Federal Court of Australia

Commissioner of Taxation v Perez (No 2) [2026] FCA 658

ORDERS

THE COURT ORDERS THAT:

1.    The interlocutory applications filed by the respondent on 21 May 2021 and 2 February 2023, to the extent that the prayers therein have not been consented to or determined by earlier orders, be dismissed.

2.    The proceeding be listed for case management on a date to be advised.

the court declares that:

3.    The respondent contravened s 290-50(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) (the TAA), by engaging in conduct that resulted in the respondent being a promoter of a tax exploitation scheme to Brandon Industries (Vic) Pty Ltd ACN 074 414 074 in the period from late 2014 to March 2016.

4.    The respondent contravened s 290-50(1) of Schedule 1 to the TAA by engaging in conduct that resulted in:

(a)    the respondent;

(b)    another entity, namely Bryan Santos,

being a promoter of a tax exploitation scheme to Cherry Beans Coffee Pty Ltd ACN

128 111 811 in the period from approximately March 2017 to April 2018.

5.    The respondent contravened s 290-50(1) of Schedule 1 to the TAA on three occasions by engaging in conduct that resulted in him being a promoter of a tax exploitation scheme to CMP Pacific Global Pty Ltd ACN 140 542 409 in the period from approximately September 2014 to August 2017:

(a)    for the 2014 financial year;

(b)    for the 2015 financial year; and

(c)    the 2016 financial year.

6.    The respondent contravened s 290-50(1) of Schedule 1 to the TAA by engaging in conduct that resulted in:

(a)    the respondent;

(b)    another entity, namely Bryan Santos,

being a promoter of a tax exploitation scheme to Concept Roasting Pty Ltd ACN 118 224 034 in the period from early 2017 to April 2018.

7.    The respondent contravened s 290-50(1) of Schedule 1 to the TAA on two occasions by engaging in conduct that resulted in:

(a)    the respondent;

(b)    another entity, namely Sarah-Beth Cleaves,

being a promoter of a tax exploitation scheme to Fresco Gourmet Pty Ltd ACN 141 509 131 in the period from approximately February 2015 to February 2017:

(c)    for the 2014 financial year; and

(d)    for the 2015 financial year.

8.    The respondent contravened s 290-50(1) of Schedule 1 to the TAA, by engaging in conduct that resulted in:

(a)    the respondent;

(b)    another entity, namely Bryan Santos,

being a promoter of a tax exploitation scheme to Peaberrys Gourmet Coffee Pty Ltd

ACN 092 113 981 in the period from early 2017 to March 2018.

9.    The respondent contravened s 290-50(1) of Schedule 1 to the TAA by engaging in conduct that resulted in him being a promoter of a tax exploitation scheme to Scaffold Logistics Pty Ltd ACN 132 697 422 in the period from late 2014 to July 2016.

10.    The respondent contravened s 290-50(1) of Schedule 1 to the TAA on two occasions by engaging in conduct that resulted in:

(a)    the respondent;

(b)    another entity, namely Sarah-Beth Cleaves,

being a promoter of a tax exploitation scheme to Icon Integration Pty Ltd ACN 145 386 563 in the period from approximately March 2015 to April 2018:

(c)    for the 2014 financial year; and

(d)    for the 2015 financial year.

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

REASONS FOR JUDGMENT

KENNETT J:

Introduction

1    In this proceeding, which was commenced on 9 March 2020 and later consolidated with two other proceedings (NSD358/2020, commenced on 27 March 2020 and NSD705/2020, commenced on 26 June 2020), the applicant (the Commissioner) seeks declarations that the respondent (Mr Perez) contravened s 290-50(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA) and the imposition of civil penalties under s 290-50(3) of Sch 1. These reasons deal only with the issues of liability, which were the subject of a hearing on 2-5 and 9-13 December 2024, 3-4 and 6 February 2025 and 14 April 2025.

2    The activities which are alleged to have contravened s 290-50(1) occurred between late 2014 and 9 April 2018. At all times within this period, s 290-50(1) provided as follows.

(1)    An entity must not engage in conduct that results in that or another entity being a *promoter of a *tax exploitation scheme.

The Commissioner’s case in broad outline

3    The Commissioner alleges that Mr Perez, (who at all relevant times used the business name “Grow Fast Consulting” (Grow Fast)), engaged in conduct that resulted in him being the promoter of 12 “tax exploitation schemes” in relation to eight taxpayers. Each of these alleged schemes (the taxpayer schemes) involved the claiming by the taxpayer of notional deductions for expenditure on research and development (R&D) activities (R&D claims). They related to:

1.    Brandon Industries (Vic) Pty Ltd (Brandon Industries) for the 2015 income year;

2.    Cherry Beans Coffee Pty Ltd (Cherry Beans) for the 2016 income year;

3.    CMP Pacific Global Pty Ltd (CMP Pacific) for the 2014, 2015 and 2016 income years;

4.    Concept Roasting Pty Ltd (Concept Roasting) for the 2016 income year;

5.    Fresco Gourmet Pty Ltd (Fresco Gourmet) for the 2014 and 2015 income years;

6.    Icon Integration Pty Ltd (Icon Integration) for the 2014 and 2015 income years;

7.    Peaberrys Gourmet Coffee Pty Ltd (Peaberrys) for the 2016 income year; and

8.    Scaffold Logistics Pty Ltd (Scaffold Logistics) for the 2014 income year.

4    In the alternative, the Commissioner alleges that Mr Perez was the promoter of a single “tax exploitation scheme” in that the conduct alleged to comprise the various taxpayer schemes constituted a single unified arrangement or course of conduct by him.

5    A further alternative case advanced by the Commissioner is that Mr Perez’s conduct resulted in:

(a)    Mr Bryan Santos (Mr Santos) being a promoter of tax exploitation schemes in respect of Cherry Beans, Concept Roasting and Peaberrys; and/or

(b)    Ms Sara-Beth Cleaves (Ms Cleaves) being a promoter of tax exploitation schemes in respect of Fresco Gourmet and Icon Integration.

Factual overview

Generally

6    Grow Fast was registered as a business name with the Australian Securities and Investments Commission (ASIC) from 16 June 2010 to 24 October 2019. Mr Perez was the registered holder of that business name at all times, and it appears uncontroversial that he controlled all aspects of the business carried out under that name. Any conduct of Grow Fast is attributable to Mr Perez.

7    Mr Perez was registered as a tax agent on 3 June 2013. His registration was terminated on and from 6 September 2019 and he was disqualified from registering as a tax agent from that date until 6 September 2024. Mr Perez sought to raise issues concerning his deregistration by way of a cross-claim in this proceeding, which was struck out in October 2023: Commissioner of Taxation v Perez [2023] FCA 1221. Although he had leave to re-plead this aspect of the cross-claim, he did not do so and the issues therefore fell away.

8    Mr Perez became bankrupt on 4 December 2019 and at the time of the hearing remained a bankrupt. Although at various times he has complained about the continuation of his bankruptcy, those complaints are not part of the issues in the proceeding.

9    The Commissioner’s submissions usefully summarise Mr Perez’s modus operandi, in relation to the taxpayer schemes, as follows.

(a)     over a series of meetings (either at the premises of the prospective client or Grow Fast Consulting), telephone calls and/or emails, Mr Perez, Ms Cleaves and/or Mr Santos met with prospective clients to discuss the R&D tax incentive. During these meetings and/or conversations, Mr Perez, Ms Cleaves and/or Mr Santos:

(i)     explained the R&D tax incentive scheme, its process and what was involved in making a R&D claim, and discussed the possibility of the prospective client benefiting from the R&D grant;

(ii)     promoted “Jose” or “Jose Perez” as a tax agent who held a R&D licence and was a R&D specialist with experience in successfully assisting businesses to make R&D claims;

(iii)     asked general questions about the prospective client’s business activities and operations;

(iv)     advised that the prospective client’s business activities were eligible for an R&D claim (but, in the case of Ms Cleaves and Mr Santos, this advice was caveated); and

(v)     advised the prospective client that Grow Fast Consulting could assist in lodging the relevant documents to make an R&D claim, in exchange for a fee payable to Grow Fast Consulting;

(b)     the client signed a document headed “Supply of Services Agreement” and, in relation to certain taxpayer clients, a document headed “Mutual Confidentiality Agreement”;

(c)     Mr Perez, Ms Cleaves and/or Mr Santos requested the client to send its financial documents, such as profit and loss statements, balance sheets and payroll;

(d)     in relation to most but not all clients, Mr Perez, Ms Cleaves and/or Mr Santos sent to the prospective client a document headed “Project Description Questionnaire” to complete (Questionnaire);

(e)    in relation to most but not all clients, Mr Perez prepared a document headed “Tech Spec” that contained submissions proposed to be included in the application for registration of R&D activities to be lodged with AusIndustry (AusIndustry Application). The contents of the “Tech Spec” were based on the information provided in response to the questions set out in the Questionnaire. However, in some cases, Mr Perez prepared the application in the absence of information and responses supplied under the Questionnaire;

(f)     Mr Perez lodged the AusIndustry Application on the client’s behalf;

(g)     Mr Perez prepared:

(i)     the calculations in relation to the R&D claim which were contained in an Excel document (Excel calculations). In particular, he calculated the R&D expenditure by apportioning expense items (that were predominantly sourced from the client’s profit and loss statement and payroll) according to an “estimate” of how much each of those line items were (allegedly) referrable to putative R&D activities. The apportionment was based on a flat percentage which was not sourced from the client’s financial documents or records; and

(ii)     the R&D Tax Incentive Schedule (R&D Schedule);

(h)     Mr Perez, Ms Cleaves and/or Mr Santos sent the Excel calculations and R&D Schedule to clients, with an instruction to pass on said documents to the client’s accountant to include in the client’s income tax return (or amended income tax returns as the case may be);

(i)     the R&D claims that were made in the income tax returns or amended income tax returns referred to at paragraph 18(h) above were not available at law;

(j)     Grow Fast Consulting issued an invoice or invoices to clients for fees payable under the “Supply of Services Agreement”. Clients paid Grow Fast Consulting;

(k)     in some cases, following enquiries, audit and/or review by the ATO, Mr Perez defended the alleged legitimacy of the R&D claim, encouraged clients to do so, and advised and guided clients in relation to the ATO’s compliance activities; and

(l)     pursuant to arrangements:

(i)     between Mr Perez, and Ms Cleaves (through Design & Construct Coaching Pty Ltd (Design & Construct)); and

(ii)     between Mr Perez, Ms Cleaves (through Design & Construct) and Mr Santos (through AGV Group (Aust) Pty Ltd (AGV Group));

Ms Cleaves and Mr Santos were paid a “referral fee”, which was the upfront payment and/or a portion of the fee that was payable to Grow Fast Consulting under the “Supply of Services Agreement”.

10    The taxpayer schemes are considered in more detail below.

Ms Cleaves and Mr Santos

11    Ms Cleaves and Mr Santos both gave evidence, which for the most part I accept.

12    Ms Cleaves was introduced to Mr Perez around the beginning of 2014 through a former colleague, Mr Fardeau. Mr Perez asked her to refer clients to him in relation to R&D claims, in return for payments variously described as “commission” and “referral fees”. From mid to late 2014 until late 2017 she referred prospective clients to Grow Fast (ie, Mr Perez). She did not recall signing any written agreement concerning the terms of this arrangement, other than one which was signed around November 2017 (after she had stopped referring clients to Grow Fast). She learned about the R&D regime from conversations with Mr Perez and Mr Fardeau, materials provided to her by Mr Fardeau, and training material provided by Mr Perez concerning how she was to perform her day-to-day role. Ms Cleaves’s role involved, in general terms:

(a)    referring to Mr Perez prospective clients for R&D claims, whom she identified using her existing contacts, writing to businesses in a particular sector and advertising on Facebook (with the advertisement directing prospective clients to a page carrying Grow Fast’s logo and details and Mr Perez’s tax agent number); and

(b)    acting as a “conduit” or “intermediary” between Mr Perez and clients or prospective clients, including obtaining and sending to Mr Perez financial information and completed versions of the Questionnaire and transmitting documents prepared by Mr Perez to clients.

13    In relation to the latter of these functions, Ms Cleaves gave evidence that she did not review or assess the documents from clients that she passed on to Mr Perez or play any role in calculating R&D claims or the drafting of technical content of submissions to AusIndustry prepared by Mr Perez. These things were outside her expertise. However, from time to time she edited these submissions for spelling and grammar. On some occasions, also, clients made changes to these documents which were also “usually targeted at grammar and English expression”.

14    Ms Cleaves had an arrangement with Mr Perez whereby, through Design & Construct, she received a percentage of the fee paid to him by each client whom she had referred. Generally she sent an invoice to Grow Fast on the letterhead of Design & Construct and was paid after Grow Fast received payment from the client.

15    Mr Santos was introduced to Mr Perez in late 2015 or early 2016 by Ms Cleaves. There was a conversation in which Mr Perez made it clear that he was envisaging Mr Santos “representing” Grow Fast (ie, Mr Perez). Mr Santos decided to work with Grow Fast around May 2016 and met with Mr Perez and Ms Cleaves to discuss fees. On that occasion Mr Perez justified his larger share of fees in relation to successful R&D claims with words to the effect of “Grow Fast is responsible to its clients. It’s on me”.

16    Mr Santos, through his company AGV Group, entered into a written agreement concerning fees and other matters with Design & Construct; however, his evidence was that this did not reflect what actually happened. He did not have any written agreement with Mr Perez.

17    Mr Santos received some training from Ms Cleaves. Between mid 2016 and some time in 2018 he referred prospective clients to Mr Perez in relation to possible R&D claims. He regarded himself as a representative of Grow Fast. His role included:

(a)    finding clients and referring them to Grow Fast (to which end he sent marketing letters, the contents of which were approved by Mr Perez and from time to time modified on Mr Perez’s instructions);

(b)    seeking and obtaining documents from clients, such as financial statements, which he forwarded to Mr Perez (either through Ms Cleaves or directly);

(c)    liaising with clients to obtain information necessary to complete questions set out in the Questionnaire, and sending that information on to Mr Perez;

(d)    relaying questions, opinions and requests for information from Mr Perez to clients; and

(e)    providing to clients documents prepared by Mr Perez, including what was referred to as the “tech spec”, Excel calculations and the R&D Schedule.

18    Mr Santos coordinated the flow of information between Mr Perez and clients. He did not scrutinise material, except to check that the material provided by clients was what Mr Perez had asked for and to check documents drafted by Mr Perez for spelling and grammar. The evidence in these proceedings does not suggest that Mr Santos ever drafted a document, other than emails, in the course of working for Grow Fast. He was not asked for and did not offer any opinions about whether particular activities constituted R&D. He understood Mr Perez to be a specialist with expertise in that area and the person who would decide all substantive issues.

19    Mr Santos deposed that he generally signed Supply of Services Agreements with clients on behalf of Grow Fast (and forwarded these signed agreements to Mr Perez). He understood that he had authority to do so, and Mr Perez never raised any issue with Mr Santos signing these documents.

20    Mr Santos stopped referring clients to Grow Fast at the beginning of 2018. On 19 March 2018 he sent Mr Perez an email terminating their arrangement. After he stopped referring clients, some former clients sent him emails about reviews by the ATO. He generally referred these emails to Mr Perez or Ms Cleaves.

21    Mr Santos sent invoices to clients on Grow Fast letterhead which contained Grow Fast’s bank account details. In the schemes considered in this proceeding in which Mr Santos was involved, he deposes that the arrangement was for clients to be invoiced for an “up front fee” of $2,000 (including GST) and later for a “success fee” of 18.5 percent of the grant amount (plus GST). Clients paid these fees into the bank account of Grow Fast. It became standard practice for Grow Fast to pay to AGV Group the whole amount of the up front fee and a proportion of the success fee. It appears that the success fee received from clients who had been referred by Mr Santos was divided so that Mr Santos (through AGV Group) received 30 percent, Ms Cleaves (through Design & Construct) 30 percent and Mr Perez 40 percent. Mr Santos never received money directly from clients.

22    On the basis of this evidence I am satisfied that, to the extent that Ms Cleaves or Mr Santos was involved in conduct constituting part of any of the taxpayer schemes, they acted as Mr Perez’s agent and on his instructions.

Mr Perez’s evidence and submissions

23    Mr Perez has been outside Australia since at least March 2020. At various times he has apparently been in Venezuela and in Florida. He has conducted this proceeding, and the other proceedings with which it has been consolidated, without legal representation since April 2021 and has appeared by audio visual link (AVL).

24    Mr Perez sought leave to participate in the final hearing, including giving evidence, cross-examining and presenting oral arguments, by AVL. He cited health issues and difficulty in obtaining a replacement passport in Venezuela. The Commissioner eventually consented to Mr Perez participating in this way. This posed some challenges, particularly in relation to cross-examination, but they were not insurmountable. Mr Perez was able to participate effectively, including cross-examining the Commissioner’s witnesses, and was cross-examined by counsel for the Commissioner.

25    Mr Perez swore more than 40 affidavits in the proceedings. Many of these related to interlocutory issues, or to the cross-claim referred to earlier (which was struck out), but nearly all were relied on at the final hearing. Mr Perez was cross-examined over the course of nearly three days in December 2024. After the trial resumed in February 2025, and two witnesses called by him had been cross-examined, Mr Perez was given the opportunity to give further oral evidence by way of a statement from the witness box. This was intended to stand in the place of re-examination; ie, to give Mr Perez an opportunity to clarify any points on which the evidence elicited from him in cross-examination had been unclear or incomplete. Largely without objection, Mr Perez ranged well beyond answering the questions that counsel would have been permitted to ask him by way of re-examination.

26    Mr Perez has a degree in economics, obtained in Venezuela around 1991, and a masters level qualification (obtained at around the same time) that allowed him to work in banking. He moved to Australia in 1996, qualified as an accountant in 1998 and then worked as an internal or company accountant in several organisations. He was registered as a tax agent in 2013, but was at pains to emphasise that he only gave advice and never prepared or lodged tax returns for clients. He is clearly intelligent, educated and familiar with accounting practices and the conduct of business in Australia. Although it is not his first language, he has no difficulty communicating orally in English and appears never to be lost for words. Mr Perez is also not unfamiliar with being questioned by counsel: prior to the present case he attended a formal interview under s 353-10 of the TAA at the Australian Taxation Office (ATO) offices in Brisbane on 22-23 October 2019, at which he was questioned under oath by counsel for nearly two full days. There is therefore no reason, in the case of Mr Perez, not to draw the kinds of inferences as to credibility that usually arise from how a witness answers questions in the witness box.

27    It is to be noted, of course, that Mr Perez gave his evidence by AVL. This made it even more difficult than usual to draw any useful conclusions from “demeanour” in the sense of a witness’s appearance or manner (see, eg, Fox v Percy [2003] HCA 22; 214 CLR 118 at [30]-[31] (Gleeson CJ, Gummow and Kirby JJ)). However, that point does not stand in the way of assessments being made of Mr Perez’s credibility on the basis of the content of his evidence and the extent to which he actually answered the questions put to him.

28    Mr Perez either did not understand or chose to ignore the distinction between evidence and submissions. This was a feature of both his affidavits and his oral evidence.

29    As noted earlier, many of Mr Perez’s affidavits had been sworn for the purpose of his cross-claim or for interlocutory purposes and were for that reason unlikely to be relevant to the final hearing. Most were plagued by grammatical errors to the extent of being extremely difficult to understand (in contrast to Mr Perez’s command of spoken English which, to my observation, was good). To the extent that I was able to understand Mr Perez’s affidavits, I found them to consist largely of argumentative statements and irrelevant allegations against others. To the extent that material in these affidavits is relevant to the facts in issue and was referred to in submissions, it is addressed below. It is appropriate to note here that, to the extent that Mr Perez deposes to identifiable and relevant assertions of fact, the weight to be given to these assertions depends on the force of any inconsistent evidence and on his overall credibility. I take the same approach to Mr Perez’s statements from the witness box in re-examination.

30    Mr Perez’s answers in cross-examination had the following striking features.

31    First, on numerous occasions Mr Perez gave argumentative and evasive responses, tending to long and sometimes incoherent speeches, in answer to quite simple questions. At times he launched into self-justifying speeches or accusations against others when no question had even been asked. The Commissioner submits that these (non-)responses should be understood as deliberate attempts to avoid giving responsive answers, arising from knowledge that any truthful answer would be adverse to his position in the proceedings. This is probably the correct understanding, as it seems unlikely that Mr Perez could have obtained tertiary qualifications and worked as an accountant for more than a decade if he was genuinely unable to give a responsive answer to a question. There was no evidence before the Court that Mr Perez suffers from any mental health condition or intellectual impairment. Even if Mr Perez’s long and non-responsive answers did not result from a deliberate strategy of deflection, they would nevertheless make it difficult to accept his evidence: a fundamental inability to give a direct answer to a factual question, whatever else it might suggest, indicates that there will be a lack of direct or predictable connection between the answer given and the truth.

