FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Bogiatto (No 2) [2021] FCA 98

ORDERS

THE COURT ORDERS THAT:

1.    The first respondent, MR PAUL ENZO BOGIATTO, pay to the Commonwealth the civil penalties set out in the table below.

2.    The second respondent, RYUSEI PTY LTD, pay to the Commonwealth the civil penalties set out in the table below.

3.    The third respondent, LAMBDACHASE ADVISORS PTY LTD, pay to the Commonwealth the civil penalties set out in the table below.

4.    The fourth respondent, LAMBDACHASE SERVICES PTY LTD, pay to the Commonwealth the civil penalties set out in the table below.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THAWLEY J:

I    INTRODUCTION

1    On 3 September 2020, the Court made declarations that each of the respondents had contravened s 290-50(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) by engaging in conduct that resulted in that respondent or another entity being a promoter of tax exploitation schemes. The Court declared that Mr Bogiatto and Ryusei Pty Ltd both contravened s 290-50(1) on 21 occasions, Lambdachase Advisors Pty Ltd contravened s 290-50(1) on 15 occasions and Lambdachase Services Pty Ltd contravened s 290-50(1) on 11 occasions. These declarations gave effect to a judgment delivered on 7 August 2020: Commissioner of Taxation v Bogiatto [2020] FCA 1139.

2    The tax exploitation schemes which were the subject of the declarations each involved claims under Div 355 of the Income Tax Assessment Act 1997 (Cth) in respect of purported research and development (R&D) activities. The declarations related to 21 different tax exploitation schemes involving 12 taxpayers in the 2012, 2013 and 2014 financial years.

3    These reasons address the appropriate penalties for the contraventions. The facts are set out in Bogiatto. They have been considered in reaching this decision, but are not repeated. Familiarity with those reasons is assumed. As in the contravention stage of the proceedings, none of the respondents appeared in the penalty stage of these proceedings.

4    The total monetary consideration in fact received by the respondents from their various taxpayer clients was around $4.5 million. The total consideration in the form of promises to pay was higher, but – as indicated in Bogiatto – some clients never paid. The Commissioner submits that the appropriate penalties total $83,871,449, calculated as follows:

(1)    Mr Bogiatto                 $15,924,699

(2)    Ryusei Pty Ltd            $30,161,750

(3)    Lambdachase Advisors Pty Ltd    $22,388,750

(4)    Lambdachase Services Pty Ltd     $15,396,250

5    For the reasons given below, the total penalties to be imposed will be $22,680,000, being:

(1)    Mr Bogiatto                 $6,510,000

(2)    Ryusei Pty Ltd            $6,510,000

(3)    Lambdachase Advisors Pty Ltd    $6,010,000

(4)    Lambdachase Services Pty Ltd     $3,650,000

6    I make three observations about these penalties.

(1)    As noted, the total monetary consideration received by the respondents was about $4.5 million. I have imposed penalties at least in the amount of the monetary consideration received, in order for the imposition of the penalties to achieve the desired deterrent effect – see: [52] to [54] below.

(2)    As explained at [57] to [62] below, although the monetary consideration was received, at least in the first instance, by one of the respondents, that consideration is relevant to all of the respondents for the purposes of determining: (a) whether there was a contravention (consideration must be received by the entity or an associate: s 290-60(1)(b) of Sch 1); and (b) the maximum penalty under s 290-50(4)(b) (the maximum under (b) is twice the consideration received by the entity and its associates and the respondent which received the consideration was an associate of each of the other respondents). The respondents did not appear or adduce evidence, including as to: (a) which entity ultimately benefitted from the consideration received; (b) where the beneficial economic interests in the respondents lie; or (c) the present capacity of the respondents to pay. Material before the Court suggests it is unlikely that the corporate respondents have capacity to pay. It is probable that the monetary consideration received by a particular respondent was wholly or partly transferred to one or other of the remaining respondents or that those other respondents benefitted from it. The principal purpose of imposing a penalty is deterrence. That purpose would not be achieved in this case if penalties as against certain respondents were imposed on the basis that it was a different respondent which first received the consideration when in fact the other respondents probably benefitted. In particular, penalties against Mr Bogiatto should reflect the probability that he benefitted from the consideration paid to the corporate respondents. If penalties were set without regard to that probability, Mr Bogiatto and others would not be much deterred from engaging in contraventions of s 290-50(1) because penalties could be so easily avoided.

(3)    As explained at [55] and [56] below, although the respondents were not ultimately paid by their clients in respect of some of the schemes it remains necessary to impose a penalty to deter the conduct and to reflect, where relevant, the matters to which regard may be had under s 290-50(5).

II    STATUTORY FRAMEWORK

7    The power for the Court to order an entity to pay a civil penalty if the Court is satisfied the entity has contravened s 290-50(1) is found in s 290-50(3) of Sch 1, which provides:

Civil penalty

(3)     If the Federal Court of Australia is satisfied, on application by the Commissioner, that an entity has contravened subsection (1) or (2), the Court may order the entity to pay a civil penalty to the Commonwealth.

8    Civil penalties have been imposed under s 290-50(3) in Commissioner of Taxation v Barossa Vines Ltd (2014) 94 ATR 1 (Besanko J); Commissioner of Taxation v Arnold (No 2) (2015) 324 ALR 59 (Edmonds J); Commissioner of Taxation v Ludekens (No 2) (2016) 103 ATR 532 (Pagone J); and Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd (2018) 107 ATR 769 (Logan J).

9    The objects of Div 290 are expressed in s 290-5 of Sch 1 in the following way:

290‑5     Objects of this Division

The objects of this Division are:

(a)     to deter the promotion of tax avoidance *schemes and tax evasion schemes; and

(b)     to deter the implementation of schemes that have been promoted on the basis of conformity with a *product ruling in a way that is materially different from that described in the product ruling.

10    Section 290-50(5) provides a non-exhaustive list of factors relevant to determining the appropriate penalty:

Principles relating to penalties

(5)     In deciding what penalty is appropriate for a contravention of subsection (1) or (2) by an entity, the Federal Court of Australia may have regard to all matters it considers relevant, including:

(a)     the amount of the consideration received or receivable (directly or indirectly) by the entity and *associates of the entity in respect of the *scheme; and

   (b)     the deterrent effect that any penalty may have; and

   (c)     the amount of loss or damage incurred by scheme participants; and

   (d)     the nature and extent of the contravention; and

(e)     the circumstances in which the contravention took place, including the deliberateness of the entity’s conduct and whether there was an honest and reasonable mistake of law; and

   (f)     the period over which the conduct extended; and

   (g)     whether the entity took any steps to avoid the contravention; and

(h)     whether the entity has previously been found by the Court to have engaged in the same or similar conduct; and

    (i)     the degree of the entity’s cooperation with the Commissioner.

11    The application of this provision is discussed in Part IV below.

12    Section 290-50(4) provides for the maximum penalty that may be imposed for each contravention:

Amount of penalty

(4)     The maximum amount of the penalty is the greater of:

(a)     5,000 penalty units (for an individual) or 25,000 penalty units (for a body corporate); and

(b)     twice the consideration received or receivable (directly or indirectly) by the entity and *associates of the entity in respect of the *scheme.

Note: See section 4AA of the Crimes Act 1914 for the current value of a penalty unit.

13    Where s 290-50(4)(a) operates to fix the maximum penalty, the value of the relevant penalty unit is that which was applicable at the time of the contravention: Arnold (No 2) at [151]. The Commissioner submitted that, where a contravention spanned a period of time during which the value of a penalty unit changed, it is appropriate for the Court to determine the maximum penalty according to the lower penalty unit. I will adopt this approach.

14    The value of a penalty unit is set by s 4AA of the Crimes Act 1914 (Cth). At all relevant times up until 27 December 2012, the value of a penalty unit was $110: see Sch 1, Item 9 of the Crimes and Other Legislation Amendment Act 1997 (Cth). From 28 December 2012 to 30 July 2015 the value of a penalty unit was $170: see Sch 3, Item 7 of the Crimes Legislation Amendment (Serious Drugs, Identity Crime and Other Measures) Act 2012 (Cth).

15    The maximum penalty relevant to each scheme is set out in Part V below.

III    LEGAL PRINCIPLES

The purpose of pecuniary penalties under s 290-50(1)

16    The primary purpose of imposing a pecuniary penalty is to deter repetition by the contravenor (specific deterrence) and to promote compliance by others who might be tempted to contravene (general deterrence), that is, to “put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene” the relevant Act: Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 at 52,152 (concerning s 76 of the Trade Practices Act 1974 (Cth)).

17    In Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 at [53]-[55] (concerning pecuniary penalties under the Building and Construction Industry Improvement Act 2005 (Cth)), French CJ, Kiefel, Bell, Nettle and Gordon JJ explained (citations omitted):

[53]    Civil penalty proceedings are civil proceedings and therefore an adversarial contest in which the issues and scope of possible relief are largely framed and limited as the parties may choose, the standard of proof is upon the balance of probabilities and the respondent is denied most of the procedural protections of an accused in criminal proceedings.

[54]    Granted, both kinds of proceeding are or may be instituted by an agent of the state in order to establish a contravention of the general law and in order to obtain the imposition of an appropriate penalty. But a criminal prosecution is aimed at securing, and may result in, a criminal conviction. By contrast, a civil penalty proceeding is precisely calculated to avoid the notion of criminality as such.

[55]    No less importantly, whereas criminal penalties import notions of retribution and rehabilitation, the purpose of a civil penalty, as French J explained in Trade Practices Commission v CSR Ltd, is primarily if not wholly protective in promoting the public interest in compliance:

Punishment for breaches of the criminal law traditionally involves three elements: deterrence, both general and individual, retribution and rehabilitation. Neither retribution nor rehabilitation, within the sense of the Old and New Testament moralities that imbue much of our criminal law, have any part to play in economic regulation of the kind contemplated by Pt IV [of the Trade Practices Act] … The principal, and I think probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the Act.

18    It is necessary to determine penalties by reference to the particular pecuniary penalty provisions concerned. Those provisions, read in context, govern what may be taken into account in determining an appropriate penalty which meets the objectives of the particular penalty regime. Here, deterrence is the express object of Division 290: s 290-5 of Sch 1. Section 290-50(5) permits the Court to take into account any matter it considers relevant, including those specifically mentioned in the subsection. These include considerations which might not be regarded as relevant only to deterrence, for example, “the amount of loss or damage incurred by scheme participants”: s 290-50(5)(c). Nevertheless, the ultimate object of the imposition of the penalty is one of deterrence; it is protective in promoting the public interest in compliance.

19    The penalty should not be greater than is necessary to achieve the objects of the imposition of penalties under the relevant Act and should not be so high as to be oppressive. As Burchett and Kiefel JJ said in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 293F:

[I]nsistence upon the deterrent quality of a penalty should be balanced by insistence that it “not be so high as to be oppressive”. Plainly, if deterrence is the object, the penalty should not be greater than is necessary to achieve this object; severity beyond that would be oppression.

20    The amount which might deter the contravenor (specific deterrence) will not necessarily be the amount which will be appropriate for the purposes of general deterrence. It has been said that an amount which is appropriate to achieve general deterrence will rarely be oppressive: Arnold (No 2) at [204]. As Merkel J explained in Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281 at [9]:

The size of the contravening companies and their respective capacities to pay a penalty were relied upon as factors in mitigation in the present case. Plainly, such factors can be relevant to the penalty that is necessary to deter the company from contravening the Act in the future. Size may also be relevant to general deterrence because other potential contraveners are likely to take notice of penalties imposed on companies of a similar size. However, a contravening company’s capacity to pay a penalty is of less relevance to the objective of general deterrence because that objective is not concerned with whether the penalties imposed have been paid. Rather, it involves a penalty being fixed that will deter others from engaging in similar contravening conduct in the future. Thus, general deterrence will depend more on the expected quantum of the penalty for the offending conduct, rather than on a past offender’s capacity to pay a previous penalty. I therefore respectfully agree with the observation of Smithers J, referred to by Burchett and Kiefel JJ in NW Frozen Foods, to the effect that, a penalty that is no greater than is necessary to achieve the object of general deterrence, will not be oppressive. I have approached the issue of corporate penalties on that basis. The penalties in relation to the individuals may need to be tempered by personal considerations.

