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The ATO has published a Decision Impact Statement in relation to the decision of the Federal Court in FCT v Barossa Vines Ltd [2014] FCA 20; 2014 ATC 20-436.

The decision concerned whether entities engaged in conduct that resulted in schemes that had been promoted on the basis of conformity with product rulings being implemented in a way that was materially different from that described in the product rulings.

Barossa Vines Ltd (the taxpayer) was the Responsible Entity for a number of managed investment schemes in the viticulture industry.

The taxpayer applied for and received product rulings PR 2007/32 (2007 Project), 2008/21 and 2008/22 (together the 2008 Project).

Following an investigation, the Commissioner concluded that the schemes had been implemented in a way that was materially different from that described in the product rulings. Following mediation, the parties submitted to the Federal Court a statement of agreed facts and joint submissions on penalty which they contended should be imposed.

The Court held that the five respondents (the taxpayer and four individuals) acted in contravention of subsection 290-50(2) of Schedule 1 of the Taxation Administration Act 1953, by implementing the schemes in a way that was materially different from that described in the product rulings.

The Court upheld the Commissioner's application for civil penalty orders against the respondents for the contraventions and imposed a penalty of $625,000 on the taxpayer and $125,000 on each of the four individual respondents.

The Court accepted that, to the extent that the two offences (that is, relating to the 2007 Project and the 2008 Project) contained common elements, the taxpayers should not be punished twice for such elements.

In terms of the nature and extent of the contravention, the Court noted the lack of care in the management of the schemes, attempts to conceal the failure of certain plantings and the selling of certain vineyard lots knowing that they would not be planted with rootlings, which indicated that attention to good viticultural practice was subordinated to commercial considerations.

In terms of the circumstances, the Court noted at [74] that:

"... the material differences in the implementation of the 2007 Project and the 2008 Project were the result of the respondents' failure to prepare adequately or plan the development of vineyards, or to put in place appropriate structures and resources for their establishment and ongoing management."

Other considerations include the respondents' failure, in general terms, to take any steps to avoid the contraventions, the limited degree of cooperation with the Commissioner's investigation and Division 290's object of general deterrence. The Court noted, however, the parties' submission that the penalties be discounted in light of the respondents' cooperation with the Commissioner to resolve the matter by agreeing facts.

The ATO says that the Court's decision supported the joint statement of agreed facts and submissions on penalty. The ATO also says it "respectfully agrees" with the outcome.

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