Commissioner of Taxation v International Indigenous Football Foundation... [2018] FCA 528 | Case summary

LOGAN J: 1 The Commissioner of Taxation (Commissioner) has instituted civil penalty proceedings against International Indigenous Football Foundation Australia Pty Ltd (In Liquidation), formerly known as Australian R&D Funds and Grants Services Pty Ltd, (the company), as first respondent and Ms Lorraine Amede as second respondent. He claims declarations in respect of alleged contraventions of s 290-50(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA) and, as against the company, the related ordering of several penalties. That particular statutory provision provides for the civil penalisation of the promoters of certain tax schemes. The effect was described in this way by the Full Court in Commissioner of Taxation v Ludekens (2013) 214 FCR 149 at [1] (Ludekens): 1. An entity that engages in conduct that results in that or another entity being a promoter of a tax exploitation scheme or results in a scheme that has been promoted on the basis of conformity with a product ruling being implemented in a way which is materially different from that described in the product ruling may be subject to a civil penalty. It is under the first of the limbs in this description that this case is said to arise. 2 The alleged contraventions arise in the context of the promotion of separate, bespoke schemes to a range of clients, each of which had, as its end, the tax exploitation of research and development incentives for which provision is made in Div 355 of the Income Tax Assessment Act 1997 (Cth) (ITAA97). By "bespoke" I mean that the schemes concerned were not template, mass-marketed schemes, but specific to particular clients. That is not to say that there were not common themes, only that there was not a common model promoted. I was informed by the Commissioner that the present is the first case to arise in the context of an alleged contravention relating to schemes which had, as their end, the tax exploitation of the research and development incentives mentioned. 3 As mentioned, the company is now in liquidation. I earlier granted leave to proceed against it (see Commissioner of Taxation & International Indigenous Football Foundation Australia Pty Ltd (In Liq) [2017] FCA 538). The liquidator has been served with the initiating process. Understandably enough, the liquidator has chosen not to take an active role as contradictor in the proceedings. It does not follow from this that, as against the company, the Commissioner's claim for declarations and related penalties is thereby proved. The present is, as the name civil penalty proceeding would suggest, civil in character, but it is, nonetheless, penal also in character. Thus, whilst the Commissioner is subject to an onus to prove his case on the balance of probabilities (see s 140(1) of the Evidence Act 1995 (Cth)), I must be satisfied on that evidence, taking into account the matters specified in s 140(2) of that Act and a cautionary note, notably sounded by Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at pp 361 to 362, that the claim, as pleaded, is proved. 4 As against Ms Amede, that satisfaction is readily achieved. She has, by her counsel and otherwise, admitted the contraventions pleaded against her. Indeed, she actively joins with the Commissioner in promoting that the Court make declaratory orders against her in the terms proposed. These would see declarations as to contraventions by her of s 290-50. The Commissioner does not, as a matter of considered value judgment in his administration of the TAA, additionally seek penalties against her. There are reasons for that, to which I shall refer a little later in these reasons for judgment. 5 In respect of the company, having regard both to the onus of proof as well as the standard of proof mentioned, I am satisfied that, as against it, the contraventions as pleaded are proved. 6 In summary, via the schemes promoted, the client concerned came to claim research and development-related tax incentive deductions, which exceeded those to which they were entitled and the company derived commission income related to the amount of the tax incentives claimed. 7 Both experience and the course of prior authority instructs that there is a spectrum of behaviour in relation to the taxation system in Australia which ranges from the making of choices as to how a person will conduct his private and business affairs, which are informed but not dominated by the taxation consequences, through choices which are so dominated and may, thereby, be subject either to particular anti-avoidance measures or more general tax avoidance provision such as that notably found in respect of income tax in Pt IVA of the Income Tax Assessment Act 1936 (Cth) (ITAA36) through to tax evasion and a related defrauding of the Commonwealth. 8 Related to that is a spectrum of activities in the legal, accounting and related tax advisory professions, at one end of which is considered advice about such choices through to promoting methods which are as likely as not to secure favourable tax outcomes and then through to the promotion of schemes which have no such prospect and, finally, to conduct which may constitute, either with a taxpayer or another, the defrauding of, or a conspiracy to defraud, the Commonwealth. 9 The evidence relied upon by the Commissioner in this case reminded me powerfully of each of these spectrums. That reminder was particularly provoked by the "treatment" of expenditures in claims made under the schemes promoted as pleaded so as to exceed entitlements. It is, I consider, useful to recall features of the more extreme end of the spectrums to which I have referred, which attended criminal cases of a generation ago and more involving our taxation system. 