21    In Arnold (No 2), Edmonds J made the following observations concerning general deterrence:

[165]     First, the facility in s 290-50(4) for the maximum penalties to be increased commensurate with consideration received or receivable is intended to enable the Court to fix penalties at levels that create a genuine commercial disincentive to engaging in conduct which results in either the contravenor or another entity being a promoter of a tax exploitation scheme.

[166]     Secondly, putting promoters of ineffective tax schemes substantially at risk financially overcomes what would otherwise be an asymmetry in the risks faced by the promoters of the schemes and by the participants in the schemes. The Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No 1) Bill 2006 (Cth) (“the EM”), which when enacted inserted Div 290, explained this (at para 3.3) as follows:

[P]romoters can obtain substantial profits while investors may be subject to penalties under the TAA 1953. This represents a significant asymmetry in risk exposure.

[167]     Thirdly, ineffective tax schemes, particularly those which are mass marketed and which purport to provide participants with deductions which are “inflated” by the provision of finance or credit on uncommercial terms, pose potentially significant risks to the revenue. The EM included estimates of the financial impact of the introduction of Div 290, which was expected to take the form of gains to the revenue, and stated (at para 3.135) that “[t]hese estimates are based solely on the anticipated deterrent effect of the regime”. The potentially adverse impact on the revenue underscores the need for a robust message to those promoting tax-exploitation schemes …

[168]     Fourthly, it can be difficult for the Commissioner to detect ineffective tax schemes. It is well recognised that difficulties in detecting contraventions are a significant factor in the need for general deterrence: Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 at [102] per Foster J. The difficulties in detecting ineffective tax schemes are inherent in the self-assessment regime, under which “taxpayers are now effectively required to determine their own taxable income”: Explanatory Memorandum to the Bill enacted as the Taxation Law Amendment (Self Assessment) Act 1992 (Cth) …

[169]     Fifthly, ineffective tax schemes impose compliance costs on the ATO and therefore on the whole community. Compliance costs arise in relation to action required to be taken by the Commissioner in relation to investigating ineffective tax schemes, communicating with the promoters and participants in the schemes, disallowing deductions or cancelling tax benefits associated with the schemes, amending the participants’ assessments, determining the participants’ objections to their amended assessments, and conducting review and appeal proceedings under Part IVC of the TAA …

22    There are also considerations particular to the context of schemes which exploit R&D tax incentives. These considerations were set out by Logan J in International Indigenous Football Foundation at [51]-[60], and include the fact that the R&D tax offset program has no expenditure cap and that detection of schemes that exploit R&D is costly.

The maximum penalty

23    The maximum penalty is an important factor in determining the appropriate penalty. In Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2017) 254 FCR 68 (ABCC v CFMEU) the Full Court stated at [106]:

Careful attention must also be given to the maximum penalty for the contravention. That is so for at least three reasons: first, because the legislature has legislated for the maximum penalty and it is therefore an expression of the legislature’s policy concerning the seriousness of the prescribed conduct; second, because it permits comparison between the worst possible case and the case that the Court is being asked to address; and third, because the maximum penalty provides a “yardstick” which should be taken and balanced with all the other relevant factors: Markarian at 372 [31] (per Gleeson CJ, Gummow, Hayne and Callinan JJ).

24    Section 290-50(4) provides that the maximum penalty, where it is not twice the amount of the consideration under s 290-50(4)(b), is 5 times more for a corporation than for an individual. This does not necessarily mean that where an individual and a corporation bear equal culpability the corporation should always be penalised 5 times more than an individual. Because the principal objective of a penalty is general and specific deterrence, the principal question is the level at which the penalty should be set in order to achieve the object. Corporations often have greater financial resources than individuals. The greater maximum penalty for corporations under s 290-50(4)(a) provides flexibility to impose higher penalties which facilitate achieving the desired deterrent effect on the specific corporation concerned. What might be required for specific deterrence depends on a number of factors including the size and financial resources of the corporation. Merkel J made the observation in Leahy at [9] (extracted at [20] above) that considerations relevant to general deterrence may demand a financially onerous penalty on a corporation even if that corporation has limited or no capacity to pay. The nature of the corporation would be relevant. Differing considerations would be relevant as between a corporation which is used primarily as the vehicle for delivering the personal services of a director and a widely held corporation engaged in a major commercial endeavour – see also ABCC v CFMEU at [104] and [105].

25    None of this is intended to convey that the relativity evident in s 290-50(4)(a) is irrelevant – see, for example: Barossa Vines at [80]; Australian Competition and Consumer Commission v Geowash Pty Ltd (No 4) (2020) 376 ALR 701 at [142]. The point is that the 1:5 relativity should not be slavishly followed without regard to the purpose of imposing the penalty even in cases of equal culpability.

The penalty imposing discretion

26    Determining the quantum of a civil penalty involves identifying and balancing all of the relevant circumstances, a process referred to as “instinctive synthesis”. In Australian Securities and Investments Commission v GE Capital Finance Australia [2015] ASC 155-203 at [75], Jacobson J stated:

The process of fixing the quantum of a penalty is not an exact science. The approach which should be adopted is one of ‘‘instinctive synthesis’’: Markarian v The Queen [2005] HCA 25; (2005) 228 CLR 357. All of the circumstances must be weighed so as to mark the Court’s view of the seriousness of the offence. Attention must be paid to the maximum penalty fixed by the statute so as to compare the worst possible case with the one before the Court. The exercise is not a mathematical one, and there is no single correct penalty: see ATSIC v Matcham at [126]–[128].

27    General principles often assist in guiding the exercise of the discretion. These include the course of conduct principle and the totality principle discussed below.

28    The Commissioner submitted that the appropriate “methodology” for the Court to adopt in the present case was to start with the maximum penalty for each contravention and, in effect, “work backwards by making a proportional deduction from that maximum”. For this argument, the Commissioner relied upon the decision in International Indigenous Football Foundation where Logan J stated that “[a] starting point must be the maximum for which provision is made”: at [65]. As I read this sentence of his Honour’s decision, in the context of the whole of the reasons, his Honour was merely indicating that one must have regard to the maximum penalty. As noted at [23] above, that is correct. I am fortified in that understanding of this sentence of his Honour’s reasons by the fact that his Honour did not in fact adopt an approach of making proportional deductions from the maximum penalty.

29    As the Commissioner noted, in Ludekens (No 2), Pagone J applied the approach indicated by the Full Court in Director of Consumer Affairs Victoria v Alpha Flight Services Pty Ltd [2015] FCAFC 118 at [43]:

It is incorrect to commence with the maximum penalty and engage in a ratcheting down exercise. The process to be applied in arriving at a particular penalty figure was considered in the context of criminal sentencing by the High Court in Markarian [(2005) 228 CLR 357]. This process provides, by analogy and with adjustment, guidance as to how the Court should approach the assessment of pecuniary penalties in the present context. In Markarian, Gleeson CJ, Gummow, Hayne and Callinan JJ held the following:

(a)     Assessment of the appropriate penalty is a discretionary judgment based on all relevant factors (at [27]);

(b)     It will rarely be appropriate to start with the maximum penalty and to proceed by making a proportional deduction from that maximum (at [31]);

(c)     The Court should not adopt a mathematical approach of increments or decrements from a predetermined range, or assign specific numerical or proportionate value to the various relevant factors (at [37] citing Wong v The Queen at 611 and 612 per Gaudron, Gummow and Hayne JJ);

(d)     It is not appropriate to determine an “objective” penalty and then adjust it by some mathematical value given to one or more factors such as a plea of guilty or assistance to authorities; and

(e)     The Court “may not add and subtract item by item from some apparently subliminally derived figure” to determine the penalty to be imposed (at [39]).

30    The Commissioner sought to distinguish the approach adopted by Pagone J in Ludekens (No 2) and submitted that the Commissioner’s advocated approach of proportional deductions from the maximum penalty was appropriate because the circumstances in the present case “were far removed from those that obtained in Ludekens” and more like those found in International Indigenous Football Foundation. This submission faces two difficulties: first, as indicated, I do not understand Logan J to have adopted the approach attributed to him; secondly, the Commissioner’s position is inconsistent with clear authority.

The course of conduct principle

31    The course of conduct principle, drawn from the criminal law and applied to the imposition of civil penalties, is not a rigid rule of law, but a general principle available to guide the exercise of the penalty imposing discretion: Parker v Australian Building and Construction Commission (2019) 270 FCR 39 at [273]. The course of conduct principle is different to the totality principle, albeit related because the two principles provide different possible solutions to issues which arise in imposing penalties in respect of a multiplicity of contraventions: Parker at [274]. There is also an area of overlap.

32    The course of conduct principle recognises that, in some cases, it is appropriate to treat multiple contraventions as being closely related and forming part of a “course of conduct” rather than as separate contraventions arising from separate acts: Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1 at [39] and [41]. A practical example is afforded by R v Host [2015] WASCA 23. The respondent was charged with 49 counts based on conduct summarised by Buss JA in the following way:

[51]     Between October 2004 and September 2008, the respondent engaged in three categories of offending.

[52]     As to the BASs, the respondent, in the course of preparing each of the BASs on behalf of the Host Family Trust, intentionally overstated the amount of creditable acquisitions made by the trust. The respondent then caused the BASs, with the overstated amounts, to be lodged electronically with the ATO. After receiving the BASs, the ATO relied on the information they contained and, consequently, was deceived as to the amount of creditable acquisitions that had been made by the trust and, therefore, the amount of goods and services tax credits to which the trust was entitled. The ATO, in reliance on the information in the BASs, paid tax refunds for the trust into a bank account opened and operated by the respondent.

[53]     As to the ITRs, the respondent arranged for his ITRs to be prepared and lodged by a tax agent. The respondent intentionally gave the tax agent false information about his alleged employment and the amount of tax that had been withheld by his employer. The tax agent used the information to prepare the respondent’s ITRs and calculate his taxable income. The respondent signed electronic lodgment declarations in which he declared that the information he had given the tax agent was true and correct. The tax agent relied on the declarations and lodged the respondent’s ITRs electronically with the ATO. The ATO relied on the information contained in the ITRs and, consequently, was deceived as to the amount of tax refunds to which the respondent was entitled. As a result, the ATO paid tax refunds to the respondent, to which he was not entitled, for each of the 2005, 2006 and 2007 financial years.

[54]     As to the false documents, the respondent’s use of forged documents arose from two compliance verification checks undertaken by the ATO in relation to BASs for the Host Family Trust and a later audit conducted by the ATO in relation to the trust’s BASs and the respondent’s ITRs. By providing the documents in question to ATO verification officers and auditors, the respondent intended to induce the officers and auditors to accept the documents as genuine, and to influence the conduct of the compliance verification checks and audit.

33    The trial judge had treated the accused as having engaged in a protracted course of conduct – see: [56]. Buss JA, with whom the other members of the Court did not disagree, considered that the various counts in the indictment fell within the one course of conduct for the purposes of s 16A(2)(c) of the Crimes Act 1914 (Cth), stating at [145]:

… Although separate counts were included in the indictment, the offending involved a continuous and repetitive course of conduct. The respondent’s criminality was not isolated or opportunistic. It involved planning and premeditation; in particular, a system of planned, deliberate, repeated and dishonest claims with the object of obtaining substantial sums of money from the ATO for his own benefit …

34    The course of conduct principle applies only where there is a sufficient interrelationship between the legal and factual elements of two or more offences: Cahill at [39]. The interrelationship may be legal, in the sense that it arises from the elements of the contravention, or factual, where circumstances compel the conclusion that the crimes arise out of essentially the same acts, omissions or circumstances: Australian Competition and Consumer Commission v Cement Australia Pty Ltd (2017) 258 FCR 312 at [422]. It is necessary to identify precisely what is contended to be essentially the “the same criminality” said to engage the course of conduct principle: Cahill at [39]. The course of conduct principle only applies where it is desirable to avoid what is properly seen as multiple punishment for those parts of legally distinct offences which may properly be seen as involving what is in substance the one wrongdoing: Cahill at [41]; Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 at [75].