32    Secondly, Mr Perez repeatedly veered on to matters that were not probative of any issue in the proceeding. He used the process of giving evidence as a platform for agitating grievances that he has against several Commonwealth agencies, in particular the ATO. These grievances may be genuinely held and of great importance to him, but the issue of potential misconduct by others had no bearing on whether or not Mr Perez had engaged in the conduct alleged against him by the Commissioner. It is unclear whether these repeated attempts to portray himself as the real victim were part of a deliberate strategy of deflection or reflexive outbursts over which he has no control. I consider that the former is more likely. Either way, they added to the difficulty of accepting that Mr Perez was making a real attempt to give truthful answers to the questions he was being asked.

(a)    Some of these outbursts (which were not limited to Mr Perez’s oral evidence) had the flavour of a deliberate attempt to undermine the case against him by trying to cast doubt on the bona fides of officers who had investigated his affairs or initiated proceedings against him or counsel who was questioning him. For example, Mr Perez made allegations (for which he did not point to any supporting evidence) that the ATO had been “fabricating” or “hiding” evidence, “hiding intelligences”, phone tapping, using the “power of the public office to sabotage someone’s business”, and that he was on a “hit list”.

(b)    At other times, Mr Perez appeared to be freestyling and gave responses that verged on bizarre. For example, when Mr Perez was taken to an email from Mr George Choo concerning the inclusion of a particular amount in the R&D claim for Scaffold Logistics, the following exchange occurred.

- - - does that help you remember that it was your idea to include $140,000 - - -?---No.

- - - in the claim?---No, honestly – I mean, Mr O’Mahoney – Mr O’Mahoney, please – please, please, Mr O’Mahoney, there had been an investigation in the fact that for years in 2013 when I’m sitting in a restaurant and you guys come and take photos of me talking to people, the people jump off the chair and the table and say, “Let me tell you what .....” say “Who the fuck are you?”. Right. So do you really think ..... going to do something stupid when I know that you want to kill me. Do you really think that? Do you really - - -

33    Thirdly, Mr Perez engaged on several occasions in what can only be regarded as stonewalling. This is also indicative, as the Commissioner submitted, of a consciousness that answering questions truthfully would be adverse to his interests. Examples of this conduct include:

(a)    taking issue, to no clear purpose, with the cross-examiner’s description of Grow Fast as a “business”;

(b)    suggesting that apparently quite simple questions (such as whether he wanted Grow Fast’s business to grow, or whether he had received formal training in relation to the R&D tax concession regime) involved a “grey area”;

(c)    commenting on the questions he was being asked and complaining that they were “manipulated” or the cross-examiner was “dishonest”; and

(d)    challenging the cross-examiner to perform calculations or produce evidence of certain matters.

34    Fourthly, when he did give clear answers to questions in cross-examination, those answers were often inconsistent with the plain terms of documents or otherwise implausible. For example, Mr Perez claimed in relation to one client (Brandon Industries), for which he had prepared material purportedly supporting a claim for an R&D tax offset, that he had suspicions about the client and deliberately “red flagged” its application by making sure his own name was on the documentation. Another example of implausible evidence (or refusal to accept the obvious) was his denial that a PowerPoint presentation, carrying the Grow Fast logo and urging potential clients to retain its services, was “promoting” anything.

35    For these reasons, I do not regard Mr Perez as a witness of truth. I do not accept his evidence except where it is corroborated or amounts to admissions. The facts in relation to the various taxpayer schemes are to be ascertained from the extensive documentary evidence adduced by the Commissioner and the evidence of other witnesses (including Ms Cleaves and Mr Santos, who are discussed above, and officers or employees of the various taxpayers, who are discussed below in connection with the relevant taxpayer schemes).

36    Because of the overlap between Mr Perez’s evidence and submissions, it will be necessary to refer to some aspects of his cross-examination later in these reasons, in order to deal with some ways in which he sought to characterise the activities in which he engaged in connection with the taxpayer schemes.

37    I have taken into account the written submissions filed by Mr Perez within the permitted timeframes, to the extent that I have been able to identify their relevance to the issues in the proceeding. This has often not been easy, partly because of Mr Perez’s approach to English syntax and partly because he often appears to be pursuing other agendas rather than responding to the case against him.

38    Mr Perez sent two further documents to the Court by email after the conclusion of the hearing and without seeking or obtaining leave. One (sent on 17 April 2025) was a copy of a letter dated 13 January 2017 with two pages of what appear to be submissions based on it. The other, sent on 9 July 2025 and apparently triggered the Commissioner’s solicitors’ response to a request for soft copies of two exhibits, was a further two pages of submissions (described as “evidences”). I have not taken these into account.

39    I also observe here that, while I found Mr Perez to be able to communicate well in spoken English, his written English contains many errors in grammar and punctuation. Where I quote from Mr Perez’s emails in these reasons, I set out the relevant passages in their original form. This is partly to avoid the laborious inclusion of square brackets and partly to provide something of the flavour of his style of communication.

legislative framework – promoter penalties under section 290-50

40    Some of the relevant provisions of the tax law have been amended since the time of the impugned conduct. In these reasons I will refer to the provisions as they stood at relevant times for the purposes of the proceeding, but will describe their operation in the present tense.

41    The prohibition in s 290-50(1), which has been set out above, applies to conduct by any “entity”. “Entity” is defined in s 960-100 of the Income Tax Assessment Act 1997 (Cth) (ITAA97) (which is picked up by s 3AA(2) of the TAA) so as to include an “individual”. Each of Mr Perez, Mr Santos and Ms Cleaves was thus an “entity” at the time of the conduct alleged by the Commissioner. Each of the companies to which the alleged schemes related was also an “entity”.

“Promoter”

42    “Promoter”, for the purposes of s 290-50, is defined by s 290-60 of Sch 1 as follows.

290-60 Meaning of promoter

(1)     An entity is a promoter of a *tax exploitation scheme if:

(a)     the entity markets the scheme or otherwise encourages the growth of the scheme or interest in it; and

(b)     the entity or an *associate of the entity receives (directly or indirectly) consideration in respect of that marketing or encouragement; and

(c)     having regard to all relevant matters, it is reasonable to conclude that the entity has had a substantial role in respect of that marketing or encouragement.

(2)     However, an entity is not a promoter of a *tax exploitation scheme merely because the entity provides advice about the *scheme.

(3)     An employee is not to be taken to have had a substantial role in respect of that marketing or encouragement merely because the employee distributes information or material prepared by another entity.

Marketing a scheme or otherwise encouraging its growth

43    As the Full Court (Allsop CJ, Gilmour and Gordon JJ) pointed out in Commissioner of Taxation v Ludekens [2013] FCAFC 100; 214 FCR 149 at [251] (Ludekens), the term “markets” in s 290-60(1)(a) appears to be one exemplification of the broader expression “encourages the growth of the scheme or interest in it”. Their Honours went on to note that “growth” of a scheme and “interest” in a scheme relate to numbers of people participating in the scheme or considering doing so; so that the terms “markets” and “encourages” may be seen to involve some element of communication. However, such communication need not be explicit or direct. People may be “encouraged” to participate in a scheme by “conduct” other than speech or writing. Thus, the Full Court in Ludekens emphasised the breadth of s 290-60(1)(a) (at [250], [258]). The Court warned against both paraphrasing the statutory language and making categorical distinctions between “encouraging” the growth of or interest in a scheme and merely “implementing” the scheme (at [251], [256]). In this connection it should be noted that s 290-60(2) expressly provides that “merely” giving advice about a scheme does not make the adviser a “promoter” of the scheme. However, as their Honours observed at [258], this does not preclude the giving of advice from forming part of a course of conduct that amounts to promoting the scheme.

44    Consistently with this position, a wide variety of conduct has been identified in the cases as capable of amounting to marketing or otherwise encouraging the growth of a scheme: see Ludekens at [80], [86]-[106], [262], [268]-[277]; Commissioner of Taxation v Arnold (No 2) [2015] FCA 34 at [79]-[83] (Edmonds J); Commissioner of Taxation v Rowntree [2020] FCA 1322 at [80] (Rares J) (Rowntree).

45    In Commissioner of Taxation v Bogiatto [2020] FCA 1139 at [31] (Bogiatto), after referring to examples of conduct that had been held in earlier cases to support a finding that an entity had marketed or encouraged the growth of a scheme or interest in it, Thawley J observed:

In principle, steps taken after a scheme benefit has been obtained might fall within the statutory proscription. It all depends on the facts. For example, steps taken to assist taxpayers after a scheme benefit has been obtained from a mass marketed scheme, might encourage the growth of the scheme.

46    His Honour went on to note at [32] that such a conclusion might be more difficult to reach in the case of “a one-off tax exploitation scheme directed to one taxpayer”. It is not difficult to see why this is so: where only one taxpayer is involved and they have already been persuaded to participate in a tax exploitation scheme, and received a tax benefit from it, conduct by a putative promoter will usually have no effect on the growth of the scheme or the taxpayer’s interest in it. However, even here, “[i]t all depends on the facts”. There may be circumstances where conduct such as helping the taxpayer to respond to a tax audit in relation to the subject-matter of the scheme could be relevant. Conduct of that kind could potentially encourage the taxpayer not to abandon the scheme or to be interested in further iterations of it.

47    More broadly, the discussion in Bogiatto illustrates that there is no necessary temporal division between marketing (or other forms of encouragement) and the implementation of a scheme. Things done by the putative promoter in the course of carrying a scheme into effect are capable of being seen as part of their conduct in marketing or otherwise encouraging the growth of (or interest in) the scheme. This point is relevant to the operation of the relevant limitation period because, as discussed below, time starts to run from the last act of promotion or encouragement.

Receiving consideration

48    “Consideration” includes the receipt of a monetary benefit such as a fee or the benefit of a contractually binding promise to pay (eg Bogiatto at [40]-[47]).

49    The consideration that must be received for the purposes of s 290-60(1)(b) is described as consideration “in respect of that marketing or encouragement” (ie, in respect of the activity that brings the entity within s 290-60(1)(a)). However, it does not follow that s 290-60(1)(b) requires that there be “consideration”, in a strict contract law sense, for that activity. The expression “in respect of”, and the statutory context (a regime directed at deterring the promotion of tax avoidance and evasion schemes: cf Bogiatto at [35]) call for a broader and non-technical construction. Thus, a monetary benefit which the proponent receives or stands to receive following the implementation of a scheme may qualify as consideration “in respect of” their marketing or encouragement of the scheme. This was the conclusion reached, obiter, by Middleton J at first instance in Ludekens ([2013] FCA 142 at [39]-[46]), which was not called into question in the appeal to the Full Court. Rather, the Full Court in Ludekens appeared to endorse that approach (at [286]) and then held that consideration in the form of a commission referable to the number of woodlots purchased as part of the relevant scheme constituted consideration “in respect of” the marketing and encouragement of the scheme (at [288]).

Substantial role in respect of the marketing or encouragement

50    Section 290-60(3) provides one example of conduct that does not amount to playing a “substantial role” in the relevant marketing or encouragement for the purposes of s 290-60(1)(c): doing no more than distributing information or material prepared by another entity. However, the inclusion of the word “merely” in s 290-60(3) indicates that a “substantial role” could in principle be performed by someone who distributes information or material prepared by another entity and engages in other conduct as well. This supports the view, expressed by Thawley J in Bogiatto at [52], that an entity may be held to have had a substantial role “even if the entity’s role was not ‘integral to the operation and growth of the scheme, such that without them, the scheme would not have been established and widely promoted’”.

Merely advising

51    An entity is not a “promoter” of a tax exploitation scheme “merely because the entity provides advice about” the scheme (s 290-60(2)). Apart from a brief reference in Rowntree at [268]-[269], s 290-60(2) does not appear to have been considered in any decided case. In Rowntree, Rares J rejected an attempt by one of the respondents to rely on s 290-60(2) on the basis of findings that, in sending information about the relevant scheme to taxpayers by email, the respondent was furthering his collaboration with another of the respondents and “encapsulating the sales pitch” in relation to the relevant scheme. It is implicit in this reasoning (and, indeed, apparent from the terms of the provision) that there is a difference between “merely” providing advice about a scheme (as an independent, disinterested lawyer or tax adviser might do) and giving “advice” calculated to encourage interest in a scheme or discourage withdrawal from it.

“Tax exploitation scheme”

52    “Scheme” is defined in s 995-1(1) of ITAA97 to mean “any arrangement” or “any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise”. “Tax exploitation scheme” is defined, for the purposes of s 290-50(1), as follows:

290-65 Meaning of tax exploitation scheme

(1)    A *scheme is a tax exploitation scheme if, at the time of the conduct mentioned in subsection 290-50(1):

(a)    one of these conditions is satisfied:

(i)    if the scheme has been implemented—it is reasonable to conclude that an entity that (alone or with others) entered into or carried out the scheme did so with the sole or dominant purpose of that entity or another entity getting a *scheme benefit from the scheme;

(ii)    if the scheme has not been implemented—it is reasonable to conclude that, if an entity (alone or with others) had entered into or carried out the scheme, it would have done so with the sole or dominant purpose of that entity or another entity getting a scheme benefit from the scheme; and

(b)    one of these conditions is satisfied:

(i)    if the scheme has been implemented—it is not *reasonably arguable that the scheme benefit is available at law;

(ii)    if the scheme has not been implemented—it is not reasonably arguable that the scheme benefit would be available at law if the scheme were implemented.

Note:    The condition in paragraph (b) would not be satisfied if the implementation of the scheme for all participants were in accordance with binding advice given by or on behalf of the Commissioner of Taxation (for example, if that implementation were in accordance with a public ruling under this Act, or all participants had private rulings under this Act and that implementation were in accordance with those rulings).

(2)    In deciding whether it is *reasonably arguable that a *scheme benefit would be available at law, take into account any thing that the Commissioner can do under a *taxation law.

Example:    The Commissioner may cancel a tax benefit obtained by a taxpayer in connection with a scheme under section 177F of the Income Tax Assessment Act 1936.

53    The present case involves schemes that were at least partly implemented, so that s 290-65(1)(a)(ii) and (b)(ii)) are not applicable.

Sole or dominant purpose of getting a scheme benefit

54    “Scheme benefit” is defined in s 284-150(1) of Sch 1 of the TAA as follows.

(1)     An entity gets a scheme benefit from a *scheme if:

(a)     a *tax-related liability of the entity for an accounting period is, or could reasonably be expected to be, less than it would be apart from the scheme or a part of the scheme; or

(b)     an amount that the Commissioner must pay or credit to the entity under a *taxation law for an accounting period is, or could reasonably be expected to be, more than it would be apart from the scheme or a part of the scheme.

55    A “tax related liability” is a pecuniary liability to the Commonwealth arising under a taxation law, including one that is not yet due and payable, other than certain civil penalties (Sch 1 s 255-1). Relevantly here, income tax is specified as a type of “tax related liability” in the table in s 250-10(2) of Sch 1. Thus, if the implementation of a scheme results in an entity’s income tax liability being less that it would otherwise have been, the entity gets a scheme benefit from the scheme.

56    It will be noted that s 284-150 refers to a “liability” on the one hand (including one that is not yet due and payable), and an “amount that the Commissioner must pay or credit” on the other. A “scheme benefit” may therefore arise when tax is assessed in a particular amount for an income year. It does not arise only when the tax falls due or is paid, or a refund is made. However, this point is not central to the existence of a tax exploitation scheme, because s 290-65 looks to the obtaining of a scheme benefit as the sole or dominant purpose of an entity carrying out the scheme; not to the actual obtaining of a scheme benefit. Section 290-65(1)(a) is satisfied if (relevantly here) an entity that enters into or carries out the scheme has the sole or dominant purpose of reducing its (or another entity’s) income tax liability. Thus, at the point in time that needs to be considered, any “scheme benefit” lies in the future.

57    What must be considered is the “sole” or “dominant purpose” (ie, the ruling, prevailing or most influential purpose) of the entity that (alone or with others) entered into or carried out the scheme: Rowntree at [301]-[302].

58    The Full Court in Ludekens observed at [227] that:

The correct framework of analysis is whether, at the time of the conduct in s 290-50(1) (being the marketing or otherwise encouraging the growth of the scheme or interest in it), “it is reasonable to conclude” that the entity entered into or carried out the scheme (or would have) with the purpose of it, or another entity, getting a scheme benefit from the scheme.

59    Their Honours’ focus on the time of the conduct in s 290-50(1) (which is reiterated at [240]) is obviously consistent with the chapeau of s 290-65(1). Their approach was elaborated upon by Rares J in Rowntree at [302]-[303], emphasising that there must be an inquiry as to what was “actually in the mind” of the entity as the sole or dominant purpose of the relevant conduct.

60    Section 290-65(1)(a) thus calls for an assessment of what “it is reasonable to conclude”, as at the time of the promotion or other encouragement of the scheme, about the purpose of a person entering into or carrying out the scheme. That entering into or carrying out may occur after the point in time with respect to which the assessment is to be made, or (as contemplated by s 290-65(1)(a)(ii)) it may not occur at all. In such cases, an inquiry into what was “actually in the mind” of the entity carrying out the scheme is, with respect, unreal (a point touched upon in Ludekens at [232]). The preferable reading of s 290-65(1)(a) is that it calls for attention to the character of the scheme being promoted rather than the subjective intentions of those who enter into it (although the latter may obviously be relevant to assessing the former). The question to be addressed, by reference to the time of the relevant promoting conduct, is whether the scheme is one as to which it is “reasonable to conclude” that an entity carrying it into effect was (if the scheme has been implemented) or would be (if it has not at that stage been implemented) principally motivated by the purpose of getting (or some other entity getting) a scheme benefit. This approach aligns with s 290-65(1)(b), which raises another question as to the nature or character of the scheme as at the time it was being promoted or encouraged.

61    It is not necessary to take this point any further, however, because in this case the “entity” that is alleged to have carried out each scheme, and done so with the relevant intention of producing a “tax benefit”, is Mr Perez himself. He is also the person who is alleged to have (either directly or through Ms Cleaves or Mr Santos) marketed or otherwise encouraged the growth of each scheme. His intention (to obtain tax deductions for his clients, a percentage of which would be paid to him as a fee for his services) can, if the Commissioner’s factual case is made out, be taken to have been the same throughout the process. In addition, as will be seen below, there was significant temporal overlap between the activities comprising marketing or other encouragement on the one hand and implementation on the other. If his subjective intention is determinative, therefore, it can be assessed as at the time of his last (alleged) acts of promotion or encouragement without giving rise to any conceptual difficulty. Alternatively, because the point of each scheme alleged by the Commissioner was the generation of tax deductions, and success in that regard would necessarily generate fees for Mr Perez, each of the alleged schemes if established can comfortably be characterised from its inception as one which, it is reasonable to conclude, he (as the relevant entity) was going to enter into or carry into effect for the dominant purpose of generating tax deductions for the client.

62    Importantly, what gives a scheme the character of a “tax exploitation scheme” is the purpose of obtaining a “scheme benefit” (or more precisely the scheme being one for which it is “reasonable to conclude” that such a purpose existed). Thus, contrary to what seems to have been the import of a point made several times by Mr Perez, the actual obtaining of a “scheme benefit” at the end of the day is not a criterion for the scheme being characterised as a “tax exploitation scheme”. This is tolerably clear from the language of s 290-65(1)(a). The contrary reading would have the bizarre result that any scheme in which a benefit that was “not reasonably arguable” was intended or attempted to be obtained, but was prevented from being obtained as a result of an audit or other action by the ATO, would not constitute a “tax exploitation scheme” so that the person who promoted it would not be exposed to civil penalties under s 290-50(1).

Not reasonably arguable that the scheme benefit is (or would be) available at law

63    “Reasonably arguable” is defined by s 284-15 of Sch 1 as follows.

284-15 When a matter is reasonably arguable

(1)     A matter is reasonably arguable if it would be concluded in the circumstances, having regard to relevant authorities, that what is argued for is about as likely to be correct as incorrect, or is more likely to be correct than incorrect.

Note:     For the effect of transfer pricing documentation on when a matter is reasonably arguable, see Subdivision 284-E.

(2)     To the extent that a matter involves an assumption about the way in which the Commissioner will exercise a discretion, the matter is only reasonably arguable if, had the Commissioner exercised the discretion in the way assumed, a court would be about as likely as not to decide that the exercise of the discretion was in accordance with law.