10 On 14 October 1985, Mr Brian James Maher was convicted in the Supreme Court of Queensland after a trial of two offences. The first of those offences entailed the following criminal conduct. Between about 31 March 1972 and about 1 December 1978 at Southport in Queensland and elsewhere, he and John Patrick Donnelly did conspire together with Lloyd Errol Faint, Graham David Spence, Alan Roy Palmer and Lee Gabriel Hurley and diverse other persons to defraud the Commonwealth, contra to s 86(1)(e) of the Crimes Act 1914 (Cth) (Crimes Act), as it then stood. Maher was also convicted that day of another offence. Ultimately, his conviction in respect of that second offence was quashed by the High Court, because of an error of procedure in allowing an amendment to the indictment so as to add the count concerned after Maher had been placed in charge of the jury for his trial. The conviction in respect of the first charge, though, was unaffected: see Maher v The Queen [1987] 163 CLR 221 (Maher). In respect of the count, the conviction for which the conviction stood, Maher was imprisoned for two years, nine months. Maher was a salesman with schemes which entailed more than avoidance, but ventured into evasion, to promote. 11 A reminder that offending conduct may not be confined to lay persons who find an apparently attractive product to promote, but may also extend to professional persons, is offered by another case of that earlier era. John Waymouth Ahern was, in the 1970s and early 1980s, a prominent chartered accountant in this city. He was tried in the District Court at Brisbane on a charge of conspiracy to defraud the Commonwealth. He was indicted alone, because three of his alleged co-conspirators had been tried and convicted in other proceedings. The case against Ahern was that he had knowingly participated in a scheme to evade the payment of tax. In the course of the judgment in respect of his ultimately unsuccessful appeal against conviction in the High Court (Ahern v The Queen [1988] 165 CLR 87) (Ahern), the High Court observed on the scheme concerned that: Speaking in the broadest of terms, the scheme involved the acquisition of target companies with profits for the current financial year at a price which did not reflect the contingent tax liability on respect of those profits. Upon this transaction, the vendor shareholders paid a fee. The companies were then stripped of their profits and then "dumped" by steps which passed ownership and control to straw persons. The result was that the companies could not and did not meet their liability to pay tax. 12 At his trial, Ahern had admitted the existence of a conspiracy to defraud the Commonwealth. There was no contest that a scheme of the kind described above had been devised and carried out by the persons alleged to be Ahern's co-conspirators. Neither was there any contest that Ahern, in his capacity as a chartered accountant, had introduced clients whose companies had been used in the scheme. There was evidence that Ahern had, in relation to those companies, taken part in various activities which were part of the scheme and had shared in the fee, which was paid by the vendor shareholders to the scheme promoters. His defence, which was not accepted by the jury, who found the case against him proved beyond reasonable doubt, was that what he did formed no part of the scheme to engage in fraudulent conduct. 13 Ahern's case was that, at all times, he believed the companies in question would be "treated" rather than "dumped". In other words, his defence was that they would be dealt with in a manner designed to avoid or reduce the tax liability to pay tax on the income which had already been earned, rather than stripped of their assets to prevent effective tax collection in respect of tax for which those companies remained liable. It was the prosecution's case that he knew that the companies concerned were to be "dumped" in a way that would leave them unable to pay tax liabilities such that he had participated knowingly in a conspiracy to defraud. His sentence of 18 months imprisonment stood after that High Court appeal. His appeal to the High Court was dismissed. 14 A sequel to the behaviours of the kinds revealed in Maher, Ahern and other cases of that era was the enactment of the Taxation (Unpaid Company Tax) Assessment Act 1982 (Cth) (Taxation (Unpaid Company Tax) Assessment Act), which had retro-active effect. Another sequel was the enactment of Pt IVA into the ITAA36. That provision has since been amended. Even as originally enacted, Pt IVA proved to be a potent means of addressing artificial, contrived tax avoidance. The Taxation (Unpaid Company Tax) Assessment Act also proved to be a potent means of recovering to the consolidated revenue of the Commonwealth, at least some of the tax which had hitherto been avoided. 15 I recall what might seem to be matters of history to place the present provision in the TAA in context. It can be seen as part of a suite of measures designed by Parliament to render unlawful or to strike down promotion of, or participation in, schemes which have no reasonable likelihood of success, or conduct which goes beyond this and amounts to criminal conduct. 