35    In Ludekens (No 2), Pagone J found that the seven separate breaches of s 290-50(1) were all part of a single course of conduct. The seven contraventions related to Gunns Plantations Ltd Woodlot Project 2006. The respondents were found to have promoted tax exploitation schemes, but the promotion of the plan would not have been in contravention of Div 290 if it were not for the fact that the plan was based upon the impermissible premise that the taxpayers purporting to acquire woodlots could be substituted after 30 June 2007 as if they had acquired the woodlots on or before that day. The contraventions occurred because of the respondents’ erroneous (but genuine) belief regarding the legality of their schemes. Pagone J found that the contraventions were all substantially effected upon the signing of certain applications, and that the later conduct which was part of the contravention “flowed from the conduct which may properly be seen as a single course of conduct”: at [70].

36    In Arnold (No 2) at [215]-[216], Edmonds J held that the course of conduct principle was applicable where the first respondent (a natural person) was also the guiding mind and will of the second and third respondents (both corporations) and it was not possible to identify separate acts as being referable to one or other of the respondents. The Commissioner submitted that this consideration justified a discount of approximately 50% to the penalties that would otherwise be ordered against each corporate entity. The course of conduct principle, where it is held to apply, is generally applied to reduce the sentences (or penalties) of one wrongdoer in respect of several distinct legal offences which are properly seen as one course of conduct, not multiple wrongdoers committing separate offences in pursuit of a single endeavour.

37    Nevertheless, it is relevant in determining the appropriate penalty in accordance with the terms of s 290-50(5), to take into account that it is not possible to categorise certain conduct of Mr Bogiatto as being solely referrable to him or to Ryusei, Lambdachase Advisors or Lambdachase Services or some combination of the foregoing. It is also relevant to recognise in determining the appropriate penalty that Mr Bogiatto was the guiding mind of the corporate respondents and that his acts were in substance acts of the relevant corporate respondent. In that context, it is also appropriate to recognise: first, that separate penalties are appropriate, Parliament having provided for separate liability for each person or entity involved in a contravention; secondly, that the maximum penalty for corporations is five times higher than for individuals where the maximum amount is determined under s 290-50(4)(a) (but not higher if the maximum amount is determined under s 290-50(4)(b)); and, thirdly, that the corporations in the present case were the ones which, at least initially, received the financial benefit.

38    In International Indigenous Football Foundation, Logan J held that the course of conduct principle did not apply. In a factual context which has certain similarities to the present context, the respondents in International Indigenous Football Foundation promoted tax exploitation schemes to 10 different taxpayers, claiming R&D tax incentive deductions that were not available at law. Each scheme related to separate taxpayers in the same income year. Logan J held that each scheme, whilst arising out of a similar business model, was bespoke and therefore the course of conduct principle did not apply: at [64]. His Honour noted that, whilst the course of conduct principle did not apply, that still left for consideration whether the totality principle might apply.

39    The approach adopted by Logan J, which I consider to be correct, should be applied on the present facts. In the present case, the respondents’ conduct involved the same general modus operandi. This was described in Bogiatto, broadly in accordance with what the Commissioner had submitted, in the following way at [13]:

(1)    The taxpayer would be contacted by telephone, either by Mr Bogiatto directly or by another person, for the purpose of arranging a meeting with Mr Bogiatto.

(2)    Mr Bogiatto would attend the prospective client’s premises, promoting himself as an R&D specialist, with considerable experience and expertise in assisting taxpayers with making R&D claims. Mr Bogiatto would discuss the possibility of the prospective client benefiting from R&D incentives, ask some questions about the operations of the business, advise that the taxpayer had a strong case for obtaining R&D incentives, and represent that he could assist.

(3)    Mr Bogiatto would send a letter of engagement, headed “Terms of Engagement”, to the prospective client. The “Terms of Engagement” provided for a fee calculated as a percentage of any R&D tax offset that the client might obtain, typically 30%.

(4)    Mr Bogiatto would then ask the client to send information about the operations and finances of the business, which he would use to prepare an “R&D Tax Incentive Application” for submitting to AusIndustry for registration of the entity’s R&D activities.

(5)    Once registration with AusIndustry was confirmed, Mr Bogiatto would inform the client of this outcome, and prepare an “R&D Tax Incentive Schedule” containing figures that Mr Bogiatto instructed or advised the client to incorporate in its tax return or, if the client had already lodged a tax return for a given year, an amended tax return.

(6)    By one of his companies, Mr Bogiatto would then send an invoice to the client, and pursue payment.

40    Whilst the respondents’ underlying method was broadly the same vis-à-vis each of the taxpayers, the events concerning each taxpayer are better seen as separate courses of conduct involving a common methodology. The fact that there was a series of offences and numerous penalties gives rise to the potential application of the totality principle.

41    There is, nevertheless, some scope for the operation of the course of conduct principle on the present facts. In relation to six of the twelve taxpayers, the respondents promoted tax exploitation schemes involving the same taxpayer in consecutive income years. Many of these schemes involved common elements, such as the initial promotional activity undertaken by the respondents. The Commissioner submitted that because of these common elements the penalty which would otherwise be applied to the second and subsequent schemes should be reduced by 20%. I accept that the separate offences relating to a particular taxpayer and concerning consecutive years of income involve some overlap because part of the conduct which gave rise to the first offence also gave rise to subsequent offences. The offences concerning the one taxpayer over multiple years can be seen as part of the one course of conduct. This should be, and has been, taken into account, albeit not with the mathematical precision suggested by the Commissioner – see Alpha Flight at paras (c) and (d) of [43] (extracted at [29] above).

The totality principle

42    The respondents have been found to have contravened s 290-50(1) on multiple occasions. The totality principle, as applicable in the present (civil penalty) context, requires that the total penalty imposed on a person found to have committed multiple contraventions must bear a proper relationship to the overall conduct involved in all of the contraventions after having regard to all of the relevant circumstances. The aggregate penalty must be “just and appropriate”: Mill v The Queen (1988) 166 CLR 59 at 63. In Mill at 62-63, the High Court said:

The totality principle is a recognized principle of sentencing formulated to assist a court when sentencing an offender for a number of offences. It is described succinctly in Thomas, Principles of Sentencing, 2nd ed. (1979), pp. 56-57, as follows (omitting references):

The effect of the totality principle is to require a sentencer who has passed a series of sentences, each properly calculated in relation to the offence for which it is imposed and each properly made consecutive in accordance with the principles governing consecutive sentences, to review the aggregate sentence and consider whether the aggregate is “just and appropriate”. The principle has been stated many times in various forms: “when a number of offences are being dealt with and specific punishments in respect of them are being totted up to make a total, it is always necessary for the court to take a last look at the total just to see whether it looks wrong[”]; “when … cases of multiplicity of offences come before the court, the court must not content itself by doing the arithmetic and passing the sentence which the arithmetic produces. It must look at the totality of the criminal behaviour and ask itself what is the appropriate sentence for all the offences”.

See also Ruby, Sentencing, 3rd ed. (1987), pp. 38-41. Where the principle falls to be applied in relation to sentences of imprisonment imposed by a single sentencing court, an appropriate result may be achieved either by making sentences wholly or partially concurrent or by lowering the individual sentences below what would otherwise be appropriate in order to reflect the fact that a number of sentences are being imposed. Where practicable, the former is to be preferred.

43    The Commissioner submitted that the totality principle does not warrant a reduction in aggregate penalty because there were no “common elements” between the schemes. This submission reveals a misunderstanding about the operation of the totality principle and erroneously treats it in this respect as equivalent to the course of conduct principle. The totality principle applies when sentencing an offender for multiple offences, whether or not those offences contain common elements.

44    Mill concerned three armed robberies, two in Victoria and one in Queensland, committed within a period of six weeks. The offender was arrested in Victoria and sentenced in respect of the Victorian offences to an effective head sentence of ten years with a non-parole period of eight years. On his release on parole in Victoria he was arrested and returned to Queensland to be tried for the Queensland offence. The particular issue which arose was whether, in deciding the appropriate head sentence for the Queensland offence, the judge should have considered what effective head sentence would have been likely to have been imposed if the accused had committed all of the offences in the one jurisdiction and been sentenced at the same time. The High Court concluded the judge should have determined the head sentence in this way and applied the totality principle: at 66-67. The fact that the contraventions in the present case arise out of individual schemes which were “bespoke”, involving different R&D schemes and different taxpayers, does not disengage the totality principle. Just as the offender in Mill was involved in three different armed robberies, the respondents here were involved in promoting different tax exploitation schemes. The respondents here are having penalties imposed for multiple contraventions just as the offender in Mill was being (notionally) sentenced for three armed robberies.

45    It should be recognised that the issue referred to in the final paragraph of the quote from Mill extracted at [42] above, of whether sentences should be served wholly or partly concurrently or the sentences should be reduced, does not apply in the present context. The practical operation of the totality principle in the present case, if it applies, is to reduce the penalties.

46    The underlying point of the totality principle is to ensure that the overall sentence or penalty is “just and appropriate”. What is “appropriate” must be tested against what is sought to be achieved by the imposition of the penalty. The purpose of a pecuniary penalty under s 290-50(3) is principally one of specific and general deterrence or ensuring compliance and this is somewhat different to the position relevant to sentencing in a criminal case which also involves considerations such as retribution – see the observations of French J in CSR quoted by the plurality in Fair Work Building Industry Inspectorate at [55], extracted at [17] above. The “appropriateness” must be assessed by reference to the express statutory object of deterrence in s 290-5 and the matters mentioned in s 290-50(5).

One penalty or several penalties?

47    In ABCC v CFMEU at [148], the Full Court held that neither the course of conduct principle nor the totality principle require, nor necessarily permit, the Court to impose a single penalty in respect of multiple contraventions, stating:

The important point to emphasise is that, contrary to the Commissioner’s submissions, neither the course of conduct principle nor the totality principle, properly considered and applied, permit, let alone require, the Court to impose a single penalty in respect of multiple contraventions of a pecuniary penalty provision. There is no doubt that, in an appropriate case involving multiple contraventions, the Court should consider whether the multiple contraventions arose from a course or separate courses of conduct. If the contraventions arose out of a course of conduct, the penalties imposed in relation to the contraventions should generally reflect that fact, otherwise there is a risk that the respondent will be doubly punished in respect of the relevant acts or omissions that make up the multiple contraventions. That is not to say that the Court can impose a single penalty in respect of each course of conduct. Likewise, there is no doubt that in an appropriate case involving multiple contraventions, the Court should, after fixing separate penalties for the contraventions, consider whether the aggregate penalty is excessive. If the aggregate is found to be excessive, the penalties should be adjusted so as to avoid that outcome. That is not to say that the Court can fix a single penalty for the multiple contraventions.

48    The Full Court had earlier said at [145]:

The decisions in both Coles Supermarkets [(2015) 327 ALR 540] and Matcham [[2014] FCA 27] tend to suggest that that it may be permissible and appropriate for the Court to impose a single pecuniary penalty for multiple contraventions of a civil penalty provision or provisions having regard to the approach jointly taken by the parties in the pleadings, statement of agreed facts, and submissions. In particular, where the parties jointly propose to the Court that, having regard to the particular facts and nature of the contraventions, it would be appropriate to impose a single penalty, or to group the contraventions in terms of separate courses of conduct and impose single penalties in respect of those groups, the Court may accept that proposal and order a single penalty, or single penalties in respect of groups of contraventions.

49    The Full Court in ABCC v CFMEU noted at [149] that, in an appropriate case, the Court may impose a single penalty for multiple contraventions, if that course is agreed or accepted as being appropriate by the parties. The Full Court stated that it was “at the very least doubtful that such an approach can be taken if it is opposed or the proceedings are defended”. The Full Court stated that such a course might be appropriate where the precise number of contraventions cannot be ascertained or where the number of contraventions is so large that the fixing of separate penalties is not feasible. Neither of these matters apply to the present case. Although the proceedings were not defended, the Commissioner submitted it was appropriate to order separate penalties. I accept that is the better approach.