(3)     Without limiting subsection (1), these authorities are relevant:

(a)     a *taxation law;

(b)     material for the purposes of subsection 15AB(1) of the Acts Interpretation Act 1901;

(c)     a decision of a court (whether or not an Australian court), the *AAT or a Board of Review;

(d)     a *public ruling.

64    The language of the chapeau of s 290-65(1) makes it clear that the question whether it is “reasonably arguable” that a scheme benefit is available at law is to be addressed as at the time of the relevant promotion or encouragement. This was confirmed by Thawley J in Bogiatto at [62]. His Honour also noted that the phrase “about as likely” in s 284-15(1) and (2) is not to be treated as if it said “as likely” (at [64]). In other words, a 50 percent (or greater) chance of success need not be established in order for the availability of the relevant scheme benefit to be “reasonably arguable”. Put another way, and bearing in mind that the burden lies on the Commissioner to show that the scheme benefit was not reasonably arguable, s 290-65(1)(b) requires the Court to be satisfied that the prospects of arguing successfully for the availability of the scheme benefit were (or would have been) clearly less than even.

Exceptions to s 290-50(1)

Cases in which no civil penalty is to be imposed

65    Section 290-55(1), (2) and (7) of Sch 1 provide for circumstances in which the Court must not impose a civil penalty for a contravention of s 290-50(1). Subsection (7) is not relevant at this stage. Subsections (1) and (2) provide (relevantly) as follows.

Reasonable mistake or reasonable precautions

(1)     The Federal Court of Australia must not order the entity to pay a civil penalty if the entity satisfies the Court:

(a)     that the conduct in respect of which the proceedings were instituted was due to a reasonable mistake of fact; or

(b)     that:

(i)     the conduct in respect of which the proceedings were instituted was due to the act or default of another entity, to an accident or to some other cause beyond the entity’s control; and

(ii)     the entity took reasonable precautions and exercised due diligence to avoid the conduct.

(2)     The other entity referred to in paragraph (1)(b) does not include someone who was an employee or agent of the entity when the alleged conduct occurred.

66    It is appropriate to note at this point that s 290-55(1) prevents a penalty being imposed in the circumstances referred to but otherwise proceeds on the basis that conduct engaged in, in such circumstances, can amount to a contravention of s 290-50(1). It serves to confirm that conduct amounting to the promotion of a tax exploitation scheme (as defined) contravenes the tax law, and can be the subject of at least declaratory relief, even if the conduct occurred by reason of a failure by somebody else.

67    Section 290-55(3) is as follows.

(3)     The Commissioner must not make an application under section 290-50 for conduct referred to in subsection 290-50(1) in relation to an entity’s involvement in a *scheme if:

(a)     the scheme is based on treating a *taxation law as applying in a particular way; and

(b)     that way agrees with:

(i)     advice given to the entity or the entity’s agent by or on behalf of the Commissioner; or

(ii)     a statement in a publication approved in writing by the Commissioner.

68    Two points should be made about s 290-55(3). First, the “advice” referred to in s 290-55(3)(b)(i) is advice “given to” the entity whose conduct is alleged to contravene s 290-50(1) or its agent. The subparagraph is not engaged by advice (eg a private ruling) given to another entity, such as a taxpayer who is considering becoming involved in the scheme. Secondly, advice and public written statements by the Commissioner are made relevant only to the extent that they go to how the legislation comprising the “taxation law” applies (and the scheme is based on that understanding of the law).

69    Section 290-55(3) therefore has a fairly narrow operation. It could not be called in aid to argue (for example) that action cannot be taken against the promoter of a scheme because the promoter assumed that taxpayers would comply with administrative guidance concerning matters such as substantiation or record keeping.

Limitation period

70    Section 290-55(4) and (6) currently provide as follows.

Time limitation

(4)     The Commissioner must not make an application under section 290-50 in relation to an entity’s involvement in a *tax exploitation scheme more than 6 years after the entity last engaged in conduct that resulted in the entity or another entity being a *promoter of the tax exploitation scheme.

…

(6)     However, the limitation in subsection (4) or (5) does not apply to *schemes that involve, or if implemented would involve, tax evasion.

The relevant limitation period

71    Until 1 July 2024, s 290-55(4) specified a limitation period of four years. The provision was amended so as to extend the limitation period to six years by item 20 of Sch 1 to the Treasury Laws Amendment (Tax Accountability and Fairness) Act 2024 (Cth) (the 2024 Act), which came into effect on that date. Item 37(2) of Sch 1 to the 2024 Act provides that the amendments made by item 20 “apply in relation to conduct engaged in before, on or after the commencement of this Schedule”.

72    Section 290-50 creates a statutory norm of conduct, with a right vested in the Commissioner to sue for remedies in respect of its breach. The limitation period in s 290-55(4) was therefore integral to that right; and an amendment to that limitation period would normally be understood not to apply to a right of action that had already accrued. In particular, an amendment would not normally apply so as to revive a right of action that had expired: see, eg, McKain v RW Miller & Co (SA) Pty Ltd (1991) 174 CLR 1 at 42-44 (Brennan, Dawson, Toohey and McHugh JJ). However, item 37(2) is a clear expression of legislative intention that the modified limitation period was to apply to all past conduct (including conduct in relation to which the four year limitation period had already expired).

73    The Explanatory Memorandum to the Bill for the 2024 Act supports this understanding. That memorandum said (at [1.26]):

The extended timeframe available to the Commissioner applies in relation to conduct engaged in before, on or after the commencement of the amendments. This means the ATO is in a better position to take action against promoters that are in breach of the provisions before commencement of the amendments, for example in cases where the ATO becomes aware of the promotion of a scheme during a taxpayer audit, a considerable time after the conduct occurred …

74    The memorandum went on to give the following specific example of what items 20 and 37(2) were intended to do.

On 30 June 2024, the ATO is in the process of gathering evidence in relation to conduct of a tax practitioner who last promoted a tax exploitation scheme 5 years ago. The 6-year time period applies so that the ATO can make an application to the Federal Court for the imposition of a civil penalty on the tax practitioner.

75    It follows that the Commissioner is within the limitation period in s 290-55(4), in respect of each alleged contravention, if the application was filed within six years after the date of the last conduct that resulted in Mr Perez or another entity being a promoter of the relevant scheme. In some instances, subject to the point discussed next, this makes it necessary to consider whether the promotion or encouragement of the scheme by Mr Perez included conduct that he undertook after the scheme had been carried into effect.

Schemes involving tax evasion: s 290-55(6)

76    The Commissioner also submits that, even if some of his claims have not been brought within the relevant period under s 290-55(4), this does not matter because all of the alleged schemes involved tax evasion and s 290-55(6) therefore applies.

77    Section 290-55(6) was also amended by the 2024 Act. Prior to the commencement of Sch 1 of that Act on 1 July 2024, it applied only to “a scheme involving” tax evasion. That is, it was not expressed to apply to a scheme which “if implemented would involve” tax evasion.

78    Section 299-55(6) operates to disapply the limitation period in s 290-55(4) in a defined class of case. Like s 290-55(4), whose operation it effects, s 290-55(6) is integral to the conferral of the right of action in s 290-50 (cf [72] above); so that, absent some expression of a contrary intention, an amendment to s 290-55(6) applies only prospectively and not to a right of action that has already accrued (or, a fortiori, one that has already expired).

79    Unlike the amendment to s 290-55(4) discussed above, the amendment to s 290-55(6) (which was effected by item 24 of Sch 1 to the 2024 Act) is not the subject of the transitional provision in item 37(2); instead, by force of item 37(1), it applies “in relation to conduct engaged in on or after the commencement of this Schedule”.

80    It is therefore the pre-July 2024 version of s 290-55(6) that applies in this case. Accordingly, s 290-55(4) applies (in the manner described above) to the claim for relief in relation to each of the alleged schemes unless the scheme was one “involving tax evasion”.

81    “Tax evasion” is not a defined term; however, it has a reasonably well settled meaning. The reference in s 290-5(a) (which outlines the objects of Division 290) to “tax avoidance schemes” and “tax evasion schemes” indicates that these are different concepts (cf Rowntree at [355]). This is in accordance with the meaning given to the expression “tax evasion” in Australian cases in a range of statutory contexts.

82    In Denver Chemical Manufacturing Co v Commissioner of Taxation (1949) 79 CLR 296 at 313 (Denver Chemical), Dixon J (with whom McTiernan and Webb JJ agreed) said;

I think it is unwise to attempt to define the word “evasion.” The context of s. 210 (2) shows that it means more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion.

83    Despite his Honour’s reluctance to define the term “tax evasion”, this passage has often been cited and treated as effectively defining the concept. It was referred to in connection with s 290-55(6) in Rowntree at [356] and in Bogiatto at [79]. In the latter case at [80], Thawley J also quoted the following statement by Gleeson CJ (with whom Sully and Bruce JJ agreed) in R v Meares (1997) 37 ATR 321 at 323 (Meares).

Although on occasion, it suits people for argumentative purposes, to blur the difference, or pretend that there is no difference, between tax avoidance and tax evasion, the difference between the two is simple and clear. Tax avoidance involves using, or attempting to use, lawful means to reduce tax obligations. Tax evasion involves using unlawful means to escape payment of tax. Tax avoidance is lawful and tax evasion is unlawful. Although some people may feel entitled to disregard that difference, no lawyer can treat it as unimportant or irrelevant. It is sometimes said that the difference may be difficult to recognise in practice. I would suggest that in most cases there is a simple test that can be applied. If the parties to a scheme believe that its possibility of success is entirely dependent upon the revenue authorities never finding out the true facts, it is likely to be a scheme of tax evasion, not tax avoidance.

84    Generally, therefore, while “tax avoidance” involves structuring transactions or affairs so as to reduce the incidence of tax (albeit usually in a way that is seen as contrary to the intention of the legislation and therefore undesirable), “tax evasion” involves deliberate concealment or provision of misleading information designed to evade payment of the tax properly due. As Basten JA observed in Chief Executive Officer of the Australian Customs Service v Karam [2011] NSWCA 224; 252 FLR 326 at [19], the formulation in Denver Chemical involves a state of mind (that the true information could give rise to tax liability) and an intention or purpose (to avoid such liability).

85    Thawley J also noted in Bogiatto at [81] that “tax evasion” has usually been understood to involve some tax actually being evaded or some beneficial tax outcome being obtained. On this basis, two of the tax exploitation schemes considered in that case, which had not been fully implemented and had not achieved any tax offset, were treated as not involving “tax evasion”. This reasoning was thus determinative of part of the issues in the case and should be followed unless it is plainly wrong (which, in my view, it is not).

86    It is for this reason that the conclusion expressed above, that the pre-July 2024 version of s 290-55(6) applies in this case, is potentially significant. To the extent that any of the schemes alleged to have been marketed by Mr Perez did not achieve any tax benefit, those schemes do not come within the applicable version of s 290-55(6).

When is tax evaded?

87    The need for the Commissioner to demonstrate that some amount of tax was evaded, in order to bring schemes within s 290-55(6), makes it potentially necessary to consider whether there can be said to have been “tax evasion” in circumstances where the tax consequences of the scheme are reversed by action taken after the taxpayer’s return for the relevant income year has been lodged.

88    As will appear below, each of the taxpayers involved in the taxpayer schemes lodged either an original or an amended income tax return including a claim for an R&D tax offset amount that was based on advice and figures supplied by Mr Perez. Each taxpayer was a company and therefore a “full self-assessment taxpayer” as defined in s 6 of the Income Tax Assessment Act 1936 (Cth) (ITAA36).

(a)    In the case of an original return the Commissioner is deemed by s 166A(3) of the ITAA36 to have made an assessment of the taxpayer’s taxable income, tax payable and any tax offset refunds, in accordance with what is specified in the return, on the day on which the return is lodged. It is the making of an assessment or deemed assessment that crystallises the liability to pay tax (ITAA97 s 5-5) and fixes (subject to any amended assessment) the amount of income tax that will become due and payable including the amount of any offset amounts to which the taxpayer is entitled (s 350-10 of Sch 1 of the TAA). In each of these cases, therefore, the filing of the return was enough to crystallise an entitlement to an R&D offset in the amount claimed in the return. If the taxpayer was not properly entitled to that amount, and the claim for it involved a “blameworthy act or omission” in the sense outlined above, “tax evasion” occurred at this point. This is the case even if subsequent events resulted in an amended assessment that reduced or removed that entitlement.

(b)    Each of the taxpayers that filed an amended tax return including a claim for an R&D tax offset amount based on advice and figures supplied by Mr Perez received a notice of amended assessment (made under s 170 of the ITAA36) accepting the taxpayer’s entitlement to an offset in the amount claimed. The issue of the notice of amended assessment crystallised an entitlement to that offset. Here, too, therefore, if the taxpayer was not properly entitled to that amount and the claim for it involved a “blameworthy act or omission” in the sense outlined above, “tax evasion” occurred. This is the case even if subsequent events resulted in a further amended assessment that reduced or removed that entitlement.

89    What follows is that, if the Commissioner succeeds in establishing that the schemes involved deception or falsehood so as to give the tax benefits that they sought to achieve the character of “tax evasion”, each of the schemes was implemented to the extent of resulting in tax evasion. In these circumstances s 290-55(6) is engaged even though it is the pre-July 2024 version of that provision that is applicable.

Relevant dates for the taxpayer schemes

90    The operation of s 290-55(4) and (6) in relation to the 12 schemes alleged by the Commissioner can be summarised as follows (assuming for the moment that the last relevant conduct alleged by the Commissioner is shown to have occurred).

91    It will therefore be necessary to consider the potential application of s 290-55(6) in relation to a particular taxpayer scheme, including whether tax was evaded, only if the last conduct by Mr Perez that resulted in him being a “promoter” is found to have occurred earlier than the date of the last such conduct alleged by the Commissioner.

legislative framework – r&D claims

92    The application of the legislation relating to tax offsets for R&D expenditure is not directly in issue in this case. However, because the schemes alleged to have been promoted by Mr Perez involved R&D claims, it is useful to give a brief outline of that legislation. The operation of that legislation needs to be understood in order to determine whether it was reasonably arguable that scheme benefits arising under the taxpayer schemes were (or would be) available at law.

93    Tax incentives for R&D are dealt with in Division 355 of the ITAA97. The object of that division is described in s 355-5 as follows.

355-5 Object

(1)     The object of this Division is to encourage industry to conduct research and development activities that might otherwise not be conducted because of an uncertain return from the activities, in cases where the knowledge gained is likely to benefit the wider Australian economy.

(2)     This object is to be achieved by providing a tax incentive for industry to conduct, in a scientific way, experimental activities for the purpose of generating new knowledge or information in either a general or applied form (including new knowledge in the form of new or improved materials, products, devices, processes or services).

94    Section 355-1 contains a high-level guide to the operation of the Division:

An R&D entity may be entitled to a tax offset for R&D activities. The tax offset may be a refundable tax offset if the entity’s aggregated turnover is less than $20 million.

To be entitled to the tax offset, the R&D entity needs one or more notional deductions under this Division.

There are 2 main kinds of notional deductions. One is for expenditure on R&D activities. The other is for the decline in value of tangible depreciating assets used for R&D activities.

95    In the present case, it is only expenditure on “R&D activities” that is relevant.

Notional deduction and tax offset

96    Subdivision 355-D makes certain expenditure by an “R&D entity” (which includes a body corporate incorporated under Australian law: s 355-35(1)) deductable. Deductions under Division 355 are “notional” in that, under s 355-105, they are “disregarded” except for certain purposes. One of those purposes, however, is working out whether the R&D entity is entitled to a “tax offset” under s 355-100. Section 355-100(1) relevantly provides as follows.

(1)     An *R&D entity is entitled to a *tax offset for an income year equal to the percentage, set out in the table, of the total of the amounts (if any) that the entity can deduct for the income year under any or all of the following provisions:

(a)     section 355-205 (R&D expenditure);

…

97    The table in s 355-100(1) specifies percentages of 40 or 45 percent, depending primarily on the entity’s aggregated turnover for the income year. It is not necessary for present purposes to go into the detail of which percentage applies in particular circumstances. A “tax offset” is an amount that is subtracted from an entity’s basic income tax liability (which has been worked out by applying the relevant tax rates to the entity’s taxable income) so as to arrive at the amount of income tax that is payable for a tax year (ITAA97 s 4-10).

98    Returning to Subdivision 355-D, the “notional deduction” that produces a tax offset arises pursuant to s 355-205, which provides as follows.

355-205 When notional deductions for R&D expenditure arise

(1)     An *R&D entity can deduct for an income year (the present year) expenditure it incurs during that year to the extent that the expenditure:

(a)     is incurred on one or more *R&D activities:

(i)     for which the R&D entity is registered under section 27A of the Industry Research and Development Act 1986 for an income year; and

(ii)     that are activities to which section 355-210 (conditions for R&D activities) applies; and

(b)     if the expenditure is incurred to the R&D entity’s *associate—is paid to that associate during the present year.

Note 1:     If the matters in subparagraphs (a)(i) and (ii) are not satisfied until a later income year, the R&D entity will need to wait until then before it can deduct the expenditure for the present year.

Note 2:     The R&D activities will need to be conducted during the income year the R&D entity is registered for those activities (see sections 27A and 27J of the Industry Research and Development Act 1986).

Note 3:     The entity may also be able to deduct expenditure incurred to an associate in an earlier income year (see section 355-480).

Note 4:     Expenditure incurred in income years starting on or after 1 July 2011 may be deductible for activities registered for income years starting before 1 July 2011 (see section 355-200 of the Income Tax (Transitional Provisions) Act 1997).

(2)    This section has effect subject to section 355-225 (excluded expenditure), Subdivision 355-F (integrity rules) and subsection 355-580(3) (CRC contributions).

99    The R&D activities for which expenditure can be deducted under s 355-205 are those which meet the two conditions in s 355-205(1)(a) (set out above). The activities must be:

    activities for which the R&D entity is registered under s 27A of the Industry Research and Development Act 1986 (the IR&D Act) for an income year; and

    within the scope of s 355-210.

100    Section 355-210(1) sets out five criteria, one or more of which must be satisfied by the R&D activity, and which broadly have the effect that R&D activity not carried out solely within Australia must meet specific conditions in order for relevant expenditure to be deductible.

Registration

101    Section 27A(1) of the IR&D Act, as in force at times relevant to this case, required the (now) Industry Innovation and Science Australia (the Board or AusIndustry) on receiving an application by an R&D entity, to decide whether to register or refuse to register the entity for one or more specified activities as “core” or “supporting” R&D activities for an income year. However, it does not follow that the Board conducted an assessment of each activity specified in an application.

102    Under s 27B, the Board was authorised (but not expressly required) to make “findings”, in respect of activities mentioned in an application, as to whether they constitute core or supporting R&D activities. Under s 27A(2), a decision to register an entity was required to be made consistently with “any findings already in force” under s 27B or s 28A. The Board was required to notify the applicant in writing of its decision under s 27A(1) (s 27C(1)) and to include a “certificate for each finding (if any) made under s 27B(1) for the application” (s 27C(2)). The notice was required to be provided to the Commissioner if it included one or more certificates (s 27C(3)).

103    The Board was also empowered on its own initiative (s 27F(1)-(2)), and required if requested by the entity or the Commissioner (s 27F(3)), to conduct an examination of all or part of an entity’s registration under s 27A for the purpose of making findings under s 27J. The findings that could be made under s 27J, in respect of an entity’s registration for an income year, were to the effect of whether all or part of a registered activity was or was not a “core” or “supporting” R&D activity. Notice of any such findings was required to be given to the R&D entity and the Commissioner under s 27K, including a certificate for each such finding. Where an entity was registered under s 27A, that registration was taken always to have existed “in a form consistent with” any findings made by the Board under s 27B or 27J (s 27L(1)).

104    Under s 355-705 of the ITAA97, where the Board provides the Commissioner with a certificate setting out a finding under s 27B or 27J of the IR&D Act in relation to an entity’s activities, and the finding was made within four years after the end of the income year to which it relates, the finding binds the Commissioner for the purpose of the assessment of the entity for that year. On the other hand, no such binding effect is accorded to the registration of an entity in respect of specified activities under s 27A, if it is not accompanied by formal “findings” set out in a certificate. In such a case, in ascertaining the amount of any notional deduction under s 355-205 for the purpose of making an assessment of tax, it is incumbent on the Commissioner to come to a view about whether the relevant activities are “R&D activities” as defined; the registration of the entity under s 27A does not itself resolve that question (see Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39; 284 FCR 294 at [32] (Thawley J, McKerracher and Davies JJ agreeing)).

R&D activities

105    For these purposes, an “R&D activity” is defined by s 355-20 as either a “core R&D activity” or a “supporting R&D activity”.

106    “Core R&D activities” are defined by s 355-25(1), as follows.