16 Some features of the present case, in terms of the "treatment" of amounts to be claimed in respect of research and development, whilst they do fall within the terms of s 290-50, do give pause for thought about whether they went beyond that. I remind myself, though, that there is a presumption of innocence in relation to criminal conduct which emphatically is one to be respected. In the context of determining penalties in respect of the company and, for that matter, in relation to making any comment in respect of Ms Amede, I expressly refrain from making any observation as to the engaging in criminal conduct. The intent of my commencing this judgment by the recollection of past criminal behaviours is to serve as a reminder that the promoter penalty regime in the TAA is not the only provision made by parliament for dealing with a spectrum of behaviours. It is part of that provision. 17 It is singularly important that those who are minded to engage in the promotion of schemes remind themselves that the spectrum of unacceptable behaviour does not end with the promoter penalty regime. It ends with the criminal law of our country. The outcomes in Maher and Ahern ought to serve as a reminder that imprisonment is a likely consequence of promotional activities which constitute the defrauding or a conspiracy to defraud the Commonwealth. The civil penalty regime has its place in regulating behaviours within the spectrum, but it is not, as I have mentioned, dealing with the extreme end of the spectrum of behaviours. 18 In Ludekens' case, the Full Court held that, in determining under s 290-65(1) whether it is reasonable to conclude that an entity had the purpose of getting a scheme benefit, the focus is upon what the entity was proposing to do and why, not upon any hypothesised events, circumstances or decision. In particular, the court held that s 284-150(1) in Sch 1 to the TAA does not require the Commissioner to plead and prove any alternative postulant. I have taken this particular statement as to what the Commissioner must prove into account in concluding that the case, as pleaded, has been proved. In the circumstances of the present case, that does not entail much difficulty for reasons which I shall set out at some length shortly. 19 In the circumstances of Ludekens' case, which entailed a goods and services tax-related scheme, it was held that s 290-65(1)(a) was satisfied because the respondents there had the sole or dominant purpose of generating scheme benefits in the form of GST refunds for the primary investors and tax deductions and tax refunds for the secondary investors. 20 The Commissioner's case as against Ms Amede entails acceptance that she is, for the purposes of s 290-50, an "entity". The legislation concerned with promoter penalties is extracted at some length in Ludekens' case. For that reason, I don't propose to set it out in full in these reasons for judgment. 21 There is no doubt that Ms Amede is an "entity" as defined: 4. Section 290-50(1) prohibits an entity (the relevant entity) from engaging in conduct. The conduct prohibited is specified by reference to the result of such conduct. There are 2 prohibitions: 4.1 first, that the relevant entity does not cause itself to be a promoter of a tax exploitation scheme (promoter); 4.2 secondly, that the relevant entity does not cause another entity to be a promoter. 22 On the face of s 290-50(1) and, as pleaded, she has engaged in conduct which resulted in another entity, the company, being a promoter of a number of tax exploitation schemes. That particular construction of s 290-50(1) commended itself both to the Commissioner and Ms Amede, each of whom was separately and independently represented. The evidence is that Ms Amede only ever acted as an officer, servant or agent of the company. The company is an "entity" undoubtedly for the purposes of s 290-50. Therefore, on the construction promoted by the parties, in terms of subs 1, Ms Amede engaged in conduct that resulted in the company being a promoter of the various tax exploitation schemes. 23 There is no accessorial liability provision in the TAA which makes, for example, a person who is knowingly concerned in corporate conduct responsible for that conduct and punishable accordingly. All of that work is said to be done by the definition of "entity" and the terms of s 290-50(1), itself. 24 It is plain enough from Federal Commissioner of Taxation v Arnold (No. 2) (2015) 100 ATR 529 (Arnold (No. 2)), particularly at [215] and [216], that Edmonds J proceeded on the basis that s 290-50(1) had, as against individuals, a like application to that promoted in this case in relation to Ms Amede. It is equally apparent from his Honour's judgment in Arnold (No. 2) that that application was not, in relation to its ability to embrace an individual who had only ever acted as an officer, servant or agent of the company concerned, controversial. 25 I have no doubt that the position jointly promoted by the Commissioner and Ms Amede is arguable. In these circumstances and, in the absence of controversy, whatever interrogative note might be sounded in my mind by an interpretation of s 290-50, which would see the company's conduct visited on the individual, Ms Amede, in the absence of an accessorial liability provision, the jointly promoted construction must be respected and should be acted upon by me. The position, in this regard, is no different to that described by Sackville J in D.B. Rreef Funds Management Limited v Commissioner of Taxation (2005) 218 ALR 144 at [20] by reference to Australian Communication Exchange Limited v Deputy Commissioner of Taxation (2003) 201 ALR 271 at [41]. Thus, in concluding that the contraventions are proved, both as against the company and, by admission, as against Ms Amede, I act in relation to Ms Amede on the jointly promoted construction of s 290-50. 