• Promoters of AIDS pharmaceuticals donations scheme fined $1.5 million

    The Federal Court has awarded the ATO the highest civil penalty to date, fining the promoters of an AIDS pharmaceuticals scheme $1.5 million for breaching promoter penalty provisions.

    The court awarded civil penalties to the ATO against Stephen Arnold, Leaf Capital Pty Limited and Donors Without Borders Limited because they attempted to exploit the tax system by generating deductions to which their clients were not entitled.

    ATO Deputy Commissioner Tim Dyce said the so-called philanthropic scheme was modelled on an arrangement which previously failed in Canada, and involved the purchase and donation of AIDS pharmaceutics to charities in Africa.

    “As we discovered, the purchasers only paid 7.5 per cent of the grossly inflated price of the drugs, yet claimed tax deductions of 100 per cent.”

    In delivering his judgement, Justice Edmonds noted at least five grounds why the scheme was not available under the law, including that there was no actual delivery of the pharmaceuticals to the charities concerned at the relevant time.

    “When it comes to schemes, we have seen some unscrupulous promoters,” Mr Dyce said.

    “We’re here to protect investors from aggressive schemes and we will take decisive action against anyone who breaches the promoter penalty provisions.”

    Mr Dyce said the Court’s decision on Wednesday sent a clear message to scheme promoters that the court will penalise those who actively seek to do the wrong thing.

    In awarding the large civil penalty, Justice Edmonds said: “Specific deterrence is a significant factor where, as here, the contraventions involved deliberate wrongdoing, sustained denials of contraventions and lack of remorse.”

    “Potential promoters must be left in no doubt that acting on the commercial temptation to engage in the proscribed conduct in relation to tax exploitation schemes, so as to realise the significant potential rewards that can be available, will result in substantial penalties.

    “The penalties need to be substantial enough to persuade potential promoters that it is not worth the risk of whether a tax exploitation scheme will escape the detection by the Commissioner.”

    Find out more about aggressive tax planning arrangements online at www.ato.gov.au or by calling 13 28 66.

    Last modified: 06 Feb 2015QC 44056