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The Federal Court (Perram J) has held that 5 foreign companies, all of whom made substantial profits from share trading in securities listed on the Australian Stock Exchange, were each managed and controlled in Australia by a Sydney accountant, Mr Vanda Gould, and were therefore residents of Australia for tax purposes and liable to Australian tax on their profits.

The Court dismissed submissions on behalf of the taxpayers that the central management and control of the companies was centred in various overseas locations, including London in the United Kingdom or Neuchatel in Switzerland, because of the actions of third parties, including one Mr Peter Borgas.

Mr Borgas gave evidence before the Court; however, his evidence was not accepted. Perram J said of part of his evidence, at para 98:

"Mr Borgas’ evidence about this persuaded me that he was a witness who was willing to lie on oath in a most discreditable way."

The Court rejected submissions made on behalf of the taxpayers that their position was supported by the judgment of Gibbs J in Esquire Nominees Limited v FCT [1973] HCA 67; (1973) 129 CLR 177. Perram J said, at paras 399-400:

"In Esquire Nominees the taxpayer was a trustee company. As it happens, it was the trustee of some 12 trusts in favour of the Manolas family. They, it need hardly be said, were not resident in Norfolk Island. The evidence showed that the trustee company, as trustee, gave effect to the views of a firm of accountants in Adelaide in making decisions about what the trust should do. This did not deter Gibbs J from concluding that Esquire Nominees was resident in Norfolk Island.

But the reasons for this are obvious. The business decisions made by Esquire Nominees were decisions relating to its business as a trustee, not the trusts themselves. Whilst the accountants could tell the trustee what to do qua trustee they could not tell the directors of the trustee company what to do qua company. Insofar as the trustee’s own business was concerned it made good sense for it to give effect to the wishes of those behind the Manolas trusts speaking through the vector of the accountants. But in doing so they were giving effect to their own view that it was in the trustee’s best interests as a trustee company to do as it was told."

In relation to the control of one of the companies, Perram J concluded, at para 405:

"I have no doubt that Chemical Trustee’s real business was conducted from Sydney by Mr Gould. The role of Mr Borgas was fake. He made no decision of any kind but simply implemented Mr Gould’s instructions after which he generated a false document trail to make it appear otherwise."

The Court also dismissed submissions on behalf of the taxpayers that they were not residents of Australia because of the terms of double taxation agreements between Australia and the United Kingdom, or Australia and Switzerland.

However, contrary to submissions by the Commissioner, the Court held that the taxpayers were entitled to make trading stock elections in relation to their shareholdings.

Perram J concluded his judgment at para 485 as follows:

"The parties are to bring in short minutes of order on or before 7 January 2015. I will hear them on costs. In particular, I will hear them and Mr Gould on whether the latter ought not to bear the costs of this litigation on a full solicitor-client basis. I direct the solicitors for the taxpayers to furnish Mr Gould with a copy of these reasons and to draw to his attention this costs issue. I direct the Registrar to forward a copy of these reasons to the Commonwealth Director of Public Prosecutions, the Australian Securities and Investments Commission and the Australian Federal Police. The facts I have found strongly suggest widespread money laundering, tax fraud of the most serious kind and, possibly in some instances, insider trading. The conduct revealed in this case is disgraceful."

Hua Wang Bank Berhad v FCT [2014] FCA 1392 (Federal Court, Perram J, 19 December 2014).


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