26 The Commissioner has, on the evidence, demonstrated that each of the company and Ms Amede contravened s 290-50 in relation to ten tax exploitation schemes. The evidence is that these are a sample of promotional activities in which the company and Ms Amede engaged. 27 The Commissioner's investigations have disclosed that the company provided services to 42 clients to register research and development activities with the federal government agency known as AusIndustry. Of those, 34 claimed research and development tax offsets totalling, in all, more than $11 million. Of these 34 claims, 30 were disallowed ultimately, either in whole or in part. I am not of course dealing with other than the 10 contraventions pleaded, but it is relevant to note that these are a sample of not completely exhaustive of the activities of the company and Ms Amede. 28 The company has had a relatively brief, but nonetheless spectacular corporate life. It was registered on 28 November 2013. Its activities, so far as the pleaded case is concerned, are more particularly described in annexures A to J inclusive of the statement of claim. In summary, what the company did was to assist clients to register for a relevant income year as "R&D entities", R&D being an obvious abbreviation for research and development, and for R&D activities, within the meaning of those terms, as found in s 4 of the Industry Research and Development Act 1986 (Cth) (Industry Research and Development Act) and s 995-1 of the ITAA97, thereby to be eligible for research and development tax incentives under Div 355 of the ITAA97. The company also prepared research and development forms which incorporated information, amounts and calculations about research and development activities and expenses for the purpose of the clients obtaining taxation assessments and related refunds in accordance with those returns and forms. 29 Ms Amede was a director of the company from its registration until 16 May 2014 and again on and from 25 November 2014. She was a sole shareholder from its registration until 12 December 2014. The Commissioner has alleged and Ms Amede admits that at all times relevant to this proceeding she acted on behalf of the company, and with its authority, and was its directing mind and will. Her admission further is that she was the officer or an employee of the company with the final responsibility for and control over the extent of research and development applications and claims prepared by the company. So much as against the company is evident as well. 30 Whilst the tax exploitation schemes promoted had a bespoke quality, they reflected a business model which the company developed. The schemes themselves were not templates, but the business model adopted by the company in relation to clients had common features. Thus, what it did was to provide research and development claim-related services in ways more particularly alleged in the statement of claim and proved on the evidence. That commonality of business model makes it convenient in terms of giving particularity just to refer in detail to one of the clients, namely, T & D Castle Proprietary Limited, the allegations in respect of which are to be found in annexure J to the statement of claim. The affidavit of Mr Luong and those of other clients demonstrate the same matters for those clients. 31 To come then to the detail as detailed by example in the T & D Castle research and development claim, from late 2013 the company encouraged T & D Castle to engage it to prepare a claim for research and development activities and expenses. It did this via meetings and correspondence in which Ms Amede, in particular, and thus the company, conveyed that the company was a specialist in government grants and that T & D Castle was entitled to claim a research and development grant. The company obtained business and financial information from T & D Castle. After that, the company, via Ms Amede, told Ms Castle, an officer of T & D Castle, that with her expertise, which was deployed by the company, it was possible for T & D Castle to get a grant of approximately half a million dollars. 32 From early December 2013, the company used the financial information obtained from T & D Castle to prepare a research and development activities registration application to be lodged with AusIndustry to register T & D Castle for research and development activities for the 2013 financial year, pursuant to s 27A of the Industry Research and Development Act. The company then lodged an application with the administering agency for that Act, AusIndustry, on 8 January 2014. From 16 January 2014, AusIndustry notified it that T & D Castle's registration had been secured. Also, from early December 2013, the company entered into formal arrangements with T & D Castle for engagement and also the charging of fees for the preparation of the research and development grant. These arrangements included one for the payment of an initial deposit, a service agreement, a promissory note in favour of the company signed on 15 January 2014, a tax invoice from the company to T & D Castle in the sum of $58,826.29, and payments to the company in respect of that invoice by T & D Castle. 33 As a sequel to these discussions and arrangements, over the period from 5 December 2013 to 12 February 2014, the company prepared information, amounts and calculations about research and development activities and expenses for T & D Castle for the year ended 30 June 2013. It provided to T & D Castle a research and development claim to T & D Castle's accountant for incorporation in that company's income tax return and accompanying research and development schedule. These were lodged with the Commissioner on 12 February 2014. 