had a substantial litigation history – including 19 challenges to the evidence and procedure at the Federal Court, followed by an appeal to the Full Federal Court.

“This was not an easy process,” he said. “I have made it clear that the ATO will not shy away from difficult and complex cases, no matter how long they take to run, and no matter how many obstacles are put in our way.”

“We will not give up and will continue to challenge – through the courts if we need to – cases where we see corporate entities seeking to game the system.”

He referenced High Court Justice Michelle Gordon who stated that while the companies’ officers were outside Australia,they did no more than “rubber-stamp” the decisions made…in Australia”.

The companies have spent years fighting the tax bill and Mr Gould and other business associates have previously been in the sights of the now-defunct Wickenby Taskforce.

The High Court heard the four firms, Bywater Investments, Chemical Trustee, Derrin Brothers Properties and Hua Wang Bank Berhad, earned their income from trading in shares of firms listed on the Australian Stock Exchange.

The four companies controlled by Gould are variously incorporated in the Cayman Islands, Bahamas and Samoa.

Gould really held ‘control’

The High Court found it was a matter of long-established principle, the residence of a company for tax purposes was determined by where central management and control actually occurred, not by its formal structure.

It said the real business was conducted by Australian resident, Mr Gould, from Sydney. He held “central management and control”.

“On that basis, it is a nonsense to say that Mr Borgas was effectively managing each entity from Switzerland,” the High Court judgement said. “The place of effective management was with Mr Gould in Australia.”

The High Court upheld earlier judgements by the Full Court of the Federal Court and the Federal Court which had rejected the argument that their central management and control was situated abroad because the meetings of their boards of directors were held abroad.

The High Court also referred to the ruling, handed down in December 2014, by justice Nye Perram who rejected Borgas’s testimony as untruthful and found that the documents had been falsely contrived to appear to corroborate Borgas’s testimony.

‘Widespread money laundering’

Justice Perram had described the case as “disgraceful” and found that all the overseas companies that had appealed against their tax bills were liable to pay Australian tax, and he referred the case to authorities, including the AFP.

He said the facts of the case “strongly suggest widespread money laundering, tax fraud of the most serious kind and, possibly in some instances, insider trading”.

The High Court ruling calls into question a key tax precedent, a 1972 High Court case known as Esquire Nominees.

Esquire Nominees found that a Norfolk Island company was controlled overseas despite its directors following instructions from an Australian businessmen who owned the company.

Separately, Mr Gould is facing criminal charges and is expected to appear at Sydney’s Downing Centre Local Court in November 29.

He has been charged with conspiring to pervert the course of justice over his involvement in the tax schemes for his clients where the tax bill has hit in excess of $300 million.