(1)     Core R&D activities are experimental activities:

(a)     whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:

(i)     is based on principles of established science; and

(ii)     proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and

(b)     that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

107    Section 355-25(2) expressly provides that certain specified activities are not core R&D activities. These include the following:

(a)     market research, market testing or market development, or sales promotion (including consumer surveys);

…

(e)     commercial, legal and administrative aspects of patenting, licensing or other activities;

…

(g)     any activity related to the reproduction of a commercial product or process:

(i)     by a physical examination of an existing system; or

(ii)     from plans, blueprints, detailed specifications or publically available information;

…

108    “Supporting R&D activities” are defined by s 355-30 as follows.

355-30 Supporting R&D activities

(1)     Supporting R&D activities are activities directly related to *core R&D activities.

(2)     However, if an activity:

(a)     is an activity referred to in subsection 355-25(2); or

(b)     produces goods or services; or

(c)     is directly related to producing goods or services;

the activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting *core R&D activities.

109    Activities said to be “supporting R&D activities” therefore come within the relevant concept only by their close relationship with “core R&D activities”. It is the definition of the latter term, therefore, that is important.

110    The definition of “core R&D activities” involves a series of requirements that are cumulative.

(a)    The activities are “experimental”.

(b)    The outcome of those activities cannot be known or determined in advance on the basis of current knowledge, information or experience.

(c)    The outcome can only be determined by a systematic progression of work that:

(i)    is based on principles of established science; and

(ii)    proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions.

(iii)    The activities are conducted for the purpose of generating new knowledge.

111    The expression “experimental” is not defined and thus bears its ordinary meaning. In context, however, it does not do much if any work other than encapsulating the content of s 355-25(1)(a) and (b): Moreton Resources Limited v Innovation and Science Australia [2019] FCAFC 120; 271 FCR 11 at [148] (Davies, Moshinsky and Steward JJ). Activities that have the characteristics set out in those paragraphs will fairly readily be described as “experimental”.

112    The “outcome” in s 355-25(1)(a) has been described in the Administrative Appeals Tribunal as “the anticipated or desired result of the experimental activities” (H2O Exchange Pty Ltd and Innovation and Science Australia (Taxation) [2019] AATA 4195; 166 ALD 507 at [19] (Rayment DP)). However, with respect, it is difficult to see how something that is identified as anticipated or desired can at the same time be unknown. The preferable understanding, in my view, is that the word “outcome” simply refers to the result of the experimental activity or the knowledge that it will produce. If that knowledge is already known or can be worked out in advance (from current knowledge, information or experience), the activity is not a core R&D activity. “Current knowledge”, in this context, means the knowledge reasonably available when the activity is initiated.

113    The language of s 355-25(1) makes it reasonably clear that it is referring to knowledge available to competent persons working in the relevant field and not only the knowledge of the particular R&D entity (an understanding supported by the Explanatory Memorandum to the Tax Laws Amendment (Research and Development) Bill 2010 (Cth) at [2.16]). The “outcome” being unable to be known or determined in advance from current knowledge, and being able to be determined only by applying a systematic progression of work with the characteristics in s 355-25(1)(a)(i) and (ii), are in substance two sides of the same coin; so that activities designed to answer a question that could be answered by reading journals or asking experts is not within the definition.

114    Grammatically speaking, the only work done by the references to principles of established science and the process of hypothesis and experiment is to qualify the “systematic progression of work” that has to be necessary, under s 355-25(1)(a), to arrive at the outcome: that is, the outcome must be one which requires experimentation in order to be ascertained; and facts about the physical world that are not already known can only be established by the application of scientific method. Subparagraphs (i) and (ii) of s 355-25(1)(a) therefore do not directly impose requirements as to the nature of the work that must be involved. However, these subparagraphs serve to emphasise that the tax offset provided by Division 355 is available only for activities that, in pursuing knowledge of this kind by a method with these characteristics, are properly described as “experimental”.

115    A similar point may be made about the requirement in s 355-25(1)(b) that the activities “are conducted for the purpose of generating new knowledge”. This language refers to the purpose of the activities rather than their results or the nature of the methods employed. On one view, an activity having the “purpose” of generating new knowledge may simply be the corollary of the outcome of that activity being knowable only by the application of a “systematic progression of work” adhering to scientific method (and thus bound up in the activity being “experimental”, as discussed above). However, the requirement for a purpose in paragraph (b) serves to emphasise that the generation of new knowledge must be “more than an insubstantial purpose” (JLSP and Innovation Australia [2016] AATA 23 at [52] (Frost DP)). “[N]ew knowledge” should be read conformably with the reference to “current knowledge, information or experience” in paragraph (a); ie, the purpose of the activity must be to acquire knowledge that is not available in the public domain rather than merely not known to the particular R&D entity (Ultimate Vision Inventions Pty Ltd and Innovation and Science Australia (Taxation) [2019] AATA 1633 at [44] (Member Maryniak)).

Records and apportionment

116    There are no express evidentiary requirements for establishing that an activity comes within s 355-25(1). In theory at least, witness testimony might therefore be sufficient to substantiate the relevant taxable facts (Bogiatto at [100]-[101]). However, Adam Savage’s observation that “the only difference between screwing around and science is writing it down” (Mythbusters, season 10, episode 12) has obvious force. It will usually be very difficult for a tribunal of fact to accept that any “experimental process”, proceeding “from hypothesis to experiment, observation and evaluation”, has been undertaken in the absence of some contemporaneous record of experiments and observations. Lack of written records suggests the absence of a “systematic progression of work”, a point that has been made more than once in the AAT (Royal Wins Pty Ltd and Innovation and Science Australia [2020] AATA 4320 at [40] (Molloy DP); Docklands Science Park Pty Ltd and Innovation Australia [2015] AATA 973; 68 AAR 42 at [63] (Senior Member Fice)). Hence, in Coal of Queensland Pty Ltd v Innovation and Science Australia [2021] FCAFC 54; 285 FCR 286 at [113], the Full Court (Logan, Griffiths and Moshinsky JJ) did not criticise the Tribunal for regarding the absence of R&D plans or documentation as a factor supporting the conclusion that the relevant parts of s 355-25(1) were not satisfied (while noting that the Tribunal had not elevated the existence of such documentation to an essential requirement).

117    Another feature of the legislation that may call for attention to the records of an R&D entity is that, under s 355-205(1), expenditure of an entity incurred during an income year is deductible “to the extent that” it is incurred on activities that come within paragraphs (a) and (b). Thus, for example, part of the salary of an employee (but only part) will be deductible if the employee spends part of their time working on R&D activities. The proportion of any item of expenditure that is attributable to R&D activities needs to be identified, and capable of substantiation, by the taxpayer. As with any other matters relevant to tax liability, s 262A(1) of the ITAA36 requires an R&D entity that is carrying on a business to “keep records that record and explain all transactions and other acts engaged in by the person that are relevant for any purpose of this Act”.

the brandon industries scheme

Background

118    Hayden Warszewski was the general manager of Brandon Industries from 1997 until around 2001 and Chief Executive Officer from then until the beginning of 2024. Brandon Industries was a small family business that had been started by Mr Warszewski’s father. It conducted its business under the business name “Brandon Hospitality Solutions”. It designed, made and supplied custom commercial kitchen, hospitality and food service equipment (such as stainless steel benching, cool rooms, exhaust canopies, ovens and blenders). Its clients included restaurants, cafes, hotels, bars and nightclubs as well as supermarkets.

119    At the time of the hearing, Mr Warszewski was working at a remote location in Zimbabwe. He was only able to give evidence by AVL and only within specific time windows. Mr Warszewski gave evidence and was cross-examined on 6 February 2025, after the Commissioner’s case was otherwise closed and during Mr Perez’s case. In the witness box, Mr Warszewski adopted (with a small number of corrections) an affidavit which he had prepared but which had not been executed or filed. That affidavit, with its annexures, was tendered and became an exhibit in the proceedings. I have treated it as Mr Warszewski’s evidence in chief.

120    Mr Warszewski sought and was granted protection under s 128 of the Evidence Act 1995 (Cth) in respect of some aspects of his evidence. I did not regard these acknowledgements of past wrongdoing as damaging his credibility. He presented as a careful and candid witness and I generally accept his evidence.

121    From around late 2013, Brandon Industries was contracted by an entity related to Coles Supermarkets to work on a project referred to as the “Click and Collect project”. It involved designing, manufacturing and delivering refrigerated remote locker cabinets for installation at various locations where Coles operated supermarkets. The cabinets were intended to allow customers to collect (using a password) groceries which they had ordered online.

122    Mr Warszewski described the Click and Collect project as involving two main stages of work. The first, which took place in 2013 and early 2014, involved the design and manufacture of six prototypes (or samples) of the proposed lockers. In the second stage, following approval of a prototype by Coles, Brandon Industries sent the designs to a manufacturer in China, which manufactured 18 units. The units were imported into Australia and delivered to Brandon Industries, which in turn delivered and installed them at the desired locations. Brandon Industries’s work on the project was complete (apart from minor works such as repairs under warranty) by 30 June 2015. Brandon Industries received about $1.2 million from the project.

Introduction to Grow Fast

123    Around late 2014, Mr Warszewski had a conversation with a friend and business associate, Peter Maggs, who told him about a friend working in a different industry who had obtained an R&D grant. Mr Maggs said that his friend had been assisted in this by “Jose Perez”, and gave Mr Warszewski Mr Perez’s business card. Mr Warszewski called Mr Perez and they had a brief conversation, which Mr Warszewski recounted as follows.

Jose asked me what business activities Brandon Industries carried out. I gave him a broad description of those activities … and the “Click and Collect” project ... I also told him that the project related to an online shopping system and that the client, Coles, wanted a solution. I remember Jose said “Yes, this project fits the format for R&D” and that the R&D grant was available for this project. Based on this, I believed that the Click and Collect project could qualify as R&D that entitled Brandon Industries to receive benefits from the ATO.

Jose also said that:

*     he had done a lot of R&D claims for other businesses, I should follow his lead, he would guide Brandon Industries on the R&D process, and he would tell me what needed to be done to make a R&D claim;

*     I needed to sign an engagement letter, and that the fee he charged was not a fixed fee but calculated as a percentage of the R&D grant obtained; and

*     he would be in Melbourne next month to see other clients, and that I could meet with him then to discuss the R&D claim and next steps.

Based on what Jose said in the phone call, I felt that he knew what he was doing in relation to the preparation of R&D claims for businesses and would be able to assist Brandon Industries in that regard.

(Italicisation in original.)

124    Around a month later, in early 2015, Mr Warszewski met Mr Perez and Brandon Industries’s premises in Melbourne. The meeting lasted around half an hour. Mr Warczewski did not recall Mr Perez asking much by way of further details of the Click and Collect project. Mr Perez explained the process for making an R&D claim and asked whether Mr Warszewski had any documents supporting the project and recording Brandon Industries’s expenditure and turnover. Mr Warszewski said that there were a lot of documents that had been generated while the project was being done, but these were only manufacturing and engineering drawings and designs. Mr Warszewski asked Mr Perez questions about Brandon Industries’s entitlement to an R&D grant and Mr Perez’s answers were prefaced by expressions such as:

“Don’t worry. Don’t worry”;

“You just do what I say”;

“I’ll guide you”;

“You tick all the boxes” for R&D; and

“Follow my lead” and “I’ve done a lot of R&D”.

125    After this meeting, Mr Warszewski received an email from Mr Perez setting out the information he required to prepare an R&D claim on behalf of Brandon Industries.

Application for registration

126    Brandon Industries’s application for registration of R&D activities, in respect of the 2015 income year, was lodged electronically on 19 July 2015 (the Brandon Industries registration application). Mr Warszewski was listed as the nominated contact person, but his email address was listed as bdmnsw@growfastcorp.com.au (Mr Warszewski’s normal email address at that time appears from other documents to have been haydenw@brandonindustries.com.au). The question “Did the R&D Entity rely on advice from a Tax Agent or R&D Consultant to compile this application?” was answered “Yes”, and Mr Perez’s name and tax agent number were given. Mr Warszewski gave evidence that he did not lodge the application and he did not think that anybody else at Brandon Industries had done so.

127    The project, entitled “Brando Smart Refrigerated Grocery Lockers” was listed with a start date of 1 July 2014, an end date of 30 December 2016 and overall project expenditure of $2,500,000 of which $1,395,531 was said to be for core R&D activities.

128    The application form included spaces headed:

(a)    “Objectives of the project”,

(b)    “Describe the new knowledge intended to be produced by the core activities (i.e. experiments) in this project. Explain how it is different from current knowledge”, and

(c)    “Explain how the outcome of the core activities in this project could not have been known or determine (sic) in advance on the basis of current knowledge, information or experience”.

129    These were filled in with text describing, in essence, the issues involved in developing banks of refrigerated lockers with each individual locker able to be opened by the use of a code. As will be apparent from that short summary, the project being described was one involving a specific application of known technologies.

130    Mr Warszewski described the descriptions of the Click and Collect project that appeared in the Brandon Industries registration application as “loosely based” on information that he and other Brandon Industries staff had provided to Mr Perez during discussions. He recalled seeing “earlier drafts” of the document that Mr Perez had emailed to him. The evidence includes a series of emails exchanged between Mr Perez and two staff members at Brandon Industries in June 2015, which indicate that Mr Perez was seeking their assistance and input for the formulation of these descriptions. Although that email chain ends with one of those staff members sending a document to Mr Perez under the heading “Template Document” (copied to Mr Warszewski), the attachment does not appear to be in evidence.

131    The text contained in the Brandon Industries registration application was, according to Mr Warszewski’s evidence (which was not contradicted and which I accept), in some respects misleading or untrue. Some examples are as follows.

(a)    The text under “Objectives of the project” begins with “The aim of this project is to research design feasibilities that would enable the commercialisation and wide market adoption of our temperature controlled self-service locker system” (emphasis added). The Click and Collect project was in fact a specific contractual arrangement with a client to design, manufacture and deliver refrigerated remote locker cabinets to Coles shops; it was not a broader project to develop a “system” or to commercialise a system for a broader market.

(b)    In the same section of the form it was asserted that “We are developing a Series of lockers, project that we have started in 2012”. In fact the Click and Collect project started around late 2013.

(c)    In the same section of the form there was a reference to developing “our grocery locker design to improve its competitiveness”. This was not correct. Brandon Industries was working to fulfil a specific contractual arrangement and was not engaged in any longer term attempt to improve its competitiveness in the market.

(d)    Also in the same section, reference was made to “a smart software, algorithm that interface with customer systems and understand possible needs”, and to “customer inventory interfacing”. Brandon Industries did not develop these features.

(e)    The form described purported “Tests and experiments”, said to be a core R&D activity and occurring from July 2014 to December 2016. The text included reference to testing units in “all weather conditions” by creating artificial weather conditions in an isolated room, and tests “to conclude structural rigidity”. Brandon Industries did not carry out any of the testing described here. It simply prepared prototypes to meet the client’s design specifications and did routine testing of products supplied by the Chinese manufacturer. To the extent that there was any testing or prototype development, it was completed before the 2015 financial year.

(f)    The asserted overall project expenditure of $2,500,000 was not calculated or provided by Mr Warszewski and he disclaimed any knowledge of its source. His evidence was that to the best of his knowledge it was made up.

(g)    The start and completion dates (July 2014 to December 2016) were not correct. Work on the design aspects of the project was done in 2013 and all substantial work was completed by 30 June 2015.

132    It is clear that Mr Perez prepared and lodged the Brandon Industries registration application. He prepared the text of the application, using text that had been sent to him by Brandon Industries staff or things he had been told during meetings (or a combination of the two). Given the style of the document, the way it exaggerates the experimental character of the Click and Collect project and the fact that the final version was not sent to Mr Warszewski for approval, I am satisfied that Mr Perez constructed the application with an eye to maximising the chance of Brandon Industries being registered by AusIndustry for the 2015 income year.

133    The application was successful. Brandon Industries received a notice of registration from AusIndustry around 21 July 2015.

Terms of Mr Perez’s engagement

134    Mr Perez’s engagement with Brandon Industries was formalised only on 23 July 2015, after the Brandon Industries registration application had been submitted and approved. It was on that date that Mr Warszewski signed a document entitled “Supply of Services Agreement” (the Brandon Industries Agreement). That document also bears Mr Perez’s signature with the date 23 July 2015.

135    Mr Warszewski gave evidence that Mr Perez had followed up with him on several occasions to ensure that he signed the Brandon Industries Agreement, saying that he “would not do much more work” until the Agreement was signed, but no specific time period is given.

136    The Brandon Industries Agreement was a proforma document in the similar terms to the other client agreements mentioned in these reasons. Two points should be noted at this stage.

137    First, item 4 of the Schedule to the Agreement provided:

FEES AND PAYMENT, 20% of R&D Grant obtained plus GST.

138    Underneath item 4 is a handwritten annotation “NO GRANT NO FEES”, accompanied by a signature which appears to be that of Mr Perez.

139    Mr Warszewski gave evidence of a conversation before he signed the Agreement, in which he said that the commission for which this item provided was too high. Mr Perez responded by saying that he would “offset his commission by making a larger R&D claim”. Mr Warszewski was not specifically challenged on this part of his evidence and I therefore accept it.

140    Secondly, item 5 in the Schedule provided:

SPECIAL CONDITIONS, no fees to be charged until Grant is obtained. No Grant No Fees. Once Grant has been obtained Recipient has seven (7) days to pay the consultant’s invoice in full. In the event payment is late and warrants no extension by the consultant then interest will be calculated at a rate of 9%.

141    Underneath this item was another handwritten annotation which said “payment due upon cleared funds in Brandon account”. This was accompanied by two signatures. One appears to be that of Mr Perez; the other was confirmed by Mr Warszewski to be his.

142    Mr Warszewski confirmed that these provisions were consistent with the fee structure that he had discussed with Mr Perez during their initial telephone conversation.

Brandon Industries’s 2015 tax return

143    After the execution of the Brandon Industries Agreement, Mr Perez met Mr Warszewski several times at Brandon Industries’s premises. Mr Warszewski understood the purpose of these meetings to be for Mr Perez to gather information and documents in order to calculate the amount of R&D expenditure that should be claimed from the ATO. Mr Perez asked Mr Warsewski to create invoices to “fill the gaps” and increase the amount of Brandon Industries’s R&D grant. He also asked Mr Warszewski and other staff to create timesheets and an “R&D diary” for employees to show the time that each employee had spent on the Click and Collect project.

144    Mr Warszewski became concerned, as he understood that Mr Perez was seeking to “reverse engineer” documents to fit the R&D claim and substantiate the amount of the proposed grant. He raised this concern with Mr Perez, who agreed that he was “fabricating the claim” but said words of encouragement such as “don’t worry, it’s okay” and urged Mr Warszewski to “just go along with it”.

145    Brandon Industries’s 2015 income tax return was lodged on 10 December 2015 by the company’s accountants, Zimsen Partners (Zimsen). It included an R&D Schedule (the Brandon Industries R&D Schedule) that claimed a refundable R&D tax offset of $1,276,141.05, based on total notional R&D deductions of $2,835,869. The latter figure was made up of $252,356 in salary expenditure and $2,583,513 in other R&D expenditure.

Preparation of the return

146    It is necessary to go back briefly to September 2015, when a disagreement appears to have arisen between Mr Perez, Brandon Industries’s financial controller (Regina Phua) and Zimsen concerning who was professionally responsible for calculating and justifying the figures that would be included in Brandon Industries’s tax return in respect of R&D expenditure. In an email to Ms Phua (copied to Mr Warszewski) on 15 September 2015 Mr Perez insisted that he was merely an adviser and refused to countenance amending the Brandon Industries Agreement. In that email he said:

I can not be responsible for even the bookkeeping as the contract said, I can give you a letter stating that I have reviewed your claim and I am satisfied with methods and figures obtained, my license [sic] is already on the line and liabilities on advises [sic] given to you already

147    On 19 September 2015 Mr Warszewski received a letter from Mr Perez on Grow Fast letterhead which was as follows.

As per our conversation, I have reviewed your R&D claim and to the best of my knowledge Brandon Industries Pty Ltd is following up rules and regulations, there was nothing out of the standards. Therefore I am satisfied that you are following up my guide lines and your tax return will be correct and it will reflex the true financial position of the company in regards to R&D claim.

Also I would like to confirm that in the case of an Audit/Review by The Australian Taxation Office or/and AusIndustry, I will assist you as part of my services (no charge), It is also a condition to keep guaranties of no Grant not fees terms.

…

148    Mr Warszewski’s evidence does not identify the “conversation” referred to here. He understood this to be the letter referred to in Mr Perez’s 15 September 2015 email, and described it in his affidavit as “part of the general encouragement and assurances that Jose was conveying to me about Brandon Industries’s proposed R&D claim”.