34 The return, as lodged, included a claim for the following research and development refundable tax offset under item 1 in the table to s 355-100(1) of the ITAA97: total research and development notional deductions claimed, $1,176,330, multiplied by a rate of tax offset 45 per cent; total research and development refundable tax offset, $529,348.50. The making of the claim which entailed these details reflected, I am satisfied, a scheme as defined by s 995-1 of the ITAA97, which the company had, in respect of T & D Castle in the period 5 December 2013 to 12 February 2014. Features of the scheme, plan or proposal were these: (1) T & D Castle would lodge with the Commissioner documents which incorporated its research and development claim; (2) Research and development tax offset would be assessed by the Commissioner, taking into account that research and development claim; (3) By reason of that research and development claim, the resultant assessment by the Commissioner would result in an increase in what would otherwise have been paid or credited to T & D Castle by the Commissioner by way of research and development tax offset. One might term that increase T & D Castle's expected research and development benefit; (4) T & D Castle would pay to the company a fee calculated as a percentage of the amounts paid or credited to T & D Castle by the Commissioner, pursuant to that assessment. 35 The T & D Castle scheme included a scheme benefit, meaning of that term, as found in s 290-65(1) of Sch 1 to the TAA because of these features: (1) The research and development expenditure recorded in the research and development claim, that sum of $1,176,330 mentioned, was overstated; (2) It was overstated because, in fact, no eligible research and development activities had been conducted by T & D Castle. I interpolate that it is that fact, in particular, which provoked me to make the remarks which I did in relation to what is truly at the end of a spectrum of behaviours in a tax system. Be that as it may, the result of the absence of eligible research and development activities in the year concerned by T & D Castle was that it had no entitlement to a research and development tax offset, for the purposes of s 355-100 of the ITAA97. That tax offset that the company expected to cause to be paid or credited to T & D Castle was not available in law. 36 Another feature which makes the case one where there is a scheme benefit is that, in the period between 5 December 2013 and 12 February 2014, the amount that the Commissioner would have to pay or credit to T & D Castle on the basis of the return incorporating the research and development claim, was greater than the amount which the Commissioner could reasonably have been expected to pay or credit apart from the scheme concerned. 37 The Commissioner submits that in the circumstances described, there was a tax exploitation scheme within the meaning of that term in s 290-65, because in that period 5 December 2013 to 12 February 2014: (1) Firstly, it was reasonable to conclude that if the company or T & D Castle or both had carried out the scheme, they would have done so with the dominant purpose of T & D Castle getting the T & D Castle scheme benefit; (2) Secondly, it was not reasonably arguable that the T & D Castle scheme benefit would be available if the T & D Castle scheme were implemented. With this, too, I agree. 38 Sometimes, whether or not a position is or is not at revenue law reasonably arguable, can be a very fine one indeed. One only has to reflect on the passage through the court hierarchy of cases such as Peabody v Commissioner of Taxation [1994] HCA 43, Eastern Nitrogen v Commissioner of Taxation [2001] FCA 366, Spotless Services v Commissioner of Taxation [1996] HCA 34, RCI v Commissioner of Taxation [2011] FCAFC 104, to mention but a few tax or alleged tax avoidance cases of the modern era to understand this. 39 In this case though, no fine question at all could be said to arise. 40 That there can be fine questions about whether or not a particular scheme does entail a reasonably arguable position does mean that very particular burdens are assumed by the Commissioner in his administration of these promoter penalty provisions. Particularly that is so if he chooses only to take counsel within the Australian Taxation Office itself in relation to whether a position is or is not reasonably arguable. Sometimes that question, as in this case, will be stark and readily answered, but on other occasions it may not be, for reasons I have already given. The promoter penalty regime serves an important public purpose to which I will refer in a little more detail shortly, but it is no less important that it does not become an instrument of oppression by the Commissioner. 41 The company is said to have been a promoter of the T & D Castle scheme because of the following circumstances: (1) As to s 290-60(1)(a) it marketed the scheme to T & D Castle and arranged T & D Castle's interest in the scheme. So much is established on the evidence; (2) Under s 290-60(1)(b) it received consideration for that scheme promotion through fees paid to it by T & D Castle. This, too, is established on the evidence; (3) In terms of s 290-60(1)(c), it is reasonable to conclude, so the Commissioner contends, that the company had a substantial role in the T & D Castle scheme promotion, having regard to: (a) the role it played in the promotion of the scheme; (b) the formal arrangements by which it was entitled to payment of its fee and its receipt of the fee, pursuant to those arrangements; (c) the fact that the company's directing mind at will, Ms Amede knew of and participated in the promotion of the scheme; (d) the fact that employees of the company acting on its behalf knew of and participated in the scheme's promotion. All of this, too, is established on the evidence. 