IV    GENERAL MATTERS RELEVANT TO PENALTIES

50    Many of the considerations relevant to determining penalties are common across all of the schemes which gave rise to the contraventions and, as such, it is appropriate to consider these factors together. These are considered here, in Part IV. The factors unique to each scheme are considered in Part V below.

Section 290-50(5)(a): the amount of the consideration received or receivable

Section 290-50(5)(b): the deterrent effect that any penalty may have

51    The amount of consideration received or receivable is relevant to the determination of penalties in two main ways in the present case. First, as mentioned, the consideration received or receivable is relevant to calculating the maximum penalty in accordance with s 290-50(4).

52    Secondly, the amount of consideration received or receivable is relevant to ensuring that the penalty imposed achieves the object of specific and general deterrence. A penalty should create a genuine commercial disincentive to engage in conduct that contravenes s 290-50(1) – see: Arnold (No 2) at [165], extracted at [21] above. In Ludekens (No 2) at [24], Pagone J stated:

… The consideration received or receivable by a promoter is an important factor in determining the penalty to impose for contraventions of Div 290 because any penalty should ordinarily deprive the promoter of the benefit or gain arising from the contravening conduct. The importance of the consideration received or receivable to the penalty to be imposed is reflected in s 290-50(4) which provides that the maximum amount of the penalty is the greater of (a) 5,000 penalty units (for an individual) and (b) “twice the consideration received or receivable”. That is consistent with the importance of the consideration in determining the appropriate penalty as stated at [3.25] in the Explanatory Memorandum, Tax Laws Amendment (2006 Measures No 1) Bill 2006, accompanying the provisions at the time of their enactment:

To deter the promotion of schemes, it is important that the potential penalty for the promoter is greater than the expected benefit from illegal activity. Therefore, the maximum amount of penalty the Federal Court can impose is the greater of:

•    5,000 penalty units (currently equal to $550,000) for an individual or 25,000 penalty units (currently equal to $2.75 million) for a body corporate; and

•    twice the consideration received, directly or indirectly, by the entity and associates of the entity from the promotion or implementation of the scheme.

[Schedule 3, Item 1, subs 290-50(4)]

The penalty imposed can be expected in the usual case to exceed the benefit received or receivable, directly or indirectly, in respect of the scheme.

53    As explained in Bogiatto, the consideration received by the respondents generally consisted of a promise to pay. That promise was sometimes fulfilled and sometimes it was not.

Where monetary consideration was received

54    Where consideration was in fact received, I have had regard to the amount of consideration received in setting the relevant penalties. I have set each penalty at an amount which exceeds the consideration in fact received. In my view that is required on the facts of the present case to achieve an appropriate deterrent effect – see: MT Solar at [156]; Arnold (No 2) at [206], [215]; Ludekens (No 2) at [24], extracted above at [52]. This is not a case where factors such as honest mistake or remorse indicate that deterrence could be achieved by lesser penalties.

Where monetary consideration was not received

55    Where the consideration took the form of a promise to pay, but no consideration was ultimately received by any of the respondents, I have had regard to the amount which the relevant client promised to pay. It is not possible to set the penalty by reference to the consideration in fact received. I have also taken into account that the consideration was not ultimately received. The penalty must still be one which seeks to deter the contravenor and others. The taxation system, including that part of it involved in the present case, depends upon self-assessment and considerations of general deterrence loom large: R v Jones (2010) 76 ATR 249 at [13] (Rothman J, with whom McClellan CJ at CL and Howie J agreed). Rothman J referred to the observations, made in the context of customs duty, of Kitto J in L Vogel and Son Pty Ltd v Anderson, Minister of State for Customs and Excise for the Commonwealth of Australia  (1968) 120 CLR 157 at 164:

The duty evaded has now been paid, and I understand that when the evasions were discovered the defendants gave the Customs every assistance in their investigations. But when all the considerations relied upon by the defendants have been given due attention the case still cannot be regarded as other than a serious one. Not only are the defendants guilty of a sustained course of conscious wrongdoing, but the offences are in a field in which punishments for deliberate offences must be severe. The Customs laws represent the judgment of Parliament upon an important aspect of the economic organization of the community, and the object of the penal provisions is to make that judgment as effective as possible. It is important to remember that Customs officers have of practical necessity to rely extensively upon the information supplied to them by importers, for the flow of commerce could not be maintained if every importation had to be fully investigated. Moreover, detection of frauds is not always easy. No doubt ordinary conceptions of honesty and of civic responsibility suffice to ensure a great deal of fair dealing with the Customs, but for some people little seems to matter but fear of the consequences of discovery. The Customs Act makes those consequences potentially drastic. It is for the courts to make them, in suitable cases, drastic in fact, for otherwise traders who are not saved by qualms of conscience from willingness to defraud their fellow citizens may weigh the profits they hope for against the penalties they have cause to fear and find the gamble worthwhile.

56    In respect of the contraventions where payment was not received, penalties are still appropriate having regard to this object of deterrence and the remaining matters referred to in s 290-50(5). Whilst consideration was not received, taxpayers made claims – or were instructed to make claims – which they should not have and typically incurred damage in the form at least of interest and penalties. Inappropriate R&D claims were made, causing losses to consolidated revenue which were not always entirely recovered. The conduct caused losses to taxpayers and some taxpayers to enter liquidation. The conduct also caused significant personal anxiety and distress to the individuals concerned.

The significance of sharing or paying out the consideration

57    The consideration received or receivable by one respondent is often applicable to other contravening respondents for the purposes of determining the maximum penalty under s 290-50(4). This is because the subsection refers to the consideration “received or receivable (directly or indirectly) by the entity and associates of the entity in respect of the scheme”. In the present case, the corporate respondent which first received the consideration was an associate of each of the other respondents.

58    An issue which commonly arises concerns how to take into account the fact, where it exists, that consideration is shared between entities involved in a scheme giving rise to a contravention or that consideration is paid out by way of commission or fees. The issue arose in Ludekens (No 2) at [26], where Pagone J said:

The policy reflected in Div 290 would ordinarily require the imposition of a penalty upon each of the promoters which, at least in aggregate, was no less than the actual consideration that was received or receivable by them directly or indirectly, namely $5,339,750. However, although the consideration for each of Dr Ludekens and Mr Van de Steeg is computed to exceed $5 million, it is relevant to bear in mind that the two amounts substantially overlapped and that the amount calculated for each is predominantly the same money passing from one to the other. The total of the Commissions and GST received or receivable, in other words, was $5,339,750 and not the aggregate of the two amounts as calculated separately for each of Dr Ludekens and Mr Van de Steeg.

59    In a case where the distribution of the consideration as between multiple respondents is established, it would be relevant to take that distribution into account in setting an appropriate penalty for the respective respondents. Take, for example, the following: (a) two persons (A and B) who are associates of each other are found to have contravened s 290-50(1); (b) the consideration was $10 million, paid by the taxpayer to A; (c) A gave $5 million to B as part of the arrangements between A and B. The maximum penalty for A under s 290-50(4)(b) is $20 million and the maximum penalty for B is also $20 million. It would be relevant to take into account for the purposes of determining an appropriate penalty that the consideration was shared between the contravenors. The objects of the statutory regime, at least in a case where there is no suggestion of avoidance of recovery or some other relevant matter, might be achieved by treating, as a practical matter, the maximum penalty as $10 million for each of A and B, reflecting twice the amount of the benefit each obtained from the arrangements giving rise to the contravention.

60    The present case raises an issue which did not appear to arise in Ludekens (No 2). In the present case, whilst the evidence generally revealed the entity to which the consideration was first paid, the evidence did not directly prove whether or not the consideration was then distributed or whether it benefitted other respondents. I infer that it did.

61    Different considerations to those referred to in [59] above arise where it is not known whether and to what extent the consideration was distributed. It is probable in the present case that the consideration which was paid to a particular respondent was wholly or partly transferred to one or other of the remaining respondents or that it was used for the benefit of one or other of them. In the circumstances of this case, the specific and general deterrent object behind the imposition of penalties would be compromised if it were assumed that the respondents did not all benefit from the consideration received by one of them. For example, the probabilities are that Mr Bogiatto ultimately benefitted from the consideration received by the corporate respondents. Mr Bogiatto would not be much deterred from future contraventions if the penalties for his contraventions were set on the basis that the corporate respondent had received the consideration and Mr Bogiatto had not, when that is against the probability of what has in fact occurred. Further, others might be less deterred from engaging in contraventions of s 290-50(1) if the penalty could be so easily avoided.

62    I have not reduced penalties against any of the respondents by reasoning that there was no direct evidence that the particular respondent in fact benefitted from consideration which was received by an associate of that respondent. The respondents chose not to appear or adduce evidence about what occurred with the consideration in fact received. It is probable that the consideration received by a particular respondent was passed on to or shared with one or other of the remaining respondents or that those other respondents benefitted from the consideration in some way.

Section 290-50(5)(c): the amount of loss or damage incurred by scheme participants

63    The loss or damage incurred by scheme participants may include financial loss, including the monetary loss involved with the scheme, legal fees, and loss of time and effort: Ludekens (No 2) at [37]. The loss or damage may also include non-financial harm, including the scheme participants’ health and wellbeing: Ludekens (No 2) at [37].

64    The Commissioner submitted that “[t]he evidence on behalf of the scheme participants establishes that they suffered significant loss by reason of the need to repay amounts to which they were not entitled, plus interest and penalties in some cases”. The Commissioner referred to affidavit evidence provided in relation to each scheme detailing the loss suffered by each taxpayer, but did not provide estimates or further descriptions of the loss suffered by the participants. I accept that the scheme participants, namely the clients of the respondents, sustained significant losses. I have not counted as a loss to the scheme participants amounts which such a participant had to pay back to the Commissioner after having first received such amounts from the Commissioner, but I have taken into account what should be regarded as true losses, including penalties and interest, where such losses were established.

65    I also accept that a number of the individuals involved, including officeholders in the relevant corporate taxpayers, suffered significant personal distress or worse.

Section 290-50(5)(d): the nature and extent of the contravention

66    The Commissioner submitted that the following features of the contraventions contributed to the seriousness of the nature and extent of the contraventions:

(1)    The “complete absence of any genuine attempt by the respondents” to assess whether a given activity qualified for the R&D tax incentive and/or the true quantum of expenditure attributable to R&D activities;

(2)    The conduct in each scheme that was fully implemented was sufficiently serious as to amount to tax evasion: Bogiatto at [15];

(3)    Where a taxpayer questioned Mr Bogiatto’s calculations, Mr Bogiatto would typically respond by asserting that he would not disclose his methodology because it was his intellectual property, that he was the expert, and that the client should not question him: Bogiatto at [14]; and

(4)    Mr Bogiatto’s conduct was “designed to deceive both the revenue and those who reposed trust in him, and driven by a desire to substantially (and illicitly) advance his own interests”.

67    The nature and extent of the contraventions is set out in Bogiatto. I have taken the facts relevant to the nature and extent of the contraventions into account in determining the appropriate penalties. The contraventions were in each case serious and substantial.

68    I have also taken into account that the penalties relate to “bespoke” or individual schemes. The relevant schemes are not in the nature of mass-marketed schemes. All other things being equal, a penalty would be less for a “bespoke” scheme than a scheme which was mass-marketed and entered into by numerous taxpayers.

Section 290-50(5)(e): the circumstances in which the contravention took place, including the deliberateness of the entity’s conduct and whether there was an honest and reasonable mistake of law

69    In the absence of any evidence from the respondents, and having regard to the findings in Bogiatto, including those at [709]-[711] that each of the implemented schemes involved tax evasion, I am satisfied that the entities’ conduct did not involve any honest or reasonable mistake of law.

Section 290-50(5)(f): the period over which the conduct extended

70    The schemes which were found to contravene s 290-50(1) in Bogiatto related to the 2012, 2013 and 2014 financial years. The contraventions involved conduct spanning the period from 2011 to 2015. Unlike in Ludekens (No 2), where the conduct covered a “relatively short period”, in the sense that “the conduct in question was not repeated in subsequent income years”, the conduct in this case was repeated across a number of years.

Section 290-50(5)(g): whether the entity took any steps to avoid the contravention

71    The contraventions were deliberate. No steps were taken by Mr Bogiatto or any of the respondents to avoid any of the contraventions.

