The Australian Taxation Office has accused a secretive punters’ club, whose members include Tasmanian art collector David Walsh and reclusive professional gambler Zeljko Ranogajec, of destroying business records and using encryption software to attempt to hide details of their $2.4 billion global gambling business from the authorities.
The club is accused of conducting management discussions orally to avoid “leaving a paper trail” and concealing effective control of its significant gambling operations through service providers.
The punters’ club, made up of 19 hand-picked individuals, uses sophisticated gambling software to maximise profit and employs hundreds of people through three holding companies, according to the Tax Office.
Four members of the club have left Australia amid inquiries and audits by the Tax Office of their profits as a result of the gambling operations.
Vastly wealthy Mr Ranogajec, a founding member of the group, has moved to London while facing an enormous tax bill understood to be about $900 million.
Mr Walsh has chosen to fight the Tax Office in the courts, where he is appealing against a decision of the Tax Office to attempt to tax him an additional $37.7 million for the 2004-06 financial years, plus interest. Mr Walsh is alleged to have a 20.3 per cent holding in the punters’ club.
The Tax Office’s appeal statement in its Federal Court stoush with Mr Walsh, owner of Hobart’s Museum of Old and New Art, details complex operations attributed to the syndicate.
“As part of its planning, the punters’ club determined that, if the [ATO] decided to tax its gambling operations, it would cease its operations in Australia overnight and pull it out of Australia,” the Taxation Office argues in the court document.
The club deliberately withheld information from the Tax Office, the statement argues, in an attempt to give the impression it pursued only recreational gambling.
This is not so, the Tax Office claims, with the punters’ club setting up three companies after receiving advice in 1999 that to operate the software personally might be construed as an “indicium of a business”.
The companies, Eastpeak, Humbleton and Data Processors, were allegedly set up to counter this problem. The three companies employed hundreds of people in the years 2004-2006, the financial years of tax assessments that Mr Walsh is disputing in the Federal Court.
The companies’ expenses reached more than $35 million for the period.
Mr Walsh told The Australian Financial Review on Tuesday the connection with the punters’ club was not simple, because the club members were not shareholders in the service-provider companies.
He also denied that data had been concealed through encryption, saying “it doesn’t make sense” because the ATO was able to ask for passwords in relation to such software. Some members of the punters’ club did use encryption, he said, but this was to address security concerns.
“To begin with, I have always treated the proceeds of my gambling as the ATO told me,” Mr Walsh told the AFR.
“Their opinion, sought a number of times, was that gambling winnings aren’t taxable. In fact, to my knowledge, no gambler has ever been assessed as taxable,’’ he said.
“It is now apparent that the ATO has reversed its opinion, and done so retrospectively. The document lodged by the ATO claims as a justification that they were not fully informed. This is not so.
“There have been frequent reviews and audits into my gambling, all of which have found that winnings are not taxable, perhaps in part because no one knows how to treat losses and deductible expenses.”
Oddly, he said, at no point had the ATO ever requested a personal meeting with him or asked for information in relation to his gambling.
“I have always been willing to pay taxes on my gambling on a go-forward basis and I intend to fight this u-turn by the ATO.”
The ATO is arguing the gambling operation is a business and that Humbleton and Eastpeak undertake analysis including form, competitiveness, style of racing and on-track behaviour for the gambling syndicate.
The punters’ club, according to the ATO, exercises effective control over the management of the service providers. Annual payments to members are made from holding accounts in the name of Mr Ranogajec and another member.
The club’s primary operations are based around thoroughbred, harness and greyhound racing and extend across the world, including in Asia, the United States and Europe, the ATO says.
“These activities are continuous, systematic, enormous in scale and exhibit a high degree of skill and business acumen,” the ATO alleges, with the betting operations being conducted 24 hours a day.
The club’s turnover is huge: growing from $555 million in 2004 to a whopping $2453 million in 2006. “In numerous years since then, the volume of the betting conducted on behalf of the punters club has exceeded $2 billion,” the Tax Office claims.