42 Being so established, I agree that it is reasonable to conclude that, in terms of s 290-60(1)(c), the company had a substantial role in the promotion of the scheme. It follows that the company was a promoter of the scheme within the meaning of s 290-60. 43 Further, I am quite satisfied that the company did not merely provide advice about the scheme as s 290-60(2) envisages. 44 Thus, the T & D Castle facts disclose in respect of that company, and exemplify in relation to the other nine cases, how the company's conduct in the circumstances resulted in its being a promotor of a tax exploitation scheme. 45 Likewise, and again adopting the construction of s 290-50 promoted by the parties upon which I act, Ms Amede contravened s 290-50, because her conduct as the directing mind and will of the company in the circumstances resulted in the company becoming a promoter of the T & D Castle scheme and each of the other nine client company scheme promotions pleaded. 46 What I have described is indicative of a model by which the company acted and, in turn, Ms Amede acted. She directly participated in the dealings with T & D Castle to market and arrange the scheme, and she was directly involved in the arrangements and other corporate processes which involved the company receiving fees from T & D Castle. 47 I have incorporated as a table annexed to these reasons for judgment the annexures to the statement of claim, which contain the allegations which I regard as proved, so as to give particularity. 48 As I have mentioned, as a matter of considered value judgment in his administration of the TAA and, in particular, the promoter penalty provisions, the Commissioner has chosen not to seek penalties against Ms Amede, only against the company. Ms Amede is now 64 years of age. She has engaged in other conduct which it is not necessary to detail which has seen her transgress not just these civil penalty provisions but, also criminal liability provisions. She is now a bankrupt. She has cooperated fully in the Commissioner's investigations. Effectively, her working life either in accountancy or as a tax agent is over by virtue of the conduct alleged in and accepted to have occurred in the present case, as well as in this other conduct. 49 The Commissioner has, in my respectful view, exercised a humane discretion in not seeking the imposition of penalties against her. Her bankruptcy doubtless means there are pragmatic qualities to that, but that should not detract from the humanity of the discretion exercised. The Commissioner is not to be criticised for the exercise of that discretion. In reality, given that the company is in liquidation, the public interest in this case is overwhelmingly the general deterrence aspect of it. Indeed, it was the potential for that which was highly relevant in the granting of leave to proceed against the company, notwithstanding that it was in liquidation. 50 In Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 the High Court emphasised that the primary purpose of civil penalties is to secure deterrence. That is in contrast to the criminal law sentencing regime. Civil penalty proceedings are not concerned with matters such as retribution and rehabilitation. They are primarily, if not wholly, protective in securing a public interest in compliance. Though made in the context of civil penalty provisions in industrial law, those observations apply with equal force in relation to the civil penalty regime found in the TAA in relation to promoter penalties. So far as deterrence is concerned, given that the company is in liquidation, the deterrence must be general rather than particular. 51 Because the particular tax exploitation schemes arise in the context of research and development incentives, there are more particular but, nonetheless, general deterrence considerations which attend this case. The present provision for research and development incentives is but a contemporary manifestation of a public policy purpose which has a long history. It is not necessary to detail that history, only to recognise that Parliament has made, via the provision for research and development incentives, a value judgment. The range of research and development activities is limited only by the bounds of human ingenuity. In making provision for research and development incentives, Parliament may be taken to have recognised that it is neither possible nor even, in many cases, desirable for all research and development activities in our country to be undertaken just by the Commonwealth Scientific and Industrial Research Organisation (CSIRO). The CSIRO undertakes, as a matter of notoriety, much good and valuable work, but there are limits to public funds. Further, some activities, Parliament may be taken to have accepted, require private industry risk taking. 52 All of these considerations lie behind the present provision for research and development incentives. 53 Mr Jacobs' affidavit offers a useful detailing of the nature and extent of the research and development incentive program as applicable in the 2014 income year, the income year in question. In that year there were some 13,776 companies registered. Nearly 10,000 of these claimed a research and development tax offset in relation to total claimed expenditure of some $19.6 billion. In respect of that nearly $3 billion in tax offsets were paid. Mr Jacobs' evidence discloses that these figures, both in terms of expenditure and tax offsets, have grown in subsequent years. 