Section 290-50(5)(h): whether the entity has previously been found by the Court to have engaged in the same or similar conduct

72    There are no previous findings by the Court of similar conduct by the respondents.

Section 290-50(5)(i): the degree of the entity’s cooperation with the Commissioner

73    None of the respondents provided any cooperation to the Commissioner. Indeed, the evidence showed that Mr Bogiatto went to extensive lengths to avoid co-operation with the Commissioner. Mr Bogiatto left Australia in September 2017. On 2 September 2019, Mr Bogiatto returned to Australia, using a New Zealand passport issued under a different name. On 20 September 2019, the Deputy Commissioner of Taxation issued a Departure Prohibition Order (DPO) to Mr Bogiatto. Mr Bogiatto attempted to leave Australia that same day, but was prevent from doing so by reason of the DPO. Throughout the proceedings, Mr Bogiatto’s location was unknown to the Commissioner.

Remorse or contrition

74    As noted, s 290-50(5) permits the Court to take into account any matter it considers relevant.

75    In Ludekens (No 2) at [66], Pagone J held that a lack of remorse or contrition by the promoters is a further matter, in addition to those identified in s 290-50(5), that may be considered in determining the appropriate penalty, referring to the decision of Edmonds J in Arnold (No 2) at [194]-[214].

76    In Arnold (No 2) at [171], Edmonds J concluded that a lack of remorse was relevant to the level of penalty required to achieve the object of specific deterrence. Edmonds J later, at [195] referred to Goldberg J’s decision in Australian Securities and Investments Commission v Soust (No 2) (2010) 78 ACSR 1 at [38]-[39], where his Honour held that a lack of remorse can be an aggravating circumstance relevant to penalty and not just by way of mitigation. Edmonds J also referred to BHP Steel (AIS) Pty Ltd v Construction, Forestry, Mining and Energy [2001] FCA 336, where Kiefel J stated: “[w]hilst the lack of an apology is not an aggravating circumstance, such as might increase the penalty, the making of an apology can operate to reduce a penalty, at least where it can be seen to render it unlikely that the conduct will be repeated in the future”: at [10]. Kiefel J’s remarks have been adopted in a number of subsequent cases: see, eg, Construction, Forestry, Maritime, Mining and Energy Union v Kyren Pty Ltd [2020] FCA 1356 at [77] per White J; Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Visy Packaging Pty Ltd (No 4) [2013] FCA 930 at [51] per Murphy J; Cahill v Construction, Forestry, Mining and Energy Union (No 4) [2009] FCA 1040 at [87] per Kenny J.

77    Different levels of penalties will have differing deterrent effects on different individuals and entities. A person who is already remorseful might require less to be deterred from repeat conduct than a person who has no remorse. There may also be cases where a person without remorse may nevertheless be deterred from repeat conduct because the penalty is at a level which is unpalatable, whereas that person might be more likely to repeat the conduct if the penalty were something less. If, in a particular case, a lack of remorse leads to the conclusion that the object of specific deterrence would be better achieved by the imposition of a higher penalty, then s 290-50(5) permits the lack of remorse to be taken into account. A lack of remorse must be shown to be relevant in a material way to meeting a legitimate object behind imposition of the penalty.

78    The Commissioner submitted that the “[l]ack of remorse or contrition by the promoters should be taken into account” in determining the appropriate penalty. It was submitted that the lack of remorse increased the need for specific deterrence, citing Soust at [28]-[39], [60], [65].

79    I accept that the lack of remorse or contrition demonstrated by the respondents, assessed in light of the respondents’ conduct as a whole, is relevant in that it suggests a higher penalty is warranted for the penalty to achieve the object of specific deterrence. This conclusion could equally be expressed by observing that there was no remorse demonstrated which might have operated to suggest that a lower penalty would have the desired deterrent effect. I do not consider that the lack of remorse is an “aggravating circumstance” in the sense that penalties should be increased simply because remorse has not been expressed.

Financial circumstances

80    The financial circumstances of the respondents is an additional consideration that may be relevant to the determination of penalties: Ludekens (No 2) at [66], [74]; Arnold (No 2) at [200]-[204]; Barossa Vines at [79]. In circumstances where the respondents have not adduced evidence regarding their financial positions, I have not placed significant weight on this consideration.

V    ASSESSMENT OF PENALTIES

81    I consider below the appropriate penalty for each offence. I have applied the principles referred to above, as expanded upon below. In determining the penalties, I have considered all of the factors outlined above, particularly in Part IV. I have considered all of the facts as set out in Bogiatto. I refer below to some matters of particular relevance.

82    I have generally determined a penalty of the same amount for Mr Bogiatto as for the corporate respondents. This reflects the fact that Mr Bogiatto was largely responsible for the corporations’ conduct and that the corporations were, in substance, Mr Bogiatto’s alter ego. There is no useful distinction to be drawn in this case between the conduct of Mr Bogiatto and the conduct of the corporations. Mr Bogiatto’s conduct was the conduct of the corporations and it is not useful on the present facts to seek to determine when his conduct could be tied to one particular corporation rather than another or when it was referrable only to himself. In the end, each of the respondents is equally responsible.

83    As noted at [24] above, I do not read s 290-50(4)(a) as requiring that in all circumstances corporations should always be penalised five times as much as individuals even where the relevant conduct can be seen to be equally culpable. The primary question is what is required to meet the objective behind imposing the penalty. It is doubtful that any of the corporate respondents in the present case have any greater financial capacity than Mr Bogiatto. Nor do I consider that the object of general deterrence is furthered in the particular circumstances of this case by imposing a relatively higher penalty on the corporate respondents – cf: Leahy at [9].

84    As noted at [62] above, I have not reduced penalties against any of the respondents by reasoning that there was no direct evidence that the particular respondent in fact benefitted from the consideration which was received. The respondents chose not to appear or adduce evidence about what occurred with the consideration in fact received. It is probable that the consideration received by a particular respondent was passed on to or shared with one or other of the remaining respondents or that those other respondents benefitted from the consideration in some way.

Mediaconnect Australia Pty Ltd

85    The contraventions: Mr Bogiatto, Ryusei and Lambdachase Advisors each engaged in conduct that resulted in themselves being promoters of the Mediaconnect tax exploitation scheme in the 2013 financial year. Mr Bogiatto also engaged in conduct that resulted in Ryusei and Lambdachase Advisors being promoters of the 2013 Mediaconnect scheme.

86    The maximum penalty: The maximum penalty for Mr Bogiatto’s contravention is $850,000, and the maximum penalty for each of Ryusei’s and Lambdachase Advisors’ contraventions is $4,250,000. The maximum penalties for each respondent have been calculated in accordance with s 290-50(4)(a), using the $170 penalty unit in force from 28 December 2012 onwards.

87    The Commissioner’s submission: The Commissioner submitted that, leaving aside any relevant application of the course of conduct or totality principles, Mr Bogiatto should be ordered to pay a penalty of $765,000 in relation to the Mediaconnect scheme, and that Ryusei and Lambdachase Advisors should each be ordered to pay $3,825,000. These figures reflect 90% of the maximum penalty applicable for each entity. As noted above, I do not consider it appropriate to calculate penalties using a proportional reduction from the maximum penalty.

88    The consideration received or receivable by the respondents: The respondents received consideration from Mediaconnect in the form of a promise to pay. Mr Sim, the Chief Executive Officer of Mediaconnect, accepted a “Terms of Engagement” letter which provided that the fee payable was “30% of the net Research & Development tax offset granted from the Australian Taxation Office in the first instance”: Bogiatto at [134] to [135]. An invoice was issued to Mediaconnect for work done in preparation of the R&D claim in the amount of $24,189.99, before Mediaconnect had lodged an amended 2013 income tax return and before it had received any refund: Bogiatto at [136]. The Commissioner subsequently granted Mediaconnect an R&D tax offset of $219,908.70: Bogiatto at [129]. Mediaconnect did not ultimately pay any monetary consideration to the respondents: Bogiatto at [136].

89    The loss or damage to the taxpayer: Mediaconnect paid back the R&D tax incentive refund it received, except for the amount claimed for work which Mr Sim had personally performed. The Commissioner did not provide details of the amount of the tax incentive that Mediaconnect paid back to the Commissioner, nor the level of loss or damage incurred by the taxpayer.

90    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. Mr Bogiatto demonstrated clear disregard for whether the Mediaconnect R&D claim was available at law. For example, when Mr Sim told Mr Bogiatto that he had previously been advised that Mediaconnect could not use offshore labour expenses in connection with an R&D tax incentive claim, and an R&D tax offset was not available in the present case for expenditure incurred on activities conducted outside Australia, Mr Bogiatto repeatedly assured Mr Sim that it was permissible to use offshore labour costs in the R&D claim: Bogiatto at [122], [123], [152], [153]. He could not have thought that was correct.

91    The penalty: The respondents did not receive payment from the taxpayers, so it is not possible to set the penalty by reference to the monetary consideration in fact received. As noted at [55] to [56] above, that does not mean that no penalty is appropriate. Leaving aside the totality principle, I consider the appropriate penalty to be $100,000 with respect to each of the respondents involved in the scheme having regard to the object of general deterrence and the other matters in s 250-90(5), including in particular the matters in paragraphs (c) to (g) as expanded upon above.

92    I have returned to consider the penalties referred to above after determining all of the penalties and do not consider any reduction is required under the totality principle.

Harris Movement Engineering (HME) Pty Ltd

93    The contraventions: Mr Bogiatto and Ryusei each engaged in conducted that resulted in themselves being promoters of the HME tax exploitation scheme in the 2012 financial year. Mr Bogiatto also engaged in conduct that resulted in Ryusei being a promoter of the 2012 HME scheme.

94    Mr Bogiatto, Ryusei and Lambdachase Advisors each engaged in conduct that resulted in themselves being promoters of the HME tax exploitation schemes in the 2013 and 2014 financial years. Mr Bogiatto also engaged in conduct that resulted in Ryusei and Lambdachase Advisors being promoters of the 2013 and 2014 HME tax exploitation schemes.

95    Lambdachase Services engaged in conduct that resulted in Mr Bogiatto, Ryusei and Lambdachase Advisors each being a promoter of the 2013 HME tax exploitation scheme.

96    The maximum penalty: The maximum penalties for Mr Bogiatto are $550,000 for the 2012 scheme, $1,513,077.38 for the 2013 scheme and $3,000,000 for the 2014 scheme. The maximum penalties for Ryusei are $2,750,000 for the 2012 and 2013 schemes, and $3,000,000 for the 2014 scheme. The maximum penalties for Lambdachase Advisors are $2,750,000 for the 2013 scheme and $3,000,000 for the 2014 scheme. The maximum penalty for Lambdachase Services is $2,750,000. The maximum penalties for Mr Bogiatto in the 2013 and 2014 schemes, and Lambdachase Advisors and Ryusei in the 2014 scheme, have been calculated in accordance with s 290-50(4)(b). HME paid $756,538.69 to Lambdachase Services for work done in relation to the 2013 scheme and paid $1,500,000 to Ryusei for work done in relation to the 2014 scheme: Bogiatto at [189]. As Ryusei and Lambdachase Services were both associates of each other and of Mr Bogiatto and Lambdachase Advisors (Bogiatto at [190]), the consideration received by Ryusei and Lambdachase Services determines the maximum amount under s 290-50(4)(b) for each relevant respondent. All other maximum penalties in relation to the HME schemes have been calculated in accordance with s 290-50(4)(a), using the $110 penalty unit in force until 27 December 2012.

97    The Commissioner’s submission: The Commissioner submitted that, leaving aside any application of the course of conduct or totality principles, each respondent should be ordered to pay 95% of the maximum penalty applicable. I do not consider it appropriate to calculate penalties using a proportional reduction from the maximum penalty.