149    On 19 November 2015 Dancy He of Zimsen sent an email to several people including Mr Warszewski, Ms Phua and Mr Perez indicating that the 2015 tax return had been drafted. The email said in part:

Along with the company tax return, there is “R & D Tax incentive schedule” which needs to be completed. Please see the attached.

To be eligible for this tax offset the ATO and AusIndustry requires completion of as many of the labels as possible. Related information submitted to ATO must be cross-matched with your R&D application submitted to AusIndustry.

It would be greatly help if your R & D consultant could provide us all detailed breakdown of the total R & D expenses of $1,071,727, as soon as possible.

150    The origin of the figure of $1,071,727 was not specified; however, the only likely source is Mr Perez. It is evident that Zimsen was relying on him to supply the necessary information for completion of the R&D tax incentive schedule.

151    Mr Perez sent an email to Ms Phua (copied to Mr Warszewski) on 22 November 2015. Interestingly, he neither replied directly to Ms He nor copied anyone at Zimsen into this email. He said, in part:

There is a significant discrepancy from the original figures to what your accountant is showing, do you know why,,? If you do please high light to me so I can save time in reconciliations, original figures are attached

I will need the detailed payroll breakdown by position, what was sent to me it is a consolidated one, must be by position detailed

So May I ask you to email it to [me] asap so I can send info to your accountant and do the appropriate rec

152    Ms Phua sent an email to Mr Perez (copied to Mr Warszewski, Ms He and Jacky Chan (also of Zimsen)) the following day attaching material which she described as “wages breakdown into Gross and position as well as finalised TB”. She referred to a telephone conversation with Mr Perez “earlier” (which I take to mean earlier that day).

153    On 30 November 2015 Mr Chan sent an email to Ms Phua asking whether there had been any “updates” on “the breakdown of the R & D expenses for Brandon”. Ms Phua replied the next day (a Tuesday), saying that she had a meeting with Mr Perez “this Thursday at 3.00pm” and would “keep [Mr Chan] posted of the outcome then”.

154    Mr Perez sent Ms Phua an email at 2.56 pm on Thursday 3 December (shortly before the time they had arranged to meet), attaching an Excel document called “Sample Dairy 2009 2010” but saying nothing other than “Best Regards”. There does not appear to be any evidence as to whether Mr Perez and Ms Phua met on that day or what they discussed.

155    On 6 December 2015 at 10.35 pm Mr Perez sent an email to Ms He, Ms Chua and Mr Warszewski (copied to Mr Chan) which appears to be a reply to Ms He’s email of 19 November 2015. He said (in part):

Part A does not need to agree with Part B, in other words application does not necessary must agree with Claim, as they are 2 separated tasks

Please find attached final figures for Brandon Industry R&D claim, I have reviewed and I do honestly think that all is ok as per legislation

And figures are reflecting the correct value of the claim.

There is high probabilities that the claim will be review, it is part of my services assist Brandon Industries during the Process

And finally may I ask you to email me final tax return for quick review before lodgement

(Emphasis added.)

156    Two aspects of this email deserve emphasis. One is that Mr Perez was providing Zimsen with what he regarded as “final figures” for inclusion in Brandon Industries’s tax return. In other words, he was not merely providing Brandon Industries’s accountants with advice about formulating the R&D claim or raw data as a basis for calculations to be done by them. He was telling them what numbers should be included and asking to see the document in its final form. The other is that Mr Perez, as a purported expert in the area, was reassuring Zimsen and Brandon Industries that the amount he was proposing should be claimed was properly claimable. Mr Warszewski did not previously think that the amount claimed in Brandon Industries’s tax return could be different from the figures included in the registration application, but trusted what Mr Perez said because he was an expert in the field.

157    Attached to Mr Perez’s 6 December 2015 email was a draft R&D tax incentive schedule for the 2015 income year which showed:

(a)    salary expenditure of $292,281;

(b)    other R&D expenditure of $1,103,251;

(c)    total notional deductions of $1,395,532; and

(d)    a refundable R&D tax offset of $627,989.40.

158    Mr Warszewski observed that the total of $1,395,532 was only one dollar more than the expenditure claimed in the Brandon Industries registration application.

159    The natural inference from the draft R&D tax incentive schedule mentioned above being attached to Mr Perez’s email of 6 December 2015 (which in turn referred to “final figures”) is that he had prepared it, or at least reviewed and agreed with it, and was giving its contents his imprimatur. What happened next is therefore somewhat strange.

160    Ms He sent an email to Mr Perez on the morning of 7 December 2015 thanking him for the material and asking him to confirm that “the company tax return’s R & D tax incentive schedule fill out will be $1,395,532 as per your draft provided” (original emphasis). Ms He’s email also asks for an explanation of “where…the expected refund of $1,276,140.71 comes from” (original emphasis), noting that the expenditure figure of $1,395,532 would result in a tax offset of $627,989.40. One reason why this is strange is that the copy of the draft R & D tax incentive schedule annexed to Mr Warszewski’s affidavit includes expenditure of $1,395,532 and an expected refundable tax offset of $627,989.40. It is not clear where Ms He had seen the figure $1,276,140.01.

161    Next, despite having provided “final figures” the previous day, Mr Perez replied to Ms He at 6.59 pm on 7 December 2015 (copied to Mr Warszewski, Ms Phua and Mr Chan) in the following terms.

I have reviewed the customer claim and as per figures presented to me, I do honestly believe that they are true and correct and represent the correct amount to be claimed. So I am happy to add the R&D tax incentive attached into the tax return

However the total expenses as per calculation is $2,835,859 and expected refund should be $ 1,276,140.71

But this figures must be confirm from your end when you entered in your handy tax software

I will contact you tomorrow, just to make sure that we are going in the right direction

162    Here, again, Mr Perez was purporting to direct Brandon Industries’s accountants as to the precise figures that should be included in its tax return in relation to its R&D claim. No explanation was given for the new expenditure total of $2,835,869 in circumstances where it was Mr Perez himself who had relayed the earlier figure of $1,395,532.

163    Attached to Mr Perez’s email of 7 December 2015 was an Excel spreadsheet headed “Brandon Industries (Vic) Pty Ltd” (the Brandon Industries spreadsheet). The first page was as follows.

Payroll            $ 252,355.65

All other exp         $ 2,583,512.60

Total            $ 2,835,868.25

Expected refund        $ 1,276,140.71

164    It will be noted that the expenditure figures on this page mostly match the figures included in the Brandon Industries R&D Schedule attached to the company’s tax return and the expected refund is within a few cents of the figure included in the tax return.

165    The second page of the Brandon Industries spreadsheet appears to be a summary of Brandon Industries’s payroll information for the 2015 financial year. The third page is a table headed “Wages YE 30.06.2015” which, for each of 37 “Positions”, sets out figures labelled as “Gross”, “R&D %” and “R&D Amount” (the BI payroll table). It is evident that the “R&D amount” for each position has been derived by applying the identified “R&D %” as a percentage to the relevant “Gross”. The total of the “R&D Amount” column is $252,355.65, which matches the “Payroll” figure on the first page.

166    At the bottom of the BI payroll table is a line which says “R&D Ave % 19.5%”. This represents the mathematical relationship between the totals in the “Gross” column (1,296,561.92) and the “R&D Amount” column (252,355.65) as a percentage rounded to one decimal place.

167    The third page of the Brandon Industries spreadsheet includes a table headed “Overheads” (the BI overheads table). A number of expenditure items are listed in a column headed “Expense”. The other columns are headed “Amount’, “R&D %” and “R&D Amount”. With two exceptions, the “R&D %” entered in every line (and applied to the “Amount” so as to arrive at the “R&D Amount) is 19.5%, which is the same as the “R&D Ave %” calculated in the BI payroll table. The exceptions are “R&D Refridge & Related Accs” ($953,305.49) and “R&D Consultant & extra” ($1,071,726.90) — incidentally, the largest expense items in the table — which are allocated an “R&D %” of 100%. The total of the “R&D amounts” in the table is $2,215,625.01. Underneath is a further line with the description “Materials”, with (apparently) an “R&D %” of 9.7% applied to a figure of $3,780,292.04 to arrive at $367,887.59. $2,215,625.01 and $367,887.59 add up to $2,583,512.60, which is the figure given on the first page of the Brandon Industries spreadsheet for “All other exp”.

168    The origin of the figures included in the BI payroll table is not totally clear. There is in evidence an “R&D diary” which, according to Mr Warszewski’s evidence, was prepared by two employees of Brandon Industries on Mr Perez’s advice and given to the ATO as part of its review of Brandon Industries’s R&D claim. This document purports to be a monthly record of the percentage of each employee’s time that was spent on R&D activity (ie, the Click and Collect project), providing overall percentages that agree with the entries in the BI payroll table. Evidence in Mr Warszewski’s affidavit indicates that this document was prepared by staff at Brandon Industries, in consultation with Mr Perez, in December 2015. This was an exercise in reconstruction or reverse-engineering. As Mr Warszewski’s affidavit explains, the entries in the “R&D diary” were not drawn from any contemporaneous records of Brandon Industries (there were no records that could have provided a basis for these figures) and in many respects grossly overestimated the time that various people (including Mr Warszewski himself) spent on the Click and Collect project. Mr Warszewski was not seriously challenged on this evidence and I accept it. Speaking of the BI payroll table in his affidavit, he said:

Those percentages and calculations were to my understanding prepared in retrospect, without reference to any documentation in relation to the 2015 financial year. They were prepared under the guidance of and at the instruction of Jose. I no longer recall the exact date, however I had a conversation with Jose about these percentage figures around the time that I saw this spreadsheet, and Jose said to me: “These figures will not be checked by the ATO” and “I have done this so many times in the past”. He also said that as long as the average of these figures fit in a reasonable range and he was not putting 50% or 60% as the average claim percentage, then the ATO would not check. Jose’s statements and his experience in making R&D claims gave me assurance at the time that the components feeding into the calculation and quantum of the R&D claim were legitimate.

(Italicisation in original.)

169    As to the BI overheads table, Mr Warszewski’s evidence was that most of the items in this table were expenses incurred in the 2015 year for which records existed in Brandon Industries’s accounts. However, none of Brandon Industries’s records classified any of these expenses as being incurred in relation to any R&D activity. It will be recalled that most items in this table were allocated an “R&D %” of 19.5 percent, which exactly matches the “R&D Ave %” produced by the BI payroll table. I infer that, in the absence of any records that could support a real allocation of part of any of these expenses, Mr Perez simply applied the average percentage that his spreadsheet had calculated for wage expenditure. Even if this might be a defensible methodology in some circumstances, it was obviously highly problematic in circumstances where the R&D percentages underlying this average were themselves made up. Mr Warszewski’s evidence was that the Click and Collect project was a relatively small part of Brandon Industries’s activities in the 2015 income year and it was simply not possible that 19.5 percent of several expense items could have been spent on the project. Other items (such as “Insurance”, “Medical Expense”, “Staff Amenities”, “Staff Training”, “Stationeries”, “Uniform” and “Upkeep of Office”) were simply unrelated to the Click and Collect project.

170    The item “R&D Refridge & Related Accs”, which was allocated an “R&D %” of 100%, was, on the evidence of Mr Warszewski, created in Brandon Industries’s accounts on the advice of Mr Perez. Mr Warszewski further deposed (and I accept):

Jose asked me to allocate invoices that Brandon Industries had paid or was liable to pay into this expense item or category, even if the invoices (and therefore, expenses) did not relate to the Click and Collect project. As I stated above at paragraph 67.2 above, Jose said to “load up the invoices” in order to increase the quantum of R&D expenses proposed to be claimed in relation to Brandon Industries’ R&D claim. I recall that Jose reviewed the invoices and identified invoices that he said should be included as part of the R&D claim. As a result, most of the expense entries set out in the R&D Ledger (and therefore the expense item “R&D Refridge & Related Accs”) were not related to the Click and Collect project.

(Italicisation in original.)

171    The other expense item that was allocated an “R&D %” of 100% was “R&D Consultant & extra” ($1,071,726.90). This, according to Mr Warszewski, was another ledger created in Brandon Industries’s accounts on the advice of Mr Perez. $980,000 of this purported expenditure was never in fact spent by Brandon Industries.

(a)    $200,000 represented two invoices from Grow Fast for consulting services, both dated 30 June 2015 but in fact provided by Mr Perez after that date. Brandon Industries never paid these invoices. Mr Warszewski deposes to a conversation, around the time these invoices were provided, in which Mr Perez said that “Brandon Industries should claim the sums in the invoices in its R&D claim for the 2015 financial year in order to increase the R&D claim”.

(b)    $780,000 related to an invoice for this amount from a company called Fairbank Grange Property Pty Ltd (Fairbank Grange), of which Mr Warszewski was a director. Fairbank Grange was a property development company that had nothing to do with the Click and Collect project. The recorded expense of $780,000 was never incurred or paid by Brandon Industries. Mr Warszewski deposed to a conversation in which Mr Perez asked whether he was a director of any other companies and then “said to create an invoice addressed to Brandon Industries from [Fairbank Grange] for $780,000 to increase the R&D claim”.

The ATO review

172    Around 23 December 2015 Brandon Industries received a letter from the ATO advising that its tax return for the 2015 income year had been “selected for further review” and any refund to which it was entitled was being retained pending the review. Nothing seems to have happened in relation to this letter until 3 February 2016, when Ms Phua sent an email to Mr Warszewski, Mr Perez and Ms He headed “Letter from ATO advising status of refund”. Mr Perez replied later that day, saying “Standard do not take the pain of them, keep pushing and calling”. At around this time, Mr Warszewski was beginning to have what he described as “cold feet” about Brandon Industries’s R&D claim. He raised his concerns with Mr Perez, who said words to him including “it’s your money”, “You’ve spent it”, “It’s legitimate”, and “Keep going. Make the calls”. Mr Perez asked Mr Warszewski to make a “formal complaint” about the retention of Brandon Industries’s tax refund, which he did on 16 February 2016.

173    On 17 February 2016 Mr Warszewski received an email from an officer of the ATO requesting various documents to substantiate Brandon Industries’s R&D claim. Mr Perez advised Brandon Industries about the documents that should be provided.

174    On 10 March 2016 there was a meeting at Brandon Industries’s premises, attended by Mr Warszewski, Mr Perez, personnel from Zimsen and representatives from the ATO. Mr Warszewski and Mr Perez had a discussion before this meeting, at which Mr Perez advised Mr Warszewski about things he should say or not say. This included a suggestion that he should say that he only had a “handshake agreement” and not a formal contract with Mr Perez. In a passage which strikingly prefigures Mr Perez’s oral evidence in this proceeding, Mr Warszewski deposed as follows.

When the ATO representatives arrived and the meeting commenced, they asked Jose several questions about the R&D claim. I observed that he was unable to answer the questions with any precision or detail. I thought that he was not answering some of the questions in direct manner (sic) and many of his answers were not responsive to the questions. I also thought that he had a defensive attitude because he was trying to justify certain things and push back on assertions made by the ATO representatives. Overall, I thought he was evasive in his responses.

175    An ATO officer sent an email to Mr Warszewski the following day requesting various documents. Mr Warszewski replied as follows on 15 March 2016.

As a Director of the business I would like to request that we have permission resubmit (sic) our R&D expenditure claim. We feel we have made some fundamental errors and believe that there are some “grey areas” that we can also attend to.

176    After speaking with staff at Zimsen, Mr Warszewski formed the view that Brandon Industries should withdraw its R&D claim. On 19 April 2016 he sent an email to the ATO advising it that Brandon Industries wished to withdraw the claim and he would instruct its external accountants to amend its tax return accordingly. On 5 May 2016 Zimsen wrote to the ATO seeking to withdraw the total amount claimed in the R&D tax incentive schedule and to subtract $980,000 from the deductions previously claimed.

177    On 29 August 2016, the ATO issued an amended assessment for the 2015 income year to Brandon Industries. Relevantly, it amended Brandon Industries’s refundable tax offsets from $1,276,141.05 to zero and its tax offset refunds from $798,732.45 to zero. Brandon Industries was therefore required to pay the latter sum by 22 September 2016. Brandon Industries was also assessed with an administrative penalty of $84,112.75.

Conclusions in relation to Brandon Industries

Tax exploitation scheme

178    The approach taken to the R&D claim advanced in Brandon Industries’s 2015 tax return can readily be identified as a “scheme”, given the extremely broad meaning given to that term by s 995-1 of the ITAA97. The scheme involved the preparation and lodgement of a return involving that claim.

179    Objectively, the scheme as so understood was directed towards the obtaining for Brandon Industries of a tax offset pursuant to Division 355 of the ITAA97. This was clearly a “scheme benefit” as defined by s 284-150 of the TAA. The obtaining of such a benefit for Brandon Industries was also, clearly, subjectively intended by Mr Perez and by Mr Warszewski. At the time of the relevant promoting conduct (as to which see below), therefore, it was clearly “reasonable to conclude” that one or more of the “entities” that entered into or carried out the scheme did so with the sole or dominant purpose of Brandon Industries getting a “scheme benefit” (TAA s 290-65(1)(a)(i)).

180    It was not “reasonably arguable” that the “scheme benefit” that (it was reasonable to conclude) was being sought by one or more of the entities entering into the Brandon Industries scheme was “available at law”. This is so for at least two reasons.

(a)    It is tolerably clear that Brandon Industries did not incur any expenditure in the 2015 year on activities that could reasonably be said to be “R&D activities” as defined in ss 355-25 or 355-30 of the ITAA97. There was therefore no basis on which it could be argued that any deduction arose under s 355-205. To the extent that the Click and Collect project involved design work or the construction and assessment of prototypes, it was substantially complete by the end of 2013. Mr Perez knew that the project was complete. Additionally, the Click and Collect project was an engineering and design task, involving the application of well-understood technologies in order to supply equipment to a particular customer for particular sites and uses. It did not involve any “experimental activities”, whose outcome could not be known in advance or which were conducted for the purpose of generating “new knowledge”, for the purposes of s 355-25. Apart from a wholly unconvincing account of fossicking through rubbish and finding “a significant amount of destroyed prototype”, Mr Perez could not point to anything of substance that he had done to establish that the Click and Collect project involved “experimental activities”.

(b)    Even if some meaningful activity on the Click and Collect project continued into the 2015 income year, and it was reasonably arguable that that activity constituted “R&D activity”, it is clear from the documents referred to above and the evidence of Mr Warszewski that the amount claimed as R&D expenditure in the course of implementing the Brandon Industries scheme: (i) was completely unsubstantiated (ie, not based on any records and unable to be justified); (ii) bore no relationship to any expenditure actually incurred on the Click and Collect project; and (iii) significantly overstated the amount (if any) that was expended on R&D activity. Section 290-65(1)(b)(i) is satisfied where it is not reasonably arguable that “the scheme benefit” is available at law. In context, “the scheme benefit” should be understood to refer to the scheme benefit sought to be obtained or intended to be obtained. To put it another way, a scheme involving the systematic overstating of deductible expenditure does not escape characterisation as a “tax exploitation scheme” on the ground that some deductible expenditure was incurred in the relevant income year. Through a course of conduct orchestrated by Mr Perez, Brandon Industries lodged a tax return for the 2015 income year that (at best) vastly overstated the R&D tax offset to which it was entitled.

181    The Brandon Industries scheme was therefore a “tax exploitation scheme” in the relevant sense.

Promoter

182    The conduct of Mr Perez described above was clearly calculated to, and did, encourage interest in the scheme on the part of (at least) Mr Warszewski. He was the only person encouraging interest in the scheme and thus, necessarily, played a substantial role in promoting it. Mr Perez also received “consideration” in respect of the marketing of the scheme, in that his efforts resulted in a contractually binding obligation on Brandon Industries to pay him a percentage of any R&D tax offset that it obtained.

183    Mr Perez did not “merely” provide advice about the scheme (cf s 290-60(2)).

(a)    Mr Perez did much more than provide “advice” about the scheme. He played a central role in carrying the scheme into effect, to the extent of calculating the figures to be included in Brandon Industries’s tax return. After the return had been lodged, Mr Perez urged Brandon Industries to press for the release of its tax refund and played an active (albeit apparently not very effective) role in the response to inquiries by the ATO.