54 His evidence further discloses that to detail the amount of the tax offsets is not fully to comprehend the full cost of our government's research and development incentive program. The program includes both cash payments and tax relief, administration and compliance costs, as well as the economic cost of raising additional tax revenue. 55 The Commissioner has submitted that compromise of the research and development incentive programs integrity can have large consequences for the consolidated revenue and, related to that, the ability to deploy, via expenditure from the consolidated revenue, funds to particular ends authorised by a vast range of Commonwealth enactments. A particular consideration in relation to the research and development program, so it is put, is that it is "uncapped". By that, the Commissioner has submitted, and, as a matter of law, the case is, there is no fixed budget and, thus, no expenditure cap in relation to the program. 56 All of this may be accepted. There is a very real and corresponding need to send a loud and clear message of general deterrence by the imposition of penalty in relation to those who would seek, by conduct which contravenes the promoter penalty provisions, that such promotional activities are not acceptable and foolhardy in which to engage. 57 Another feature of general deterrence must be to send to those who are minded to take an economic risk a message that the amount of the risk, given the prospective penalties, is so great as to provide a genuine disincentive to engage in unlawful promotional activities. That same consideration motivated my fixing of penalties in the Australian Communications and Media Authority v Mobilegate Ltd A Company Incorporated in Hong Kong [2009] FCA 539. I there described it at [25] as necessary to fix penalties at a level which would make it a form of economic suicide to engage in such activities. I propose to fix penalties in this case in like fashion. 58 The Commissioner submitted, and I accept, that the integrity of the research and development incentive program is critical both to the success of the program and the purposes it serves, as well as budget integrity. Especially that is so given that uncapped nature of the program. 59 As is well-known, although obviously not in detail, the Commissioner, as a matter of good public administration has his intelligence networks in relation to tax avoidance schemes generally abroad in Australia. The schemes in this case were, as I have stated, bespoke. That makes them ones which are not able to be detected via mass marketing advertising, for example. Nonetheless, the Commissioner has sophisticated programs of analysis in respect of a vast range of claims which come to be made, again, as a matter of good public administration. Even so, the detection of a tax exploitation scheme such as each of the present is not straightforward. Doubtless, pattern analysis can reveal a particular common promotional source, but it takes time and money, and there is an opportunity cost in revenue law administration for each of these, as well as a direct cost. 60 By this I mean that another factor to take into account in penalisation is that there are compliance costs incurred by the public purse in relation to the detection of tax exploitation schemes. One purpose of fixing penalties which have a general deterrent quality is to reduce those compliance costs and, thus, increase the amount generally available to deploy under statute to a vast range of public ends by the Commonwealth government in the administration of Commonwealth legislation, and also by way of grants to the various States and Territories. 61 In that public sense, there are many victims of contraventions of the promoter penalty provisions. There are also particular victims, some perhaps worthy of more sympathy than others. Nonetheless, the evidence is that those natural persons involved in the various clients of the company in relation to these tax exploitation schemes saw not just direct financial cost when claims came ultimately to be disallowed and administrative penalties imposed, but also emotional costs. These too must be taken into account in the context of fixing penalties. 62 AusIndustry, obviously enough, also monitors the legislation it administers for exploitation. The Commissioner, doubtless, works in conjunction with AusIndustry in relation to the sharing of information. Once again though, there is a compliance cost for AusIndustry which must be taken into account in the context of penalty. 63 There are no course of conduct provisions in the TAA in relation to scheme promoter penalties as there are, for example, in s 550(1) of the Fair Work Act 2009 (Cth) in relation to particular civil penalties for which that Act provides. 64 The concept though is not unknown in any event in relation to sentencing. It was put in this case that, in relation to the fixing of penalty, that course of conduct concept in terms of the fixing of penalty did not arise because the schemes concerned were bespoke. As I have mentioned, there was a business model and the contraventions are of a similar character, but, on detailed analysis, each scheme is different. For this reason I accept that the course of conduct consideration does not arise. That is not to say that another consideration, the totality principle, does not fall for consideration and application. 