98    The consideration received or receivable by the respondents: Mr Harris, the director and secretary of HME, received a “Terms of Engagement” letter in relation to the 2012 financial year and a further “Terms of Engagement” letter in relation to the 2013 and 2014 financial years: Bogiatto at [170], [179]. The terms of engagement letters provided that the fee payable was 25% of the net R&D tax offset granted from the ATO in the first instance: Bogiatto at [187]. HME accepted the terms of these engagement letters by continuing to provide instructions in relation to the R&D claims: Bogiatto at [188]. HME received an invoice for work done in the preparation of the 2012 R&D claim in the amount of $165,937.31. It was unclear whether HME paid this invoice: Bogiatto at [189]-[190]. HME paid $756,538.69 to Lambdachase Services in relation to the 2013 scheme, and $1,500,000 to Ryusei in relation to the 2014 scheme: Bogiatto at [189].

99    The loss or damage to the taxpayer: The ATO commenced an audit of HME’s R&D claims in May 2015. HME provided a voluntary disclosure to the ATO that reduced HME’s refundable R&D tax offset for the 2012, 2013 and 2014 financial years from $7,968,511.80 to $2,635,930.80. The ATO issued Notices of Amended Assessment following HME’s voluntary disclosure, which provided that HME had a tax liability of $5,219,649.86, including penalty and interest. HME was unable to meet its obligations and went into liquidation.

100    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. The amount of R&D expenditure claimed by HME far exceeded the actual R&D expenditure incurred by HME. Mr Harris deposed to HME not incurring certain expenses included in the R&D claims, including a $3,500,540 “management fee” claimed to have been incurred in the 2013 financial year: Bogiatto at [215]. Mr Harris estimated that approximately 15-20% of HME’s turnover was valid R&D expenditure: Bogiatto at [207]. The amounts claimed as R&D expenditure were a gross exaggeration of HME’s actual R&D expenditure, as reflected in the reduction of HME’s refundable tax offset that occurred as a result of HME’s voluntary disclosure. I am satisfied on the balance of probabilities, as affected s 140 of the Evidence Act 1995 (Cth), that Mr Bogiatto knew the claims were effectively false claims and that he intended to, and did, profiteer either directly or indirectly through the corporate respondents from his unlawful conduct. His conduct resulted in devastating consequences for HME.

101    The penalty: I consider the appropriate penalty to be $200,000 for each of Mr Bogiatto and Ryusei in respect of the 2012 scheme, $1.0 million for each of Mr Bogiatto, Ryusei, Lambdachase Advisors and Lambdachase Services in respect of the 2013 scheme, and $2.0 million for each of Mr Bogiatto, Ryusei and Lambdachase Advisors in respect of the 2014 scheme. The penalties in respect of the 2013 and 2014 years are significant. This reflects the fact that the contraventions begin to approach a worst case scenario, at least for a “bespoke” as opposed to a mass-marketed scheme, and that deterrence is promoted by setting a penalty substantially above the amounts in fact received by Lambdachase Services and Ryusei in the 2013 and 2014 years, namely $756,538.69 and $1,500,000 respectively.

102    I have earlier explained why there is no reduction in the penalties of the respondents apart from those to whom the monetary consideration was paid on the basis that they were not shown to have received the consideration – see [57] to [62] above.

103    I have returned to consider these penalties after determining all of the penalties and do not consider any reduction is required under the totality principle.

Moorilla Estate Pty Ltd

104    The contraventions: Mr Bogiatto, Ryusei and Lambdachase Advisors each engaged in conduct that resulted in themselves being a promoter of the Moorilla tax exploitation scheme in the 2013 financial year. Mr Bogiatto also engaged in conduct that resulted in Ryusei and Lambdachase Advisors being promoters of the Moorilla tax exploitation scheme, and Lambdachase Services engaged in conduct that resulted in Mr Bogiatto, Ryusei and Lambdachase Advisors being promoters of the Moorilla tax exploitation scheme.

105    The maximum penalty: The maximum penalty for Mr Bogiatto’s contravention is $850,000, and the maximum penalty for each of Ryusei’s, Lambdachase Advisors’ and Lambdachase Services’ contraventions is $4,250,000. The maximum penalties for each respondent have been calculated in accordance with s 290-50(4)(a), using the $170 penalty unit in force from 28 December 2012 onwards.

106    The Commissioner’s submissions: The Commissioner submitted that, leaving aside any relevant application of the course of conduct or totality principles, Mr Bogiatto should be ordered to pay a penalty of $765,000 in relation to the Moorilla scheme, and that Ryusei, Lambdachase Advisors and Lambdachase Services should each be ordered to pay $3,825,000. These figures reflect 90% of the maximum penalty applicable for each entity.

107    The consideration received or receivable by the respondents: Moorilla paid $101,553.87 to Lambdachase Services for work done in the preparation and submission of its 2013 R&D tax incentive application: Bogiatto at [248].

108    The loss or damage to the taxpayer: In October 2015, Moorilla lodged an amendment to its 2013 income tax return that removed the R&D claim that had been made for the 2013 financial year. Moorilla sent a cheque to the ATO in the amount of $945,138.49 for the refundable R&D tax offset it received including interest. In or around late November 2015, Moorilla made a further payment of $67,114.62 in respect of outstanding shortfall interest owing to the ATO. Moorilla’s loss, so far as concerns the R&D claim as opposed to consideration paid, is properly seen as confined to interest.

109    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. Mr Bogiatto demonstrated clear disregard for whether the Moorilla R&D claim was available at law. Mr Kelly, the CFO and joint CEO of Moorilla, questioned the figures that Mr Bogiatto provided in the draft AusIndustry R&D Tax Incentive Application on a number of occasions: Bogiatto at [239], [240]. Mr Bogiatto assured Mr Kelly that the figures in the application were correct: Bogiatto at [240]. He must have known they were not.

110    The penalty: I consider the appropriate penalty to be $120,000 for each of Mr Bogiatto, Ryusei, Lambdachase Advisors and Lambdachase Services.

111    I have returned to consider these penalties after determining all of the penalties and do not consider any reduction is required under the totality principle.

BBS Flooring Pty Ltd

112    The contraventions: Mr Bogiatto, Ryusei and Lambdachase Advisors each engaged in conduct that resulted in themselves being promoters of the BBS tax exploitation scheme in the 2013 financial year. Mr Bogiatto also engaged in conduct that resulted in Ryusei and Lambdachase Advisors being promoters of the BBS tax exploitation scheme. Lambdachase Services engaged in conduct that resulted in Mr Bogiatto, Ryusei and Lambdachase Advisors each being a promoter of the BBS tax exploitation scheme.

113    The maximum penalty: The maximum penalty for Mr Bogiatto’s contravention is $850,000, and the maximum penalty for each of Ryusei’s, Lambdachase Advisors’ and Lambdachase Services’ contraventions is $4,250,000. The maximum penalties for each respondent have been calculated in accordance with s 290-50(4)(a), using the $170 penalty unit in force from 28 December 2012 onwards.

114    The Commissioner’s submission: The Commissioner submitted that, putting to one side any relevant application of the course of conduct or totality principles, Mr Bogiatto should be ordered to pay a penalty of $722,500 in relation to the BBS Scheme, and that Ryusei, Lambdachase Advisors and Lambdachase Services should each be ordered to pay $3,612,500. These figures reflect 85% of the maximum penalty applicable for each entity.

115    The consideration received or receivable by the respondents: On 27 February 2015, an invoice was issued to BBS in the amount of $203,491.20, requiring payment to be made to Lambdachase Services. Between March 2015 and July 2015 Mr Bateman, the director and secretary of BBS, caused seven payments to be made in satisfaction of the invoice: Bogiatto at [286].

116    The loss or damage to the taxpayer: BBS was required to pay to the ATO a tax shortfall amount of $506,886.30 and a shortfall interest charge of $53,046.94. After BBS lodged an objection decision, no shortfall penalty was imposed for the incorrect R&D claim lodged in the 2013 financial year. Mr Bateman gave evidence that BBS incurred substantial consulting and legal costs of approximately $53,000 in attempting to address the consequences of the incorrect 2013 R&D claim. Mr Bateman stated that he “was enormously stressed due to the ATO audit and had lost [his] normal energy, focus and ability to get things done”, and that the stress has “almost been debilitating at times”.

117    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. Mr Bogiatto provided false assurances to Mr Bateman about the prospective R&D claim, and refused to provide Mr Bateman with information about how the R&D claim was calculated: Bogiatto at [268], [281].

118    The penalty: I consider the appropriate penalty to be $250,000 for each of Mr Bogiatto, Ryusei, Lambdachase Advisors and Lambdachase Services.

119    I have returned to consider these penalties after determining all of the penalties and do not consider any reduction is required under the totality principle.

Derisole Pty Ltd

120    The contraventions: Mr Bogiatto, Ryusei and Lambdachase Advisors each engaged in conduct that resulted in themselves being promoters of the Derisole tax exploitation scheme in the 2013 financial year. Mr Bogiatto also engaged in conduct that resulted in Ryusei and Lambdachase Advisors being promoters of the Derisole tax exploitation scheme.

121    The maximum penalty: The maximum penalty for Mr Bogiatto’s contravention is $850,000, and the maximum penalty for each of Ryusei’s and Lambdachase Advisors’ contraventions is $4,250,000. The maximum penalties for each respondent have been calculated in accordance with s 290-50(4)(a), using the $170 penalty unit in force from 28 December 2012 onwards.

122    The Commissioner’s submission: The Commissioner submitted that, leaving aside any relevant application of the course of conduct or totality principles, Mr Bogiatto should be ordered to pay a penalty of $765,000 in relation to the Derisole scheme, and that Ryusei and Lambdachase Advisors should each be ordered to pay $3,825,000. These figures reflect 90% of the maximum penalty applicable for each entity.

123    The consideration received or receivable by the respondents: The respondents received consideration from Derisole in the form of a promise to pay. Derisole received a “Terms of Engagement” letter from the respondents, which provided that the fee payable was “30% of the net Research & Development tax offset granted from the Australian Taxation Office in the first instance”, and continued to provide instructions, thereby accepting the terms of engagement: Bogiatto at [314]-[315]. In August 2014, Mr Bogiatto emailed to Derisole an invoice in the amount of $49,900 from Lambdachase Services. Derisole never paid this invoice: Bogiatto at [310]-[314].

124    The loss or damage to the taxpayer: Derisole lodged an amended tax return for the 2013 financial year in October 2015, which withdrew the R&D claim that Derisole had previously made. In December 2015, Derisole repaid the tax incentive received, being $151,213.35, plus shortfall interest of $12,769.81.

125    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. The R&D Tax Incentive application lodged recorded that Derisole’s total R&D expenditure was $1,008,090, whereas in fact, Derisole did not engage in any work that could reasonably be considered to be R&D expenditure: Bogiatto at [306], [324].

126    The penalty: I consider the appropriate penalty to be $200,000 for Mr Bogiatto, Ryusei and Lambdachase Advisors. Although no monetary consideration was received, the contraventions caused a false claim for R&D expenditure of over $1 million. A substantial penalty is warranted in the interests of deterrence. As noted earlier, whilst the scheme contemplates a maximum penalty of 5 times more for a corporations where s 290-50(4)(a) applies, the deterrent objective is achieved on the facts of this case by equivalent penalties.

127    I have returned to consider these penalties after determining all of the penalties and do not consider any reduction is required under the totality principle.

Indux Air Systems Pty Ltd

128    The contraventions: Mr Bogiatto, Ryusei and Lambdachase Advisors each engaged in conduct that resulted in themselves being promoters of the Indux tax exploitation schemes in the 2013 and 2014 financial years. Mr Bogiatto also engaged in conduct that resulted in Ryusei and Lambdachase Advisors being promoters of the 2013 and 2014 Indux schemes.

129    The maximum penalty: The maximum penalties for Mr Bogiatto’s contraventions are $850,000 for each of the 2013 and 2014 Indux schemes. The maximum penalties for each of Ryusei’s and Lambdachase Advisors’ contraventions are $4,250,000 for each of the 2013 and 2014 Indux schemes. The maximum penalties for each respondent have been calculated in accordance with s 290-50(4)(a), using the $170 penalty unit in force from 28 December 2012 onwards.

130    The Commissioner’s submissions: The Commissioner submitted that, leaving aside any relevant application of the course of conduct or totality principles, each respondent should be ordered to pay 90% of the maximum penalty applicable.