(b)    To the extent that various statements made by Mr Perez orally and through emails (see [123]-[174] above) might be said to constitute “advice”, the following points should be made. First, if Mr Perez had studied the definition of “R&D activity” in any serious way it would have been apparent to him that the Click and Collect project did not qualify. Secondly, Mr Perez cannot possibly have been unaware that the amounts being put forward as representing expenditure on the Click and Collect project in the 2015 income year were largely if not wholly fabricated. His assertions to Brandon Industries and Zimsen that the claim was legitimate and in accordance with the statute were therefore either simply dishonest or made without any regard to the true factual or legal position. They were, at least arguably, not “advice” at all in that they were neither bona fide nor a serious attempt to inform the people to whom they were made. Even if they constituted advice, they were clearly made to encourage Brandon Industries’s participation in the scheme and to increase the quantum of its claim (and the commission to which Mr Perez would be entitled).

184    For these reasons Mr Perez was the “promoter” of the Brandon Industries scheme and thereby contravened s 290-50(1).

The limitation period

185    The Brandon Industries scheme involved, at least, reliance on false assertions about how much Brandon Industries had spent on R&D activities in the 2015 year – assertions whose falsity was known by Mr Perez (and in some instances Mr Warszewski as well). The inclusion of $980,000 which Brandon Industries had not paid at all is sufficient to establish that. The possibility of the scheme’s success was (to adapt the language of Gleeson CJ in Meares) entirely dependent on the ATO not finding out the true facts. It was thus a scheme which, if carried into effect, would involve “tax evasion” for the purposes of s 290-55(6) of the TAA.

186    For reasons explained at [79]-[80] above, it is the pre-2024 version of s 290-55(6) that is relevant; so that the limitation period in s 290-55(4) is displaced only if some tax was actually evaded. However, as explained above at [88], the filing of Brandon Industries’s tax return resulted in a deemed assessment in accordance with the return; so that, to the extent that the return falsely claimed an entitlement to an R&D tax offset, tax was “evaded” at that point. The limitation period in s 290-55(4) therefore does not apply in relation to the Brandon Industries scheme.

187    If (contrary to my conclusion in the previous paragraph) s 290-55(4) does apply, the relevant version is the post-2024 version which imposes a six year limitation period. The Commissioner’s application was filed on 9 March 2020 and is therefore within time, in so far as it relates to the Brandon Industries scheme, if the last conduct resulting in Mr Perez being a promoter of that scheme occurred after 9 March 2014. That requirement is clearly satisfied: the interactions between Mr Perez and Brandon Industries only began in late 2014.

188    It is therefore not necessary to identify the “last … conduct that resulted in [Mr Perez] being a promoter” of the Brandon Industries scheme. If the issue arose, I would find that the last such conduct occurred at some time before 16 February 2016. It was on that day that Mr Warszewski complained about the withholding of Brandon Industries’s tax refund, having (at some time earlier in February 2016) been encouraged by Mr Perez in the language referred to at [172] above. What Mr Perez said on that occasion had the effect of “encouraging … interest” in the Brandon Industries scheme in that it helped to persuade Mr Warszewski to persist in seeking the intended outcome of the scheme. While Mr Perez remained engaged until 10 March 2016, giving some advice on the provision of documents and attending a meeting with ATO officers, I do not think that the evidence is sufficient to establish that these actions “encouraged the growth of the scheme or interest in it”. Accordingly, if a four year limitation period applied, the Commissioner’s application would be out of time in relation to Brandon Industries.

Mr Perez’s contentions

189    Mr Perez suggested in oral evidence that Brandon Industries’s R&D claim was withdrawn on his advice after he discovered that Brandon Industries had been paid $1.2 million for the Click and Collect project. There is no support for this suggestion in the documents, it was flatly contradicted by Mr Warszewski and I reject it. Even if true, this suggestion would not affect the conclusions set out above. It remains the case that Mr Perez, having had access to Brandon Industries’s financial records and many opportunities to discuss the Click and Collect project with its staff, encouraged it to pursue its R&D claim up to and beyond the point where its 2015 tax return, including the claim, was lodged.

190    Relatedly, Mr Perez suggested that the alleged $1.2 million payment and the fact that Brandon Industries was the “manufacturer for somebody else” meant that it was not taking “financial risk” or “technical risk”. There is no evidence for the payment of $1.2 million and Mr Perez gave no explanation of how this supposed revelation as to “risk” related to the issues in the case.

191    Mr Perez also alleged a failure by Mr Warszewski to disclose to him that the “intellectual property” in the Click and Collect project belonged to an entity other than Brandon Industries. This suggestion was not supported by anything other than an unexecuted copy of an agreement between Brandon Industries and an entity called City Holdings (Aus) Pty Ltd and was unspecific as to the intellectual property rights being referred to. It was not put in any coherent way to Mr Warszewski. It cannot be accepted. In any event, once again, Mr Perez did not attempt to explain how the ownership of intellectual property rights was said to affect the issues for determination.

192    Each of the arguments mentioned so far appears to be put forward by Mr Perez as a reason why Brandon Industries’s R&D claim was unviable. If they had any substance, therefore, they would seem to give further support to the conclusion that it was not reasonably arguable that the relevant scheme benefit was available at law. Mr Perez suggests, as I understand it, that he was deceived as to these matters and it is therefore somebody else’s fault that the Brandon Industries scheme was conceived and implemented. However, even if that is true, it remains the case that Mr Perez encouraged the scheme. If anything, it serves to emphasise the lack of any due diligence on his part.

193    It may be that Mr Perez intended by these arguments to invoke s 290-55(1)(b) (which is quoted in his written submissions). However, as noted earlier, s 290-55(1) only prevents the imposition of a penalty; it does not resolve any question as to whether a breach of s 290-50 occurred and therefore does not assist Mr Perez at this stage of the case (which concerns only issues of liability). In any event, it is clear from the chapeau of s 290-55(1) that Mr Perez bears the onus of establishing the occurrence of the act or default on which he relies, the causal link between that act or default and his conduct, and the taking of reasonable precautions and exercise of due diligence on his part. He has not done so.

194    In a similar vein, Mr Perez sought to rely on cl 4.2 of the Brandon Industries Agreement, which provided:

The Recipient warrants that any and all information and documentation provided to the Consultant is not false or misleading and is accurate, complete and up to date.

195    Clause 4.2 sheds no light at all on whether any of the events described above occurred or whether the conduct of Mr Perez constituted the promotion of a tax exploitation scheme within the meaning of relevant provisions of the TAA. Accepting that a breach of the warranty in cl 4.2 might constitute a “default” within the meaning of s 290-55(1)(b), it is possible that s 290-55(1)(b) could be engaged (although the withholding of significant information from Mr Perez would seem likely to amount to a relevant “act or default” without the need for any contractual overlay). However, again, s 290-55(1) does not assist Mr Perez at this stage of the proceeding; and, in any event, he has not come close to satisfying the onus of proof that the provision imposes on him.

196    A contention of a somewhat different kind advanced by Mr Perez was that, as a whistleblower, he had himself “red flagged” Brandon Industries because he was suspicious of the company and its accountants. He claimed that he had done this by deliberately putting his name and details on the Brandon Industries registration application, resulting in Brandon Industries’s claim being reviewed by the ATO because of its targeting of him. Apart from the understanding that the ATO might well have been interested in the activities of Grow Fast during 2015, each step in this contention is supported only by the oral evidence of Mr Perez (who, as I have found, is not a witness of truth). Moreover, the contention is implausible to the point of being bizarre. Apart from anything else, if Mr Perez held suspicions about the bona fides of Brandon Industries or its accountants at the time of lodging its registration application (19 July 2015), it would have been much simpler to have simply made a phone call than to do what Mr Perez actually did (ie, enter into a contract with Brandon Industries and then actively orchestrate the propounding of its R&D claim, including taking steps to inflate the claim).

Result

197    I find, therefore, that Mr Perez contravened s 290-50(1) of the TAA in relation to the promotion of the Brandon Industries scheme.

the cherry beans scheme

Background

198    In the 2016 income year Cherry Beans had two main areas of business.

1.    It operated a franchise business. In broad terms, it identified suitable sites for opening cafes; having identified a site, advertised and recruited a person to operate a café on the site as a franchisee; and provided ongoing support to the franchisee including know-how, menus and new products.

2.    It operated a wholesale coffee business in which it imported raw coffee beans, roasted, packaged and sold the beans to franchisees.

199    The events relevant to these proceedings occurred in 2017 and 2018. At this time, Eric Lee was the director of Cherry Beans. Jay Lim had a senior role in the business which was described as “acting director”. Amber Jung, who held a Bachelor of Commerce degree with a major in accounting, was the accounting manager from late 2016 (having commenced in the business as an assistant accountant around May of that year).

200    Mr Lim and Ms Jung swore affidavits in the proceeding. The factual summary that follows is drawn mainly from their evidence, which I accept as truthful and generally accurate, and the documents that were tendered. Mr Perez obtained leave to serve a subpoena on Mr Lee to attend and give evidence, but he was not ultimately called.

Cold call from Mr Santos and initial discussions

201    Around early March 2017 Mr Santos (who had had no prior dealings with Cherry Beans), telephoned the business and spoke to Mr Lim. This call, according to Mr Santos’s evidence, was made for the purpose of referring a potential client to Grow Fast. Mr Santos explained that he worked for Grow Fast, which did consulting work for people who were eligible for R&D grants and that his colleague, “Jose”, had both experience in the area and connections with the coffee industry in South America. He suggested that Cherry Beans’s coffee roasting business could be eligible for the R&D scheme. He said that he could come to Cherry Beans’s offices to discuss the R&D scheme in more detail. Before this discussion, Mr Lim did not know of the existence of the R&D scheme.

202    Mr Lim did a Google search for “Grow Fast Consulting” and found that the business had operated for “many years”. He formed the view that Grow Fast was an experienced operator who could potentially help Cherry Beans to obtain a grant which would be valuable to the business. He therefore arranged a time with Mr Santos for the latter to come and meet him in person.

203    Sometime in March 2017 Mr Santos visited Cherry Beans’s premises and had a meeting with Mr Lim. According to Mr Lim, Mr Santos spoke about the availability of R&D grants for coffee roasters and the services Grow Fast could provide. He said that Grow Fast had helped other coffee roasters with R&D claims, including one claim of around $100,000. He said that Cherry Beans might be eligible for an R&D grant (including words to the effect of “coffee roasting involves R&D”). He also said that Cherry Beans would need to sign a contract with Grow Fast in order to engage its services and the initial fee under the contract would be refundable if Cherry Beans was not successful in obtaining an R&D grant. Mr Lim was interested in knowing the size of the grant that Cherry Beans might obtain. Mr Santos said that, if Mr Lim sent him the company’s financial documents, he would review them and come back with an estimate.

204    Mr Santos gave a similar version of this conversation in his affidavit. To the extent that there is any contradiction between their accounts that matters, I prefer that of Mr Lim: these events are likely to have been more memorable for him; and Mr Santos has some incentive to downplay his role in them.

205    Mr Lim also gave evidence that, after this meeting, he was impressed by the work Grow Fast had done in relation to R&D grants, specifically for coffee roasting businesses, and did not want Cherry Beans to miss out on the opportunity that appeared to be presenting itself. He discussed what Mr Santos had said to him with Mr Lee. Mr Lee decided that Cherry Beans should engage Grow Fast to prepare an R&D claim. Mr Lim became responsible for liaising with Mr Santos in relation to that claim.

206    An invoice for $2,000 (including GST) was issued by Grow Fast to Cherry Beans dated 24 March 2017, even though at this stage there was no contract between the entities. This amount was paid by Cherry Beans on 12 April 2017.

Provision of payroll information

207    On 27 March 2017 Mr Santos sent an email to Stella An, who was then the Administrator of Franchise Management and Operations at Cherry Beans. Mr Santos asked Ms An to send Cherry Beans’s “Payroll Activity Statement” and said “We’ll then go through that probably over the phone”. He also asked “do you know if the 2015/16 financial year has been lodged yet?”, which I take to be a reference to Cherry Beans’s tax return for that year. Ms An requested and obtained the payroll activity statement from Ms Jung. An email from Mr Santos to Ms An on 30 March 2017, which refers to totals in the payroll activity statement and the “P&L”, indicates that Mr Santos had by this time been sent Cherry Beans’s payroll activity statement and profit and loss statement for the 2016 income year.

208    Mr Santos (whose evidence I accept on this point) sent the documents he had received to Mr Perez who, soon afterwards, told him that Cherry Beans’s estimated R&D grant amount was $53,000. Mr Perez did not at this stage have any information about the time or expenses of Cherry Beans that were devoted to R&D activity.

Engagement of Grow Fast

209    A written agreement entitled “Supply of Services Agreement” (the Cherry Beans Agreement) was executed by Mr Santos on 28 March 2017 and by Ms An, on behalf of Mr Lim, on 29 March 2017. Mr Lim deposed that he asked Ms An to sign the agreement, and she did so, because he was out of the office and Mr Santos wanted the agreement signed as soon as possible.

210    The Cherry Beans Agreement has Grow Fast’s logo and ABN, and the words “We will help you to grow your business and we are going to make it fast”, at the top of each page and a telephone number, web address and Mr Santos’s email address at the bottom of each page. The contracting parties are identified as “Narciso Jose Perez and Bryan Santos trading as Grow Fast Consulting” and Cherry Beans (whose details have been filled in by hand). It was evidently prepared by Mr Santos or Mr Perez, using a template in the possession of Grow Fast, and sent to Cherry Beans to be signed.

211    Under the heading “Estimates”, cl 10.1 of the Cherry Beans Agreement provided:

An estimate amount was given to the client of approximately $53,000. This estimate amount was based on financials provided by the client and, being an estimate, it is not a guarantee. It is only an early indication of the possible amount the client may likely obtain. Further detailed assessment of the clients business, operations and financials is required. Neither the estimate amount nor the outcome of the grant can be or is guaranteed. The engagement fee, however, is 100% refundable if the application to Aus Industry is not approved. This is outlined in Item 5 on page 7. The success fee is only payable if the grant is successful. This is outlined in Item 4 on page 7.

212    Item 4 of the Schedule to the Cherry Beans Agreement provided as follows.

FEES AND PAYMENT,

Engagement Fee - $1,818.20 + GST

and Success fee of 18.5 % of the R&D Grant obtained + GST.

R&D Grant is defined and includes any grants distributed to the recipient either as Tax credits, cash or both. 18.5% of fees is based on the Total R & D Grant figure regardless of how it is distributed to the recipient.

213    Item 5 of the Schedule provided as follows.

$1,818.20 + GST engagement fee is 100% refundable if application to AusIndustry is not approved

No additional fees to be charged until Grant is obtained.

Once Grant has been obtained Recipient has seven (7) days to pay the consultant’s invoices in full. In the event payment is late and warrants no extension by the consultant then interest will be calculated daily at a rate of 9%.

214    $1,818.20 plus GST is $2,000, which coincides with the amount of the invoice of 24 March 2017 referred to above.

215    The actual services to be provided by Grow Fast were described in item 3 of the Schedule, as follows.

SERVICES: Assisting Company to obtain a Research and Development Grant in the capacity of a Consultant. The consultant facilitates seminars for individual companies to educate the company on the types of activities that may be eligible for an R&D tax incentive/concession. The consultant will assist the company to identify the eligibility of each company’s project under the new R&D tax incentive regime and or any other Federal or State government grant. The consultant will educate on how a company can proactively track and identify their projects for the future. Identify potential commerciality and benefit to each company, Work with the company’s individual Accountants as they collect and confirm each company’s expenditures and liabilities. Each Accountant needs to be satisfied after verification of all invoices included in recipient’s application of each of the invoices validity prior to lodgement of the application. The consultant does not work with any of the recipient’s invoices at any stage. The consultant will assist each company’s technical person with project documentation which is always reviewed by a highly experienced technical person recommended by the recipient. The consultant does not do any form of tax agent work. The consultant only assists companies with Part A of the application prior to lodgement of applications which is completed by the company and its appointed officers. The consultant does not lodge any application at any stage.

Further discussions with Mr Santos

216    On 30 March 2017 Mr Santos sent an email to Ms An which asked her to enter insert into a version of the payroll statement an estimate of the percentage of each person’s time that had been “spent on any stage of the R&D process”. He explained this as follows.

Also, could you please have a look at the payroll activity statement attached. In the columns on the right, could you please enter

1)    what percentage of time you estimate each person has spent on any stage of the R&D process. Not just the roasting itself, it could be time spent on dealing with the coffee broker to trial different beans, it’s the time cupping, trialling different blends. It could also be involved in getting customer and franchisee feedback which is used as part of the testing process. Whatever they’ve done that in some way was involved in R&D activities, they should consider that as part of their time. Please then enter the percentage of their time they estimate was taken up by any form of R&D activity.

2)    in the last column can you please put their role and what tasks they did with regards to R&D activity – eg, cupping tests, ordering beans and coordinating with coffee supplier, customer tests and feedback, batch testing, etc.

He also asked Ms An to enter information about each person’s role and what tasks they performed with respect to R&D activity. This was information that Mr Perez had directed him to seek.

217    Ms An replied, on 31 March 2017, “please find the attached copy of requested information”. However, the copy of her email that is in evidence does not indicate what if any documents were attached, and no document containing the information sought by Mr Santos has found its way into evidence. Ms An’s email went on to foreshadow “more information about the time percentage of the R&D process” and raise a query concerning which entity’s employees could be included, which further suggests that she did not attach the document requested by Mr Santos. Ms Jung also deposes that, to the best of her knowledge, Mr Santos was not provided with the information about percentages, roles and tasks that he had requested on 30 March 2017. Evidence discussed below indicates that, even if Ms An did fill in a percentage of the time spent by each employee on R&D activities, it could not have been anything more than a rough estimate because no contemporaneous records had been kept.

218    Subsequent emails tend to confirm that Ms An did not provide Mr Santos with any document showing the percentage of individual employees’ time spent on R&D activities.

(a)    Later on 31 March 2017 she emailed Mr Santos referring to the “estimated grant of $53,000” and asking what part of the “following expenses” (including wages, motor vehicle expenses and a host of other things) made up the $53,000.

(b)    Mr Santos replied saying that all of the expense items were “included in my estimate”. He continued:

The most significant expense is the wages which is the reason we’re going through the payroll activity statement with you now. Once I have the information on what I requested from you in my previous email we’ll be able to get a more accurate figure for you.

…

Lastly, the information you sent me with the Performance standards is good. But what I need is what each of those employees listed to (in short point form) with relation to R&D …

(Emphasis added.)

219    The questions that Mr Santos asked and the information that he provided in these emails came from Mr Perez.

220    Mr Santos met with Mr Lim, Ms Jung, Ms An and another Cherry Beans employee, Chris Kim, at Cherry Beans’s premises on 10 April 2017. At this meeting:

(a)    Mr Kim explained that Cherry Beans did “cupping tests” and tasted coffee beans;

(b)    Mr Santos explained the documents required for an R&D claim and the types of expenses that could be claimed, and said that “you need to keep records of testing the coffee in a spreadsheet”; and

(c)    one of the Cherry Beans employees said that the company did not have records of expenditure on R&D activities.

221    Ms Jung deposed that Mr Santos asked for a list of Cherry Beans’s coffee purchases. Ms Jung’s evidence as to what then occurred was as follows.

I stepped out of the meeting room to print the purchase list, which I brought back into the meeting to show Mr Santos. To the best of my recollection, the purchase list was a list of transactions/invoices for coffee purchases (which were sorted by date) that stated the amount of each transaction/invoice. Mr Santos then said words to the following effect:

“Because you don’t keep records of what purchases go towards R&D, you can just pick this, this and this. You can select random invoices from your purchases.”

As Mr Santos said the word “this”, he used his finger to point to different items on the list that I printed out. Mr Santos proceeded to highlight (using a highlighter) various items on the purchase list. I understood, by Mr Santos’ statement “You can select random invoices from your purchases” and his actions, that the items that he pointed to and highlighted were purchase expenses he considered that Cherry Beans could and should claim as part of its R&D claim.

In hindsight, Mr Santos had no basis for pointing to various items on Cherry Beans’ purchase list and suggesting that those items were R&D expenses that could be claimed as part of Cherry Beans’ R&D claim. The purchase list that I had printed only identified the date and amount of the purchase. It did not identify with any particularity what was purchased or the quantity of the purchase. At the meeting, we did not have a copy of the actual invoices to support the various items in the purchase list. Nor did anyone at the meeting discuss what each item on the purchase list related to …

222    Mr Santos also went through Cherry Beans’s payroll activity statement during the meeting. According to Ms Jung, he said words to the following effect.

Testing can be done by anyone, so anyone at Cherry Beans can be involved with R&D and you can claim part of the wage as R&D .

Everyone can be involved in the R&D claim. Everyone can be involved in cupping and testing. A percentage of each employee’s time can be attributed to R&D.

