Friday, July 25, 2008

Tears inside the Tax Office

Today's Australian Financial Review produces facinating detail about the battle between the Australian Tax Office and Australia's property billionaire Frank Lowy:

"In February 1988, Bob Fitton, an officer at the Australian Taxation Office, was photocopying in the Sydney offices of Greenwoods & Freehills when he spied a log book recording the details of faxes sent out by the accountancy firm.

The log book was none of his business. It contained information relevant to the firm's entire client base and Fitton was in the offices to conduct audits against a handful of companies.

He began leafing through its pages and recognised the dialling codes for tax havens against some client names..."

In Crikey today a former Tax Office auditor gives an inside story:

It seemed like a normal day working in the tax office. Then the phone rang.
"Ms Brady, the Commissioner is on the line," said Jan Brady’s secretary.

Jan Brady was the Deputy Commissioner of Taxation at the infamous Chatswood branch of the ATO located on Sydney’s north shore. I worked closely with Brady and was in close proximity to her office.

Less than one minute later Ms Brady emerged from her office and requested her secretary to get Margaret Oates, Deputy Commissioner Audit and Senior Tax Council Ian Young to come and see her as soon as possible.

When Ms Oates arrived the message was simple.

"Michael has settled the case," said Ms Brady.

That person was Michael Carmody, who was Commissioner of Taxation at the time. Oates replied in a flash, "What the f-ck for?"...

"He said he had his reasons."

Oates was devastated. After spending three and a half years on the case she burst into tears. Brady placed a consoling arm around her and said, "I understand Margaret, I’m upset too."

After many years working in the ATO I had never seen a senior officer cry before and Oates was a pretty tough woman.

Later, Ian Young made an appearance. The mild mannered brilliant lawyer who is now a leading Sydney tax barrister looked shattered. He looked like he had just swallowed a bottle full of angry ant pills as he stormed past me.

Later that day I ran into one of the auditors involved in the case and I asked him what all the commotion was.

"The c-nt from cowards’ castle (meaning Canberra) has settled our case," he said.

I know nothing about the Lowy tax case except what I have read about in the papers. But that particular day I will never forget. It was as if the tax office had lost its innocence. The majority of tax officers are hard working professionals who take seriously their job of protecting the revenue.

To have someone from Canberra who had nothing to do with the progress of the case suddenly come in over the top and settle the matter has eaten away at tax officers since that eventful day. So much so that it appears officers involved in the case have spoken privately to journalists. The investigation into the Lowys had not been completed. It was premature to settle.

To my knowledge, Michael Carmody settled two cases in his lifetime as Commissioner. The other one was the Robert Gerard matter. Ironically both matters were settled prior to the two gentlemen being appointed to the Reserve Bank Board.

Bob Fitton, star of today's Financial Review front story on the Lowy settlement, highlighted the same reservations in his submission to federal parliament’s Public Accounts and Audit Committee.

The Committee Chair Sharon Grierson MP said last month there was no compelling evidence to change the ATO’s settlement guidelines. She might regret those words.