65 The table which I have annexed to the reasons for judgment discloses the particular individual commissions derived by the company. These are relevant but not in any way determinative in relation to the fixing of penalty. A starting point must be the maximum for which provision is made. As to that, s 4AA of the Crimes Act governs the amount of a penalty unit. The applicable amount is $170. A process of mathematics then yields as a maximum in respect of each contravention $4.25 million. A further process of mathematics, given that there are 10 alleged and proved contraventions, yields a maximum of $42.5 million. 66 One must temper the imposition of penalty in this case by recognition of the amounts of commission. It would be possible to align particular penalties in a mathematically precise way with particular commission amounts but not, in my view, to any necessary or useful end. The conduct concerned in each case had the same level of deep cynicism to it on the part of the company and that, in turn, means on the part of Ms Amede. It was wholly driven, so far as the company and, thus, Ms Amede, by an economic advantage motive. The motive was the same in each case. 67 The tempering quality is just to realise that the amounts of commission were never such as to engage the alternative maximum for which the legislation provides, which is keyed to economic advantage. 68 There is a question as to whether penalty ought separately to be imposed in respect of each contravention. In my view, the language of the statute is such that it should be (ABCC v CFMEU [2017] FCAFC 113 at [148]), but the result should be one order for the payment of the total penalty. 69 In terms of impact on the consolidated revenue, one must remember as well that even though particular claims were made, some amounts have been recovered, but that, in turn, is counterbalanced by the administration cost to the revenue in the Commissioner's administration of the TAA in that recovery. 70 In respect of each of the contraventions, even allowing for the amounts of the claims, it must be said that in the overall context of the research and development scheme for the 2014 year they were relatively minor in their impact. That is not to gainsay the seriousness of each contravention, only to put it in context for the purposes of fixing civil penalties. In my view, one should not strive for mathematical precision and, in any event, the relativities as between the various commissions derived are such that there is no particular need for that in this case, in my view, as opposed to adopting a like penalty amount in respect of each contravention. 71 Uninformed by the totality principle, the appropriate penalty in respect of each contravention, in my view, is $425,000. That yields a total penalty amount payable to the Commonwealth of $4.25 million. That is at the larger end of a spectrum of a range of penalties which the Commissioner in submissions appropriately put to me as suited to the conduct alleged and proved. There are no comparative cases, as the Commissioner quite properly recognised in submissions. Nonetheless, the range concerned did take up each of the considerations which I have already mentioned, in my view. 72 In my view, a total penalty of the sum I have mentioned gives appropriate voice to the singular importance of general deterrence. Having come in a preliminary way to fix $4.25 million as a total, I have asked myself whether or not, having regard to the totality principle, and the conduct proved, there should be some tempering of each individual amount and the result in total. Such is the importance of general deterrence and the preliminary total being at the lower end of a range, the maximum for which is $42.5 million, my view is that in the circumstances of the present case the totality principle does not call for a reduction. 73 Thus, the penalty will remain in total at $4.25 million. My very firm view is that a total penalty of that order is necessary to send a message of deterrence. 74 Of course, the granting of any declaratory relief requires the exercise of a judicial discretion. In relation to the company, the exercise of that discretion is really informed by considerations which motivated the grant of leave in the first place in the sense that there is a singular public interest served or, at least, was apprehended at the time of the grant of leave to be served by the present proceeding and if, as has occurred, proved, in the imposition of penalties. 75 In relation to Ms Amede, there is a public interest served by the granting of declaratory relief. That is not just limited by the knowledge that individuals who engage in conduct which is promotional in contravention of the TAA may be subject to such a public finding. It also has a particular quality in relation to Ms Amede in that there will be, as a matter of public record, declarations as to contraventions. They may have a role to play in conjunction with other findings which have been made separately in respect of her in other cases in a particular deterrent effect. 76 There will, therefore, be declarations in the terms proposed. 77 As to Ms Amede, I note that she has given to the Commissioner particular undertakings under statute. These can have a later consequence in the event of non-compliance. It is, in my view, appropriate to record that such undertakings have been given in the orders to be made in respect of her. 78 For these reasons, there will be orders in terms of the drafts which were handed up in the proceedings. I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.

Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd

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