223    Mr Kim explained the role of each employee at Cherry Beans. Ms Jung recalled Mr Santos saying “that sounds like R&D” and suggesting a certain percentage of each employee’s time that could be attributed to R&D. Although the application was being prepared for the previous year, Mr Santos had not been given any records or timesheets from which percentages of any employees’ time referable to R&D activities could be drawn. Ms Jung formed the view in hindsight that he was essentially making up the percentages he was suggesting.

224    Later on 10 April 2017, Ms Jung emailed to Mr Santos a “payroll activity summary” listing employees of Cherry Beans and their salary information for the 2016 year. This document contained columns headed “% time in R&D” and “What tasks did they do w/ regards to R&D”, and appears to be a version of the document discussed in the earlier emails between Mr Santos and Ms An. However, no information had been inserted in these columns.

225    Ms Jung also sent Mr Santos the purchase list that had been discussed at the meeting. He called her and explained that certain amounts on the list could be claimed as R&D expenses. He asked her to “pick some random expenses to be claimed and send it back to me”. Ms Jung complied with this request.

226    Mr Santos visited Cherry Beans’s premises again between 10 and 16 April 2017 and inspected the coffee roasting machines and beans. He had conversations with two of the staff. He says that he “did not examine the machines, nor any stock or waste storage equipment”. Mr Perez did not come with him. Mr Santos deposes that he then “sent the completed questionnaire to Mr Perez”. I take this to be a reference to a Project Description Questionnaire of the kind referred to above.

Cherry Beans’s application for registration

227    Cherry Beans’s application for registration of R&D activities, in respect of the 2015-2016 income year (the Cherry Beans registration application) was lodged electronically with AusIndustry on 16 April 2017. The question “Did the R&D Entity rely on advice from a Tax Agent or R&D Consultant to compile this application?” was answered “No”. Mr Lim’s evidence is that this is not correct, because Cherry Beans was relying on Grow Fast at all times for all aspects of its R&D claim. Ms Jung’s evidence is to the same effect.

228    Indeed, it appears that the contents of the Cherry Beans registration application were largely if not completely the work of Mr Perez and Mr Santos. Mr Lim did not prepare the figures or information contained in the application and does not recall seeing it before it was lodged. To the best of his knowledge, nobody at Cherry Beans provided this material. Given his senior position in the company and his responsibility for liaising with Mr Santos, this is a strong indication that the material did not come from anybody at Cherry Beans. Ms Jung affirms that she did not prepare the application.

229    Mr Santos deposes that, to the best of his recollection, Mr Perez sent him a “tech spec” in relation to Cherry Beans, which he fixed for grammar and spelling. Mr Santos also suggests that he sent the “tech spec” to somebody at Cherry Beans to confirm its accuracy. However, there is no suggestion in the affidavits of Mr Lim or Ms Jung that this occurred; and in cross-examination they did not accept that the contents of the Cherry Beans registration application had been sent to them for review. I prefer their evidence to that of Mr Santos on this point, but see no reason to disbelieve his suggestion that Mr Perez was the main author of the descriptive material in the Cherry Beans registration application about its purported R&D activities.

230    The project, entitled “New innovated processes and flavours”, was listed with a start date of 1 July 2015, an end date of 30 September 2018, and overall project expenditure of $980,000 of which $488,600 was said to be for core R&D activities.

231    The application form included spaces headed:

(a)    “Objectives of the project”,

(b)    “Describe the new knowledge intended to be produced by the core activities (i.e. experiments) in this project. Explain how it is different from current knowledge”, and

(c)    “Explain how the outcome of the core activities in this project could not have been known or determine (sic) in advance on the basis of current knowledge, information or experience”.

232    These were filled in with text describing, in effect, activities of roasting and blending various single origin coffee beans, tasting cups of coffee produced from the various blends and roasts, and using trial and error to try to arrive at a consistent product that could be produced at scale. Much of this text, according to Mr Lim and Ms Jung, was inaccurate or at least exaggerated. One such example is below.

The challenge we found during the tests at the coffee brokers premises was that we were tasting something like 90 cups of coffee. We hadn’t been prepared to cup test that much coffee and a lack of food/breakfast affected our tasting. It also put extra stress on our testers which we realised could also affect the taste. From a technical point of view, we later realised this affected the beans we bought and then tested at our factory.

233    The number of employees at Cherry Beans was misstated. More significantly Cherry Beans was not, as the text suggested, seeking to “develop a new flavour coffee product (sic) and new production process”; nor was it doing “significant research and testing and product development and retesting”. In essence, Cherry Beans’s testing was business as usual and comparable to what every coffee roasting business did: trying different blends of beans and roasting times and temperatures to see what produced a palatable result and adjusting in response to the variability of the raw product. No “new knowledge” was sought or produced.

234    Mr Lim was shown some parts of the Cherry Beans registration application in cross-examination and accepted that they were true, in the sense of describing the nature of Cherry Beans’s business. I regard this as detracting only minimally if at all from his evidence in chief concerning the ways in which the application as a whole was misleading.

235    The registration application was successful. A notice of registration was issued to Cherry Beans by AusIndustry on 20 April 2017. (It is not clear how this notice was transmitted to Cherry Beans. The document itself bears Cherry Beans’s postal address, and the Cherry Beans registration application had included Mr Lim’s email address. However, the first time he saw the document appears to be when Mr Santos emailed him a copy on 8 May 2017. This email and its other attachments will be discussed next.)

Preparation of Cherry Beans’s amended income tax return

Provision of the Cherry Beans spreadsheet and R&D Tax Incentive Schedule

236    The email of 8 May 2017, to which the notice of registration was attached, was sent at 12.12 pm. It read (in part) as follows.

Attached are the following docs

•    Registration Notification Letter

•    The R&D calculation in excel

•    The R&D Tax Incentive Schedule from the ATO

The R&D diary, you’re still completing.

Could you pass these on to your accountant. They’ll need to add the R&D Tax Incentive Schedule with the tax return they’ve already lodged.

You can normally expect to receive funds between 2-4 weeks from the day your accountant lodges.

237    The second of the attachments referred to in the email was an Excel spreadsheet headed “Cherry Beans Coffee Pty” (the Cherry Beans spreadsheet). Mr Santos deposes, and I accept, that Mr Perez had sent this document to him. The first page was as follows.

Salaries            $160,705.92

All other expenses         $174,717.78

totals            $335,423.70

Expected refund        $50,313.55

238    The second page of the Cherry Beans spreadsheet is described as a “Payroll Activity Summary”. For each of 15 named employees, sets out figures in columns labelled “Net”, “PAYG”, “Gross”, “Super”, “% time in R&D” and “R&D Amount” (the Cherry Beans payroll table). It is evident that the “R&D amount” for each position has been derived by applying the identified “% time in R&D” as a percentage to the relevant “Gross” figure. The total of the “R&D Amount” column is $160,705.92, which matches the “Salaries” figure on the first page.

239    At the bottom of the Cherry Beans payroll table is a line which says “R&D % Ave 28.3%”. This represents the mathematical relationship between the totals in the “Net” column (567,218.12) and the “R&D Amount” column (160,705.92) as a percentage rounded to one decimal place.

240    The third page of the Cherry Beans spreadsheet includes three tables.

(a)    The first table is headed “Purchase Register Detail [Coffee & Nut Trading]” (the purchase register) and appears to be a list of coffee purchases (with relevant dates and invoice numbers). The dollar amount for most of these invoices appears in a column labelled “Sales Amount”, but for six of the invoices the dollar amount appears in a separate column labelled “R&D Amount”. I take this to be in effect the “purchase list” that was discussed at the meeting on 10 April 2017 (see [225] above). The total of the “R&D Amount” column is $94, 230.12. The total “Sales Amount” is $484,927.29.

(b)    The second table is headed “Inventory Value as of 30/06/2017”. It does not need to be discussed for present purposes.

(c)    The third table (the Cherry Beans overheads table) has no heading but has columns headed “Expenses”, “Amount’, “R&D %” and “R&D Amount”. Various expenses including “Cleaning”, “Motor Vehicle Expenses”, “Rent” and “Other” are listed with dollar amounts in the “Amount” column. The “R&D %” entered in every line (and applied to the “Amount” so as to arrive at the “R&D Amount) is 28%, which is the same (rounded to the nearest whole percentage point) as the “R&D % Ave” calculated in the Cherry Beans payroll table. The total of the “R&D Amount” column is $80,487.66.

(d)    The “R&D Amount” totals in the Purchase Register and the Cherry Beans overheads table add up to $174,717.78, which is the amount for “All other expenses” on the first page of the spreadsheet.

241    Mr Lim recognised the 15 persons listed in the Cherry Beans payroll table as Cherry Beans employees and confirms that the salary information for each one (that is, leaving aside the “% time in R&D” and “R&D Amount”) is consistent with Cherry Beans’s records for the 2016 income year. However, Cherry Beans had no records from which the “% time in R&D” for these employees could have been derived. Nobody at Cherry Beans supplied these percentages to Mr Santos or Mr Perez. Mr Lim goes on to explain, by reference to particular employees’ roles (for example, delivery drivers), that the “% time in R&D” figures listed for them were highly implausible even if roasting and tasting coffee were regarded as R&D.

242    As to the Cherry Beans overheads table, some of the listed “Expenses” were recognised by Mr Lim as matching expenses that Cherry Beans had actually incurred. However, Cherry Beans had no records from which the attribution of 28 percent of all of these expenses to R&D activities could have been derived; and as to some items it could be said confidently that they had nothing to do with coffee tasting and testing (eg “motor vehicle expenses”). In any event, the percentage was clearly taken mechanically from the “R&D % Ave” on the Cherry Beans payroll table. Even if this might be a defensible methodology in some circumstances, it was obviously not defensible in circumstances where the R&D percentages underlying this average were themselves simply made up. Mr Lim also deposed, in relation to several items, that 28 percent was a “gross overestimation” even if the roasting and tasting of coffee constituted R&D.

243    As to the purchase register, Coffee & Nut Trading was a supplier to Cherry Beans and the entries in this table, apart from the “R&D Amount”, were consistent with Cherry Beans’s records. However, Cherry Beans had no records that could have been a basis for identifying some of these purchases as related to R&D. The selection of these purchases as purported R&D expense items was the product of the interactions between Mr Santos and Ms Jung described above at [225]: that is, they were chosen at random on Mr Santos’s instructions. Additionally, as Mr Lim deposed, it was simply implausible that the purchases identified as “R&D Amounts” (and removed from the “Sales Amount” column) could have been wholly referable to R&D activity. They were regular purchases of coffee beans in quantities of around 50 to 80 kilograms—vastly more than could possibly have been used to make coffee for tasting as part of a small coffee roaster’s testing program. If the total of the “R&D Amount” column is added back in to “Sales Amount” and then taken as a percentage, the claim being made in the purchase register is that around 16 percent of all of the coffee beans purchased by Cherry Beans in the 2016 income year were used for testing and tasting.

244    The third of the attachments to Mr Santos’s email (the Cherry Beans R&D Tax Incentive Schedule) had been populated with figures that matched the totals for salary and other expenditure in the first page of the Cherry Beans spreadsheet. It asserted total notional R&D deductions of $335,424 and a refundable tax offset of $150,940.80. This document was not prepared by anyone at Cherry Beans. Mr Santos deposed that it was Mr Perez who prepared the document and I accept, in the light of the evidence concerning Grow Fast’s modus operandi, that this is more likely than not to be the case.

245    Mr Santos’s email also made reference to “The R&D diary” which, he said, “you’re still completing”. This indicates an understanding on Mr Santos’s part that, as at May 2017, Cherry Beans did not have an “R&D diary” for the 2016 income year and any document meriting that description would have to be somehow constructed after the event. Mr Perez, who prepared the Cherry Beans spreadsheet (and clearly did so without the benefit of any detailed records), must be taken to have understood this as well. Further, because Mr Santos had been told on 10 April 2017 that Cherry Beans did not keep records of its R&D activity (and indeed it was clear that Cherry Beans staff did not have any idea that they had been doing R&D), Mr Santos should be taken to have been aware that any “R&D diary” produced by the company would be guesswork at best. When cross-examined about the 10 April meeting, Ms Jung recalled Mr Santos saying “we need to make a diary”. Most obviously, the observation that the “R&D diary” still needed to be completed was a clear acknowledgement that the percentage figures in the Cherry Beans payroll table (which, as explained above, fed through into the percentage of other expenses claimed as R&D) were not based on any actual records and were, in effect, made up.

246    Mr Lim’s evidence confirms that at this stage Cherry Beans did not have an “R&D diary” or any other records to support or substantiate the expenses claimed to relate to R&D in the Cherry Beans spreadsheet. He recalled Mr Kim preparing some records of this kind at some stage after 8 March 2017, which were contained in a black binder and given or shown to Mr Santos, but no such documents have found their way into the evidence.

Forwarding of material to Cherry Beans’s accountant

247    At 2.36 pm on 8 May 2017, Mr Lim forwarded Mr Santos’s email and its attachments to Ms Jung with a request to “follow up”. Shortly afterwards, in accordance with Mr Santos’s instruction, the three attachments were provided to Cherry Beans’s external accountants and tax agents, AIA Finance & Accounting Consulting. Not long afterwards, Mr Lim received a call from Mr Santos asking whether the R&D Tax Incentive Schedule had been lodged.

Lodgement and amended assessment

248    On 6 July 2017 Cherry Beans’s accountants lodged an amended tax return for the 2016 income year. The amended return included amounts for R&D salary expenditure and other expenditure, together with a refundable tax offset.

249    An amended assessment for Cherry Beans for the 2016 income year was issued on 24 July 2017. It reflected the refundable tax offset that had been included in the amended return and reduced the tax payable by Cherry Beans by $50,313.60. Cherry Beans received this amount (plus a small additional, presently irrelevant, amount) by way of a deposit to its bank account on 28 July 2017.

Further payment to Mr Perez

250    Grow Fast issued a second invoice, for $9,308.02 plus GST (totalling $10,238.82) to Mr Lim on 31 July 2017. This amount ($9,308.02) is 18.5 percent of $50,313.60 (the amount credited to Cherry Beans as a result of its amended assessment). Cherry Beans paid this amount on 2 August 2017.

The ATO review and its aftermath

The ATO letter

251    Around 2 March 2018 Cherry Beans received a letter from the ATO. The purpose of the letter was said to be:

… to advise you of the Commissioner of Taxation’s concerns regarding R&D tax incentive claims and to provide you with the opportunity to review and correct your tax affairs as necessary.

252    After providing a URL for the ATO’s R&D tax incentive record keeping requirements and referring to Cherry Beans’s R&D claim, the letter continued.

What you need to do

We are providing you with the opportunity to review and correct your tax affairs as necessary.

1.    Refer to the record keeping requirements guidance and Taxpayer Alerts listed above and review:

•    your claim(s) for the R&D tax incentive to ensure it is correct and that you are not claiming expenditure related to ordinary business activities; and

•    your records to ensure they demonstrate the R&D activities being undertaken support the associated R&D tax incentive claim(s)

2.    Complete Schedule 1 and Schedule 2 and return to the following address by 13 April 2018:

Attention: Mingma Sherpa

Australian Taxation Office

PO Box 3000

Moonee Ponds VIC 3039

You can also email a copy to: R&DTaxlncentiveMPO@ato.gov.au or phone Mingma Sherpa on 03 924 7 0738.

What happens next

If you do not respond by the above date we may take further compliance action that could result in a review or audit. Penalties may apply in relation to amendments that result from any compliance activity.

253    Schedule 1 to the letter was a single page document that invited Cherry Beans to select:

OPTION 1: I have identified an error in my R&D tax incentive claim/s and will lodge a self-amended income tax return

or

OPTION 2: I have reviewed my R&D tax incentive claim/s and do not believe there to be errors.

254    Schedule 2 to the letter was a document asking for the name and contact details of any R&D consultants engaged by Cherry Beans to assist it with its claim and an explanation of the services they provided.

255    Shortly after receiving this letter, Mr Lim telephoned Mr Santos and asked for help. Mr Santos deposes that he referred the matter to Mr Perez, but I consider he is probably mistaken about this. Mr Lim’s account is that Mr Santos said he was no longer working for Grow Fast and referred him to Ms Cleaves. Ms Cleaves referred him to Mr Perez. Ms Cleaves accepts that this happened and deposes that she referred the matter to Mr Perez because he had told her he would cover clients in an audit free of charge.

Contact with Mr Perez

256    On 26 March 2018 at 10.18 am Ms Cleaves sent Mr Perez an email with the subject line “please review cherry beans – they are in review, one of Bryan’s”. This email does not appear to include any text and it is not clear whether there was a discussion between Ms Cleaves and Mr Perez. Mr Perez replied at 11.55 am:

Only staff training and repairs should be deleted

And the apportioned problem which is creating problems with ATO

257    “Staff training” and “repairs” were entries in the Cherry Beans overheads table. The nature of the “apportioned problem” and how it was supposed to be fixed (and by who) were not explained.

258    Ms Cleaves forwarded these emails to Mr Lim under cover of an email (sent on 26 March 2018 at 3.59 pm) which read as follows.

Moving forward you will deal directly with Jose to prepare your response to the ATO and ensure you have the right records in place.

I have cc him into this email. He was the person who prepared the calculations and holds the R&D licence for the business so is the best person moving forward to help you.

His mobile number is …

(Emphasis added.)

259    Mr Lim replied to Ms Cleaves by email on 27 March 2018 at 10.01 am (copied to Mr Perez and Ms Jung). He said that Cherry Beans had decided to withdraw its whole application and reimburse the tax incentive it had been granted by the ATO. The main reason that he gave was that Cherry Beans did not consider that its records could substantiate the claim it had made. Consistently with the terms of the ATO letter, he added that Cherry Beans had “no alternative to mentioning your firm, consultant’s name, fee we have paid and detail information”. He asked if Grow Fast would refund the fees paid to it.

260    On the same day, Ms Jung sent an email to Mr Lim and Ms Cleaves (copied to Mr Perez) which said:

If you would like to defend yourself, please provide substantiating work paper which will explain your registration methodology applied to the expenses you decided to included in order to claim R&D. That methodology should link to the expenses and percentage you claimed. If you don't provide this working paper, we have no choice but amend all claim amount and give your details to ATO. That is what ATO provided us opportunity to review and amend and report them R&D consulting company.

It would be very much appreciated if you provide me substantiating work paper by today.

261    The time stamp on Ms Jung’s email suggests that it was sent three minutes before Mr Lim’s email of that day. Ms Jung believes that it was sent an hour later, in response to Mr Lim’s email, and the time stamp was inaccurate because of the time zone settings in her computer. Although the exact sequence of these emails does not matter, Ms Jung’s explanation is probably correct.

262    A further exchange of emails began on 3 April 2018. Mr Perez sent an email to Ms Jung, headed “R&D”, asking her to contact him by WhatsApp or Skype. Ms Jung replied the next morning, as follows.

Jay is in charge of this matter and will contact you today. Thanks.

However, providing substantiating work paper which shows the registration links to the claimed expenses would be great help to us before or rather than chatting.

263    Mr Perez responded “Ok” and restated his WhatsApp and Skype contact details.

264    Ms Jung replied to Mr Perez (now copying in Mr Lim, Mr Lee and Ms Cleaves) on 5 April 2018. Her email said:

When can we receive your working paper? As per your contract, you are responsible for the consulting service to successful grant. Your registration methodology does not explain enough showing linkage between mythology and the claimed expenses.

What we need at the moment is that your logical research process and methodology match with the claimed expenses. We call it substantiating working paper. Only if you provide those services, we can say R&D lodgement to ATO is correct and choose the option 2 which we guarantee that we have reviewed our R&D tax incentive claim and do not believe there to be errors.

It does not matter if you are overseas or not, you or your staff can email us working paper anywhere in the world.

Please provide us by today as we requested from last week. It is due today to pass the working paper to our consultant who will figure it out whether to choose option 1 or 2.

If this ends up with choosing option 1 and amending all claimed amount, based on your contract, you are required to pay back engagement fee and success fee, totalling $12,238.82 to us.

265    Mr Perez replied later that day, as follows.

We do part one and you are reviewing part two, it is not part of my services

I am assisting my customers for free as favour ….please read the contract

And by the way we are wasting time and there is no action or progressing in this review

266    Ms Jung responded pointing out that “the problem arose by your expense claim which make us hard to link to the methodology” and reiterating the request for substantiating documents.

267    Ms Jung emailed Mr Perez again on 6 April 2017 pressing for a refund of the fees paid by Cherry Beans. Mr Perez responded as follows.