131    The consideration received or receivable by the respondents: Mr Vidler, the director of Indux, executed a “Terms of Engagement” letter which provided that the fee payable was 30% of the net R&D tax offset granted by the ATO in the first instance: Bogiatto at [344]. Indux received an R&D tax offset of $279,870.75 in the 2013 financial year, and $318,698.55 in the 2014 financial year: Bogiatto at [357], [369]. Indux did not receive an invoice from any of the respondents, and did not pay any fees to the respondents: Bogiatto at [371].

132    The loss or damage incurred by the taxpayer: The ATO conducted a risk review of the claims made for the R&D tax incentive in Indux’s 2013 and 2014 income tax returns. The risk review resulted in Indux’s 2013 and 2014 R&D claims being disallowed in their entirety. Indux incurred shortfall penalty amounts of $167,677.35 and $305,431.65 for the 2013 and 2014 financial years respectively. Indux was subsequently placed into voluntary liquidation.

133    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. Mr Bogiatto demonstrated clear disregard for whether the Indux R&D claim was available at law. Mr Bogiatto provided false reassurance to Mr Vidler when Mr Vidler raised concerns about the accuracy of the R&D claims: Bogiatto at [340]-[341]. The Indux Trading Trust was not eligible to receive R&D incentives, and as such none of the scheme benefits claimed were available at law: Bogiatto at [377]-[378].

134    The penalty: I consider the appropriate penalty to be $100,000 for each of Mr Bogiatto, Ryusei and Lambdachase Advisors in respect of the 2013 Indux Scheme. I consider the appropriate penalty to be $20,000 for each of Mr Bogiatto, Ryusei and Lambdachase Advisors in respect of the 2014 Indux Scheme, which should be seen as part of the one course of conduct together with the 2013 Indux scheme.

135    I have returned to consider these penalties after determining all of the penalties and do not consider any reduction is required under the totality principle.

Tempcon Pty Ltd

136    The contraventions: Mr Bogiatto and Ryusei each engaged in conduct that resulted in themselves being promoters of the Tempcon tax exploitation schemes in the 2012 and 2013 financial years. Mr Bogiatto also engaged in conduct that resulted in Ryusei being a promoter of the 2012 and 2013 Tempcon schemes, and Lambdachase Advisors being a promoter of the 2013 Tempcon scheme.

137    Lambdachase Services engaged in conduct which resulted in Mr Bogiatto and Ryusei both being promoters of the 2012 Tempcon tax exploitation scheme. Lambdachase Advisors engaged in conduct that resulted in it being a promoter of the 2013 Tempcon tax exploitation scheme.

138    The maximum penalty: The maximum penalties for Mr Bogiatto’s contraventions are $550,000 for each of the 2012 and 2013 Tempcon schemes. The maximum penalties for Ryusei’s contraventions are $2,750,000 for each of the 2012 and 2013 Tempcon schemes. The maximum penalty for Lambdachase Services’ contravention in respect of the 2012 Tempcon scheme is $2,750,000, and the maximum penalty for Lambdachase Advisors’ contravention in respect of the 2013 Tempcon scheme is $2,750,000. The maximum penalties for each respondent have been calculated in accordance with s 290-50(4)(a), using the $110 penalty unit in force until 27 December 2012.

139    The Commissioner’s submissions: The Commissioner submitted that, leaving aside any relevant application of the course of conduct or totality principles, each respondent should be ordered to pay 80% of the maximum penalties applicable.

140    The consideration received or receivable by the respondents: In respect of the 2012 Tempcon scheme, an invoice in the sum of $7,224.80 was paid to Lambdachase Services: Bogiatto at [435]. In respect of the 2013 Tempcon scheme, consideration was received in the form of a promise to pay. Mr Lonsdale, the director of Temperature Controls Pty Ltd, signed a “Terms of Engagement” letter on behalf of Tempcon, which provided that the fee payable was 30% of the net R&D tax offset granted from the ATO in the first instance. Tempcon was granted a refundable R&D tax offset in the amount of $96,645.05 in the 2013 financial year. No invoice was issued in respect of the 2013 Tempcon scheme: Bogiatto at [437]-[438].

141    The loss or damage incurred by the taxpayer: The ATO never took action in respect of Tempcon’s R&D claim for the 2012 financial year. After the ATO commenced a review of Tempcon’s R&D claim for the 2013 financial year, Tempcon made a voluntary disclosure, with the effect that Tempcon withdrew its R&D tax incentive claim for the 2013 financial year. The ATO did not impose penalties in relation to the incorrect R&D claim. Tempcon was required to pay the ATO $96,645.60, representing the amount of the R&D offset Tempcon received, plus shortfall interest of $6,929.26.

142    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. None of the amounts claimed as R&D expenditure by Tempcon were available at law. The amounts claimed as R&D expenditure were not incurred by Tempcon, but rather were incurred by a separate entity, Temperature Controls Unit Trust, which was not eligible to receive R&D incentives: Bogiatto at [444]. The Commissioner submitted that a lower percentage of the maximum penalty, being 80%, was appropriate in regards to the Tempcon schemes “on the basis that the conduct in question is largely confined to a single factor, being the making of a claim by an entity that is not an R&D entity”.

143    The penalty: I consider the appropriate penalty to be $100,000 for each of Mr Bogiatto, Ryusei and Lambdachase Services in respect of the 2012 Tempcon Scheme. I consider the appropriate penalty to be $20,000 for Mr Bogiatto and Ryusei in respect of the 2013 Tempcon Scheme, which should be seen as part of the one course of conduct together with the 2012 Tempcon scheme. I consider the appropriate penalty for Lambdachase Advisors in respect of the 2013 Tempcon scheme to be $100,000.

144    I have returned to consider these penalties after determining all of the penalties and do not consider any reduction is required under the totality principle.

Woods Furniture Pty Ltd

145    The contraventions: Mr Bogiatto, Ryusei and Lambdachase Advisors each engaged in conduct that resulted in themselves being a promoter of the Woods tax exploitation scheme in the 2014 financial year. Mr Bogiatto also engaged in conduct that resulted in Ryusei and Lambdachase Advisors being promoters of the Woods scheme, and Lambdachase Services engaged in conduct that resulted in Mr Bogiatto, Ryusei and Lambdachase Advisors being promoters of the Woods scheme.

146    The maximum penalty: The maximum penalty for Mr Bogiatto’s contravention is $850,000, and the maximum penalty for each of Ryusei’s, Lambdachase Advisors’ and Lambdachase Services’ contraventions is $4,250,000. The maximum penalties for each respondent have been calculated in accordance with s 290-50(4)(a), using the $170 penalty unit in force from 28 December 2012 onwards.

147    The Commissioner’s submissions: The Commissioner submitted that, leaving aside any relevant application of the course of conduct or totality principles, Mr Bogiatto should be ordered to pay a penalty of $807,500 in relation to the Woods scheme, and that Ryusei, Lambdachase Advisors and Lambdachase Services should each be ordered to pay $4,037,500. These figures reflect 95% of the maximum penalty applicable for each entity.

148    The consideration received or receivable by the respondents: Woods received an invoice from “Lambda Chase Chartered Accountants” for the amount of $219,974.04. Woods paid this sum to Lambdachase Services: Bogiatto at [480].

149    The loss or damage to the taxpayer: On 4 August 2016, the ATO commenced a review in relation to the R&D claims made by Woods. Woods subsequently made voluntary disclosures in respect of the 2014 R&D claim, and lodged an amended income tax return reducing the claimed R&D expenditure from $4,443,920 to $585,826. The Commissioner did not provide evidence regarding the extent of any shortfall interest paid, or whether a penalty was imposed on Woods.

150    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. Mr Bogiatto demonstrated clear disregard for whether the Woods R&D claim was available at law. Mr Massey, the managing director of Woods, and Mr Firman, the financial controller of Woods, questioned the figures that Mr Bogiatto provided in the AusIndustry R&D Tax Incentive Application. Mr Bogiatto assured Mr Massey that his calculations were correct, and refused to provide further information to Mr Firman about how R&D claim was calculated: Bogiatto at [462]-[465], [472]-[474]. I conclude that Mr Bogiatto knew the claims could not legitimately be made.

151    The penalty: I consider the appropriate penalty to be $300,000 for each of Mr Bogiatto, Ryusei, Lambdachase Advisors and Lambdachase Services. I have returned to consider these penalties after determining all of the penalties and do not consider any reduction is required under the totality principle.

Australian Steel Pty Ltd

152    The contraventions: Mr Bogiatto, Ryusei and Lambdachase Advisors each engaged in conduct that resulted in themselves being promoters of the Australian Steel tax exploitation scheme in the 2014 financial year. Mr Bogiatto also engaged in conduct that resulted in Ryusei and Lambdachase Advisors being promoters of the 2014 Australian Steel scheme, and Lambdachase Services engaged in conduct that resulted in Mr Bogiatto, Ryusei and Lambdachase Advisors being promoters of the Australian Steel scheme.

153    The maximum penalty: The maximum penalty for Mr Bogiatto’s contravention is $850,000, and the maximum penalty for each of Ryusei’s, Lambdachase Advisors’ and Lambdachase Services’ contraventions is $4,250,000. The maximum penalties for each respondent have been calculated in accordance with s 290-50(4)(a), using the $170 penalty unit in force from 28 December 2012 onwards.

154    The Commissioner’s submissions: The Commissioner submitted that, pending any relevant application of the course of conduct or totality principles, Mr Bogiatto should be ordered to pay a penalty of $637,500 in relation to the Australian Steel scheme, and that Ryusei, Lambdachase Advisors and Lambdachase Services should each be ordered to pay $3,187,500. These figures reflect 75% of the maximum penalty applicable for each entity.

155    The consideration received or receivable by the respondents: Mr Capocasale, the managing director of Australian Steel, signed a “Terms of Engagement” letter on 5 December 2014: Bogiatto at [502]. The terms of engagement letter provided that the fee payable to “Lambda Chase” for preparing and submitting the R&D claim was 30% of the net R&D tax offset sought. On 5 November 2015, Australian Steel received an amended invoice from “LambdaChase Chartered Accountants” requiring payment to Lambdachase Services of the sum of $70,203.47. Australian Steel paid this invoice on 4 December 2015: Bogiatto at [517].

156    The loss or damage incurred by the taxpayer: In December 2015, the ATO commenced an investigation in relation to the R&D claim made by Australian Steel. Australian Steel subsequently lodged an amended return with the ATO, which resulted in a lower R&D claim being made by Australian Steel. The Commissioner did not establish the amount of R&D expenditure claimed in the amended return, nor the extent of any shortfall interest paid.

157    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. For example, Mr Bogiatto refused to provide any details of his calculations when Mr Capocasale and Australian Steel’s accountants requested this information: Bogiatto at [501], [513]. The Commissioner submitted that a lower percentage of the maximum penalty, being 75%, was appropriate because of the finding in Bogiatto that there was potentially expenditure on R&D activities that was not insubstantial: at [526].

158    The penalty: I consider the appropriate penalty to be $100,000 for each of Mr Bogiatto, Ryusei, Lambdachase Advisors and Lambdachase Services.

159    I have returned to consider these penalties after determining all of the penalties and do not consider any reduction is required under the totality principle.

Design Landscapes Pty Ltd

160    The contraventions: Mr Bogiatto and Ryusei each engaged in conducted that resulted in themselves being promoters of the Design Landscapes tax exploitation scheme in the 2012 financial year. Mr Bogiatto also engaged in conduct that resulted in Ryusei being a promoter of the 2012 Design Landscapes scheme. Lambdachase Services engaged in conduct that resulted in Mr Bogiatto and Ryusei being promoters of the 2012 Design Landscapes Scheme.

161    Mr Bogiatto, Ryusei and Lambdachase Advisors each engaged in conduct that resulted in themselves being promoters of the Design Landscapes tax exploitation schemes in the 2013 and 2014 financial years. Mr Bogiatto also engaged in conduct that resulted in Ryusei and Lambdachase Advisors being promoters of the 2013 and 2014 Design Landscapes tax exploitation schemes. Lambdachase Services engaged in conduct that resulted in Mr Bogiatto, Ryusei and Lambdachase Advisors each being a promoter of the 2013 and 2014 Design Landscapes tax exploitation schemes.

162    The maximum penalty: The maximum penalties for Mr Bogiatto are $550,000 for each of the 2012, 2013 and 2014 schemes. The maximum penalties for Ryusei’s and Lambdachase Services’ contraventions are $2,750,000 for each of the 2012, 2013 and 2014 schemes. The maximum penalties for Lambdachase Advisors’ contraventions are $2,750,000 for each of the 2013 and 2014 schemes. The maximum penalties for each respondent have been calculated in accordance with s 290-50(4)(a), using the $110 penalty unit in force until 27 December 2012.

163    The Commissioner’s submissions: The Commissioner submitted that, leaving aside any relevant application of the course of conduct or totality principles, each respondent should be ordered to pay 80% of the maximum penalty applicable. The Commissioner submitted that a lower percentage of the maximum penalty was appropriate on the basis that the “specificity of the evidence going to Mr Bogiatto’s conduct as to these scheme[s] is relatively less”. I have approached the determination of penalties on the approach indicated earlier.

164    The consideration received or receivable by the respondents: The respondents received consideration in the form of a promise to pay. Design Landscapes executed “Terms of Engagement” letters for the 2012, 2013 and 2014 financial years. The terms of engagement letters provided that the fee payable was “15% of the net Research and Development tax offset from the Australian Taxation Office”: Bogiatto at [599]-[601]. The respondents also received consideration in the form of payment of $60,000 in settlement of proceedings which had been commenced by Ryusei, Lambdachase Advisors and Lambdachase Services in respect of unpaid invoices, including invoices relating to the 2012, 2013 and 2014 Design Landscapes schemes: Bogiatto at [602].

165    The loss or damage incurred by the taxpayer: In February 2016, the ATO commenced an investigation in relation to the R&D claims made by Design Landscapes. Design Landscape’s R&D claims were being reviewed by AusIndustry at the same time. AusIndustry concluded that all of the R&D expenditure claimed by Design Landscapes in the 2012, 2013 and 2014 financial years was not eligible R&D expenditure. The ATO disallowed the R&D grants in these financial years, and required Design Landscapes to repay the tax benefit, and pay shortfall interest and penalties. The total resulting liability was approximately $4.5 million. Design Landscapes was unable to repay its debts to the ATO and entered liquidation. Mr Platt, the director and secretary of Design Landscapes, gave evidence that “[t]his whole episode has had a considerable effect on me both financially and emotionally”.

166    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. In the contravention stage of the proceedings, the Commissioner established that the overwhelming majority of the claimed R&D activities were not R&D activities: Bogiatto at [616].

167    The penalty: I consider the appropriate penalty to be $60,000 for each of Mr Bogiatto, Ryusei and Lambdachase Services in respect of the 2012 Design Landscapes scheme, and $60,000 for each of Mr Bogiatto, Ryusei, Lambdachase Advisors and Lambdachase Services in respect of the each of the 2013 and 2014 Design Landscape schemes. I have returned to consider these penalties after determining all of the penalties and do not consider any reduction is required under the totality principle.

Sky High Hoists Rigging and Electrical Pty Ltd

168    The contraventions: Mr Bogiatto and Ryusei each engaged in conducted that resulted in themselves being promoters of the Sky High tax exploitation schemes in the 2012 and 2013 financial years. Mr Bogiatto also engaged in conduct that resulted in Ryusei being a promoter of the 2012 and 2013 Sky High schemes, and engaged in conduct that resulted in Lambdachase Advisors being a promoter of the 2013 Sky High scheme. The proceeding concerning Lambdachase Advisors’ involvement in the 2013 Sky High scheme was statute barred: Bogiatto at [716].

169    The maximum penalty: The maximum penalties for Mr Bogiatto’s contraventions are $550,000 for each of the 2012 and 2013 Sky High schemes. The maximum penalties for Ryusei’s contraventions are $2,750,000 for each of the 2012 and 2013 Sky High schemes. The maximum penalties for each respondent have been calculated in accordance with s 290-50(4)(a), using the $110 penalty unit in force until 27 December 2012.

170    The Commissioner’s submission: The Commissioner submitted that, leaving aside any relevant application of the course of conduct or totality principles, Mr Bogiatto and Ryusei should be ordered to pay 95% of the maximum penalty applicable.

171    The consideration received or receivable by the respondents: The respondents received consideration in the form of a promise to pay. Mr Hunt, the secretary of Sky High, received a “Letter of Engagement” from Ms Tang, whose signature block indicated that she worked for Ryusei trading as Lambda Chase Chartered Accountants. The “Letter of Engagement” provided that the fee payable was “30% of the net research and development tax offset granted by the Australian taxation Office”. Sky High accepted these terms by continuing to instruct Mr Bogiatto: Bogiatto at [631], [652]. Ryusei issued an invoice to Sky High for the preparation and submission of the 2012 R&D application in the amount of $24,014.10. Sky High never paid this invoice. No invoice was received in respect of the 2013 application: Bogiatto at [653].

172    The loss or damage incurred by the taxpayer: Sky High did not lodge income tax returns claiming the R&D tax incentive based on Mr Bogiatto’s work. Mr Hunt gave evidence that Sky High suffered “adverse consequences” as a result of Mr Bogiatto and Ryusei’s promotion of the tax exploitation schemes, including that it now has a less than satisfactory lodgement history and has incurred interest for late lodgement of the income tax returns it delayed as it waited for Mr Bogiatto to advise on R&D projects.

173    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. For example, Mr Bogiatto submitted an R&D Tax Incentive Application for the 2012 and 2013 financial years on Sky High’s behalf, without Mr Hunt’s approval or knowledge: Bogiatto at [641], [646]. The 2012 application included amounts with which Mr Hunt had earlier informed Mr Bogiatto he disagreed. Whilst the Sky High schemes were never implemented, this does not diminish the serious and substantial nature of the contraventions.

174    The penalty: I consider the appropriate penalty to be $100,000 for each of Mr Bogiatto and Ryusei in respect of the contraventions concerning the 2012 financial year and $20,000 for the contraventions concerning the 2013 financial year. The two years should be seen as part of one course of conduct. I have taken this into account by reducing the penalties for the 2013 financial year.

175    I have returned to consider these penalties after determining all of the penalties and do not consider any reduction is required under the totality principle.

Visionpak Pty Ltd

176    The contraventions: Mr Bogiatto and Ryusei each engaged in conducted that resulted in themselves being promoters of the Visionpak tax exploitation scheme in the 2012 financial year. Mr Bogiatto also engaged in conduct that resulted in Ryusei being a promoter of the 2012 Visionpak scheme.

177    Mr Bogiatto, Ryusei and Lambdachase Advisors each engaged in conduct that resulted in themselves being promoters of the Visionpak tax exploitation schemes in the 2013 and 2014 financial years. Mr Bogiatto also engaged in conduct that resulted in Ryusei and Lambdachase Advisors being promoters of the 2013 and 2014 Visionpak tax exploitation schemes. Lambdachase Services engaged in conduct that resulted in Mr Bogiatto, Ryusei and Lambdachase Advisors each being promoters of the 2013 and 2014 Visionpak tax exploitation schemes.

178    The maximum penalty: The maximum penalties for Mr Bogiatto’s contraventions are $850,000 for each of the 2012 and 2013 Visionpak schemes, and $2,763,618 for the 2014 Visionpak scheme. The maximum penalties for Ryusei are $4,250,000 for each of the 2012, 2013 and 2014 Visionpak Schemes. The maximum penalties for Lambdachase Advisors and Lambdachase Services are $4,250,000 for each of the 2013 and 2014 Visionpak Schemes. The maximum penalty for Mr Bogiatto in relation to the 2014 Visionpak scheme is calculated in accordance with s 290-50(4)(b).

179    Visionpak paid $1,381,809 to Lambdachase Services for work done in relation to the 2014 scheme. Lambdachase Services was an associate of Mr Bogiatto: Bogiatto at [699]. As twice the value of the consideration received by Lambdachase Services is greater than the calculation of the maximum penalty under s 290-50(4)(a), s 290-50(4)(b) operates to calculate the maximum penalty for Mr Bogiatto in relation to the 2014 Visionpak scheme. All other maximum penalties for each respondent have been calculated in accordance with s 290-50(4)(a), using the $170 penalty unit in force from 28 December 2012 onwards.

180    The Commissioner’s submission: The Commissioner submitted that, leaving aside any relevant application of the course of conduct or totality principles, the respondents involved in the 2012 Visionpak scheme should be ordered to pay 90% of the maximum penalty applicable for the contraventions in the 2012 financial year, the respondents involved in the 2013 Visionpak scheme should be ordered to pay 75% of the maximum penalty applicable for the contraventions in the 2013 financial year, and the respondents involved in the 2014 Visionpak scheme should be ordered to pay 85% of the maximum penalty applicable for the contraventions in the 2014 financial year. The relatively lower percentage was submitted in respect of the 2013 scheme on the basis that “the specificity of the evidence of Mr Bogiatto’s conduct in respect of that scheme is relatively less”.

181    The consideration received or receivable by the respondents: Visionpak paid an invoice in the sum of $67,320 plus GST to Ryusei in relation to the preparation and submission of the 2012 R&D claim: Bogiatto at [694]. Visionpak paid an invoice in the sum of $64,902.30 plus GST to Lambdachase Services in relation to the preparation and submission of the 2013 R&D claim: Bogiatto at [695]. Visionpak paid an invoice in the sum of $1,256,190 plus GST (being $1,381,809) to Lambdachase Services in relation to the preparation and submission of the 2014 R&D claim: Bogiatto at [696].

182    The loss or damage incurred by the taxpayer: In September 2015, the ATO commenced a review of Visionpak’s tax returns from 1 July 2011 to 30 June 2014. Visionpak subsequently made a voluntary disclosure to the ATO, and the ATO review developed into an audit in about March 2016. At the conclusion of the audit, the ATO issued amended assessments to Visionpak for the 2012, 2013 and 2014 financial years for a shortfall amount of $3,927,448.95, penalties of $386,348 and interest of $273,776.40, making a total of $4,587,573.35. Visionpak was unable to pay its debt to the ATO, and was subsequently placed into liquidation. Mr Cicciarelli, the director of Visionpak, described the impact of the respondents’ promotion of the tax exploitation schemes as “catastrophic”, noting that the business collapsed, Visionpak’s staff were let go, and Mr Cicciarelli personally “lost everything I had worked for a long time to achieve financially and, given my stage in life, I will probably never recover financially or emotionally from these events”.

183    The nature and extent of the contravention: As with each of the schemes, the respondents’ conduct was serious and substantial. Mr Bogiatto grossly exaggerated Visionpak’s R&D expenditure in the 2012 and 2014 years. In the 2012 AusIndustry application, Visionpak’s R&D expenditure was recorded as $14,960,045. On receipt of external advice, Visionpak’s R&D expenditure in the 2012 financial year was reduced to $1,099,685. In the 2014 AusIndustry application, Visionpak’s R&D expenditure was recorded as $9,356,550. On receipt of external advice, Visionpak’s R&D expenditure in the 2014 financial year was reduced to $1,331,568. The exaggeration of Visionpak’s R&D expenditure in 2013 was less pronounced. In the 2013 AusIndustry application, Visionpak’s R&D expenditure was recorded as $1,442,276. On receipt of external advice, Visionpak’s R&D expenditure in the 2013 financial year was reduced to $952,897.

184    The penalty: I consider the appropriate penalty to be $100,000 for each of Mr Bogiatto and Ryusei in relation to the 2012 Visionpak scheme, $100,000 for each of Mr Bogiatto, Ryusei, Lambdachase Advisors and Lambdachase Services in relation to the 2013 Visionpak scheme, and $1.5 million for each of Mr Bogiatto, Ryusei, Lambdachase Advisors and Lambdachase Services in relation to the 2014 Visionpak scheme.

185    I have returned to consider these penalties after determining all of the penalties and do not consider any reduction is required under the totality principle.

CONCLUSION

186    The respondents will be ordered to pay penalties in the amounts indicated.

Associate:

Dated:    12 February 2021

SCHEDULE OF PARTIES