Grow fast is not liable to return the money, as you have provided the wrong information, so it is a breach of the contract

The Recipient warrants that any and all information and documentation provided to the Consultant is not false or misleading and is accurate, complete and up to date. Please read the contract

You have to return the money or do not pass the review mean that you have not provided the correct information

And we have not been negligent

268    Although Mr Perez had proposed speaking by WhatsApp or Skype, Ms Jung did not want to talk to him in the light of the tone of his emails. At some stage during these email exchanges Mr Lim, at Ms Jung’s request, called Mr Perez. However, he had difficulty hearing Mr Perez over the telephone and was not able to speak to him properly.

269    The “substantiating work papers” requested by Ms Jung were never provided by anyone at Grow Fast. The closest thing to a direct response to that request was Mr Perez’s assertion that “we do part one” and “part two … is not part of my services”. The only sensible inference from the contents of the Cherry Beans spreadsheet and the events leading to its creation is that Grow Fast never had any “work papers” that could have substantiated the figures in that spreadsheet (which, of course, were the basis of the Cherry Beans R&D Tax Incentive Schedule). Grow Fast had calculated these figures by randomly selecting some of Cherry Beans’s coffee purchases and applying fictitious percentages to other entries in Cherry Beans’s accounts.

270    Cherry Beans responded to the ATO letter by email on 13 April 2018. It selected “Option 1” in Schedule 1 to the letter, seeking to reduce Cherry Beans’s R&D claim to nil. In Schedule 2 to the letter, it provided the contact details of Grow Fast (and Mr Perez as director) and a short statement describing its dealings with Mr Santos.

271    Cherry Beans lodged a further amended income tax return for the 2016 income year, omitting its R&D claim, on 19 April 2018. It received a notice of amended assessment on 26 April 2018. The notice reversed the earlier credit of $50,313.60 and imposed a shortfall interest charge of $1,706.69.

Conclusions in relation to Cherry Beans

Tax exploitation scheme

272    The approach taken to the R&D claim advanced in Cherry Beans’s amended income tax return can readily be identified as a “scheme”, given the extremely broad meaning given to that term by s 995-1 of the ITAA97. The scheme involved the preparation and lodgement of a return including that claim.

273    Objectively, the scheme as so understood was directed towards the obtaining for Cherry Beans of a tax offset pursuant to Division 355 of the ITAA97. This was clearly a “scheme benefit” as defined by s 284-150 of the TAA. The obtaining of such a benefit for Cherry Beans was also, clearly, subjectively intended by at least Mr Lim and Mr Santos. In light of the evidence that Mr Perez made all the significant decisions in the conduct of Grow Fast’s business, and that it was he who constructed the numbers in the Cherry Beans spreadsheet, I find that the obtaining of that “scheme benefit” for Cherry Beans was also his intention. At the time of the relevant promoting conduct (as to which see below), therefore, it was clearly “reasonable to conclude” that one or more of the “entities” that entered into or carried out the scheme did so with the sole or dominant purpose of Cherry Beans getting a “scheme benefit” (TAA s 290-65(1)(a)(i)).

274    It was not “reasonably arguable” that the “scheme benefit” that (it was reasonable to conclude) was being sought by one or more of the entities entering into the Cherry Beans scheme was “available at law”. This is so for at least two reasons.

(a)    It is tolerably clear that Cherry Beans did not incur any expenditure in the 2016 income year on activities that could reasonably be said to be “R&D activities” as defined in s 355-25 or 355-30 of the ITAA97. There was therefore no basis on which it could be argued that any deduction arose under s 355-205. The closest that any activity of Cherry Beans came to experimentation was staff members tasting coffee made from various blends of beans, roasted for various times and at various temperatures, and assessing how palatable they were. This, as Mr Lim and Ms Jung affirm, was an everyday activity for coffee roasters. It was not an activity that proceeded from hypothesis to experiment, observation, evaluation and logical conclusions. Nor was it an activity that generated “new knowledge”; it was well understood that the variability of the raw product demanded constant adjustment on the part of the roaster.

(b)    Even if it was reasonably arguable that Cherry Beans’s coffee tasting constituted “R&D activity”, it is clear from the documents referred to above and the evidence of Mr Lim and Ms Jung that the amount claimed as R&D expenditure in the course of implementing the Cherry Beans scheme: (i) was completely unsubstantiated (ie, not based on any records and unable to be justified); (ii) bore no relationship to any expenditure actually incurred on the relevant activities; and (iii) significantly overstated the amount (if any) that was expended on R&D activity. As outlined above in connection with Brandon Industries, “the scheme benefit” in 290-65(1)(b)(i) should be understood to refer to the scheme benefit sought to be obtained or intended to be obtained. Through a course of conduct orchestrated by Mr Perez, Cherry Beans lodged an amended tax return for the 2016 income year that (at best) vastly overstated the R&D tax offset (if any) to which it was entitled.

275    The Cherry Beans scheme was therefore a “tax exploitation scheme” in the relevant sense.

Promoter

Mr Santos

276    Mr Santos clearly encouraged “the growth of the scheme or interest in it” (s 290-60(1)(a)). He made the cold call to Mr Lim that led to Cherry Beans being interested in the R&D tax incentive and followed this up with meetings and discussions in which he encouraged staff at Cherry Beans to think that the business had a viable, and fairly substantial, claim. He became the conduit by which Cherry Beans was supplied with the necessary document to make the claim (the Cherry Beans R&D Tax Incentive Schedule) and the spreadsheet which purportedly justified the numbers in that document; and he telephoned Mr Lim to urge him to cause the amended income tax return to be lodged.

277    Mr Santos also received consideration in respect of the marketing or encouragement of the scheme (s 290-60(1)(b)), in that his company AGV Group became entitled to be remunerated by Mr Perez under the arrangement described at [21] above. Further, he “had a substantial role” in encouraging the scheme (s 290-60(1)(c)). Mr Santos was thus a “promoter” of the scheme.

278    It is also tolerably clear that Mr Perez engaged in “conduct” that resulted in Mr Santos being a promoter of the scheme, within the meaning of s 290-50(1), and contravened the provision on that basis. That conduct included entering into the arrangement with Ms Cleaves and Mr Santos pursuant to which Mr Santos would refer prospective clients to Mr Perez and coordinate the flow of information between Mr Perez and the clients he recruited, as well as the training and guidance provided to Mr Santos and the payment of remuneration to Mr Santos through AGV Group. In effect, everything that Mr Santos did as a promoter of the Cherry Beans scheme was done as the agent and representative of Mr Perez. Relevant “conduct” of Mr Perez also included drafting the Cherry Beans registration application and the contents of the Cherry Beans spreadsheet for Mr Santos to supply to Cherry Beans.

Mr Perez

279    The conduct of Mr Perez was also calculated to, and did, directly encourage interest in the scheme on the part of (at least) Mr Lim. By preparing text contained in the Cherry Beans registration application, and later the figures contained in the Cherry Beans spreadsheet, he led staff at Cherry Beans to think that the business had a genuine claim for the R&D tax incentive in an amount that was worth pursuing. By sending a pre-populated R&D tax incentive schedule, and asking that it be sent to Cherry Beans’s accountant to be lodged with the ATO, Mr Perez was clearly doing much more than merely advising on the scheme: he was both playing an integral role in implementing the scheme and assuring Cherry Beans’s staff that the R&D claim he had formulated was correct. His email was clearly not inviting comments or queries either from Cherry Beans staff or the accountant. Mr Lim and Ms Jung were relying on his expertise, and their accountant did not have expertise in R&D.

280     It is reasonable to conclude that these steps played a substantial role in respect of the marketing or encouragement of the scheme. Mr Perez also received “consideration” in respect of the marketing of the scheme, in that his efforts resulted in a contractually binding obligation on Cherry Beans to pay him a percentage of any R&D tax offset that it obtained and he in fact received payment.

281    For these reasons Mr Perez was himself a “promoter” of the Cherry Beans scheme and contravened s 290-50(1) on this basis as well.

The limitation period

282    The Cherry Beans scheme involved, at least, reliance on false assertions about how much Cherry Beans had spent on R&D activities in the 2016 income year. This conclusion is justified by the evidence (referred to above) that Cherry Beans’s R&D claim was based on clear exaggerations of the amount that Cherry Beans had spent on the purported R&D activity and by the fact that no records existed that were capable of substantiating any amount of expenditure. Additionally, because it is reasonably clear that Cherry Beans’s activities did not involve anything within the concept of “R&D activities”, the scheme was bound to fail if any serious investigation was undertaken by the ATO of the activities upon which Cherry Beans’s claim was based. The possibility of the scheme’s success was thus (to adapt the language of Gleeson CJ in Meares) entirely dependent on the ATO not finding out the true facts. It was thus a scheme which, if carried into effect, would involve “tax evasion” for the purposes of s 290-55(6) of the TAA.

283    For reasons explained at [70]-[89] above, it is the pre-2024 version of s 290-55(6) that is relevant; so that the limitation period in s 290-55(4) is displaced only if some tax was actually evaded. However, tax was evaded: Cherry Beans obtained an amended assessment and an amount of more than $50,000 was paid to it by the ATO. The limitation in s 290-55(4) therefore does not apply in relation to the Cherry Beans scheme.

284    If (contrary to my conclusion in the previous paragraph) s 290-55(4) does apply, the relevant version is the post-2024 version which imposes a six year limitation period. The Commissioner’s application was filed on 26 June 2020 and is therefore within time, in so far as it relates to the Cherry Beans scheme, if the last conduct resulting in Mr Perez being a promoter of that scheme occurred after 26 June 2014. That requirement is clearly satisfied: nothing happened at all in connection with the scheme until around March 2017.

285    It is therefore not necessary to decide whether, as submitted by the Commissioner, Mr Perez’s involvement up to 4 April 2018 in advising on the response to the ATO letter constituted promotion of the scheme. If necessary, I would find that Mr Perez was encouraging interest in the scheme (and thus acting as a promoter within s 290-60) on 26 March 2018 when he sent an email saying that only limited aspects of Cherry Beans’s claim should be abandoned: he was, in effect, encouraging Cherry Beans to remain committed to the scheme’s objectives. That would be sufficient to bring his conduct in connection with Cherry Beans within the four year limitation period under the earlier version of s 290-55(4) if that period applied. I am not persuaded that anything Mr Perez did after that date encouraged interest in the scheme.

Mr Perez’s contentions

286    Consistently with his approach to the other taxpayer schemes, Mr Perez argued that the reason why Cherry Beans was forced to withdraw its R&D claim was a failure by its staff and its accountant to do any due diligence and a lack of understanding on its accountant’s part. He also argued that, pursuant to the Cherry Beans Agreement, Grow Fast did not provide any tax agent services. As explained elsewhere, these lines of argument miss the point. As in the case of Mr Perez’s other clients, Cherry Beans’s lack of familiarity with the R&D tax incentive regime was the very reason why it engaged his business and relied on his purported expertise in the area. Additionally, even if it were accepted that Cherry Beans was deficient in the management of its tax affairs and in breach of its contractual obligations to Mr Perez, that would not alter the characterisation of his own conduct for the purposes of Division 290. Similarly, the scope of what Mr Perez was formally engaged to do by his written contract with the client does not affect the statutory characterisation of what he actually did.

Result

287    I find, therefore, that Mr Perez contravened s 290-50(1) of the TAA in relation to the promotion of the Cherry Beans scheme.

the cmp pacific schemes

Background

288    Mr Perez was involved in the making of claims for the R&D Tax Incentive in CMP Pacific’s tax returns for the 2014, 2015 and 2016 income years. It is useful to set out the events relating to these claims before turning to whether each of them constituted a tax exploitation scheme and whether Mr Perez was a promoter of each scheme.

289    CMP Pacific owned and operated a fun park business in Port Macquarie, NSW (the fun park). Its operations were managed by Craig Caruana, who was a director of CMP Pacific and its sole director from 23 January 2015.

290    Much of what follows is based on the affidavits of Mr Caruana. He was cross-examined by Mr Perez but was unshaken in his account of events. I accept his evidence.

291    Mr Caruana’s main responsibility was the day-to-day operations of the fun park that CMP Pacific owned. CMP Pacific had around 20 employees, all of whom were casual and between 14 and 18 years of age. On a typical day two or three employees did maintenance work around the fun park, one or two worked at the kiosk and seven or eight worked as ride attendants.

Initial contact and engagement of Grow Fast

292    Around late 2013 Mr Caruana had the idea of developing a fitness application (the app) to attract customers to the fun park and in particular its trampolines (the fitness app project). The app was envisaged as tracking data such as heart rate and kilojoules burned, suggesting individual activity plans and integrating with a user’s fitness watch. It would also manage users’ membership and bookings at the fun park. During the 2014 income year Mr Caruana began to develop basic functions of the app, but he did not get around to developing the software or technology needed for functions such as real time tracking or integration with fitness watches. During the 2015 and 2016 income years, most of the time that Mr Caruana spent on the fitness app project was spent visiting other trampoline businesses and observing the ages and numbers of customers visiting those businesses, when they visited and how long they spent on the trampolines. He estimated that he did this several times a month and each visit took three to four hours. None of CMP Pacific’s casual employees ever worked on the fitness app project.

293    Mr Caruana was introduced to Mr Perez in early 2014, at the premises of a business called “Flip Out” (for which he was doing consultancy work at the time). They had a conversation, during which Mr Caruana briefly described his idea of a fitness app and Mr Perez responded in words to the effect of “[y]ou will qualify for a grant” and “you’re eligible for R&D, you should go for that”. Mr Perez said that he was in the business of helping small businesses obtain government grants and could help Mr Caruana obtain a grant. He said that his business had been doing this work for years and could “do everything for you”. They discussed fees and Mr Perez said that he would only be paid if the application was successful.

294    Following this meeting, CMP Pacific and Flip Out agreed to work on the fitness app together, with Flip Out invoicing CMP Pacific for the development work that it did.

295    After their initial meeting, Mr Caruana and Mr Perez had further conversations in which Mr Perez asserted (among other things) that CMP Pacific could include in its R&D claim invoices that had been submitted but not paid during the relevant income year. At Mr Perez’s request, Mr Caruana sent him a spreadsheet that contained details of CMP Pacific’s expenses and payroll information.

296    Around 18 September 2014, CMP Pacific entered into a “Supply of Services Agreement” which was expressed to be with Mr Perez “trading as Grow Fast Consulting” (the CMP Pacific Agreement). Most clauses of the Agreement were in the same terms as the corresponding clauses of the agreements referred to above in connection with Brandon Industries and Cherry Beans. Clause 10 (which dealt with “Estimates”) was not included. Item 4 of the Schedule, which provided for fees, did not include an “engagement fee” but provided for a fee of 20 percent of any R&D grant obtained (plus GST). The Schedule also included, in item 5, an express provision that no fee was payable if no grant was obtained.

Application to AusIndustry for 2014

297    Mr Caruana and Mr Perez exchanged emails in November 2014 in which Mr Perez requested and Mr Caruana supplied information for the purpose of drafting CMP Pacific’s application for registration. There were also telephone conversations around this time, during one of which Mr Perez again asserted that CMP Pacific was entitled to an R&D grant.

298    An application for registration of CMP Pacific for the 2014 income year was submitted to AusIndustry on 13 March 2015 (the 2014 CMP Pacific AusIndustry application). Mr Caruana received an email from Mr Perez telling him that this had happened and asking him to “keep me posted”. Mr Caruana had not seen a draft of the application before it was submitted.

299    The 2014 CMP Pacific AusIndustry application answered “no” to the question whether the R&D entity had relied on advice from a tax agent or R&D consultant in drafting the application. This was not true: nobody at CMP Pacific had played any role in drafting the application and Mr Caruana knew nothing about the R&D Tax Incentive other than what he had been told by Mr Perez. Mr Caruana’s name and contact details were inserted as the person who made the proforma declaration that (among other things) the contents of the application were true and correct. In fact Mr Caruana had made no such declaration and had no way of verifying the matters asserted in it.

300    On 18 March 2015 Mr Caruana received a letter from the Department of Industry and Science (dated 13 March 2015, the day the 2014 CMP Pacific AusIndustry application had been lodged) headed “Notice of Registration for R&D Tax Incentive”.

Preparation and lodgement of the R&D claim for 2014

301    Mr Caruana received two documents by email from Mr Perez on 31 March 2015:

(a)    an Excel spreadsheet containing calculations (the CMP Pacific 2014 spreadsheet); and

(b)    a completed R&D Tax Incentive Schedule for the 2014 income year (the CMP Pacific 2014 schedule).

302    Mr Caruana did not prepare these documents and to the best of his knowledge nobody at CMP Pacific prepared them. He had previously provided Mr Perez with financial information of CMP Pacific but had not been asked by Mr Perez for any additional information about CMP Pacific or the fitness app project. He says that Mr Perez prepared the documents; and, although he does not claim direct knowledge of that fact, the only sensible inference is that the author was Mr Perez or someone working under his direction. Mr Perez’s email appears in the evidence as a reply to an email from Mr Caruana dated 18 March 2015 forwarding the notice of registration received on that day, and there is no evidence of interactions in the interim about the contents of these documents. In his email Mr Perez said:

As per our conversation, please forward this information to your accountant

Make sure that all your accounts are reconciled and lodged before tax return is lodges (GST and PAYG)

Also all tax returns must be lodged and up to dated

303    The 2014 CMP Pacific spreadsheet was a single page dealing with “Expenses”; that is, it did not contain a separate calculation in relation to payroll. Instead, “Staffing/Employment Costs” was listed as an expenditure item along with the other expenses. All expenses (including, eg, “New Equipment/Rides” and “Landscaping”) were allocated an “R&D %” of 43 percent, apart from “R&D consultant” and “other” which had an “R&D %” of 100 percent. The total of the resulting “R&D Amounts” was $411,588 and an “expected refund” of $185,214.51 was shown. The CMP Pacific 2014 schedule claimed total allocated notional deductions of $411,587 including $43,839 in salary expenditure (which matches the “R&D Amount” for “Staffing/Employment Costs” listed in the CMP Pacific 2014 spreadsheet.

304    Mr Caruana gave the following evidence in relation to the expenses shown in the CMP Pacific 2014 spreadsheet.

(a)    “New Equipment/Rides” ($295,850) related to the purchase and installation of trampolines and water trampolines. None of these purchases related to the fitness app project. They were part of CMP Pacific’s everyday operations.

(b)    “Staffing/Employment costs” ($101,140) related to the wages and salary of CMP Pacific’s casual employees. Mr Perez had not asked for a breakdown of the roles of employees or the time spent by each employee on R&D work. None of the employees was involved in the fitness app project.

(c)    “Managers/Contractors/Employment costs” ($62,330) related to amounts due to Mr Caruana and the other directors. Mr Caruana did not draw a cash wage from the business in the 2014 year and did not spend anything like 43 percent of his time on the fitness app project.

(d)    “R&D Consultant” ($35,000) related to Mr Perez’s fees. No fees were invoiced by or paid to Mr Perez in the 2014 income year. This amount would not have been included in the accounts that Mr Caruana sent to Mr Perez and must have been inserted by him or at his direction. (This may be part of the reason why Mr Perez indicated in his email that CMP Pacific’s accounts would need to be “reconciled”.)

305    As to the percentages of the various expense items allocated to R&D (either 43 percent or 100 percent), Mr Caruana deposes that he had not been asked to provide any breakdown of these expenses. He believes that they must have been determined by Mr Perez. This is the only sensible inference and it is consistent with what occurred in connection with the other schemes.

306    Mr Caruana deposes that, following the advice in Mr Perez’s email (or the “direction” as he put it), Mr Caruana forwarded that email and its attachments to CMP Pacific’s accountants, Bacchus Associates. He did not review the documents in any detail himself, because his conversations with Mr Perez had led him to understand that all he had to do was supply Mr Perez with information.

307    Mr Caruana received emails from Mr Perez on 21 April, 4 May and 7 May 2015 asking for news about the progress of CMP Pacific’s tax return. He also received a number of telephone calls from Mr Perez in this period in which Mr Perez asked why it was taking so long for CMP Pacific’s tax return to be lodged.

308    The evidence includes an email from Mr Caruana to an accountant at Bacchus Associates on 9 June 2015 attaching the 2014 CMP Pacific spreadsheet (without any accompanying explanation). It is possible that this is when Mr Caruana actually transmitted the information for the R&D claim to Bacchus Associates, as he was not able to produce any earlier email by which this was done. However, the 2014 CMP Pacific schedule was not attached to this email, and it is hard to think of any reason why Mr Caruana would not simply have forwarded Mr Perez’s 31 March 2015 email (indeed, his evidence is that that is what he did).

309    Bacchus Associates lodged CMP Pacific’s 2014 tax return on 26 June 2015. It included refundable tax offsets of $185,214.15, based on total notional R&D deductions of $411,587, which aligned with the figures that Mr Perez had included in the 2014 CMP Pacific schedule.

310    On 22 and 23 July 2015, CMP Pacific received two credits to its bank account totalling $181,136.56. It does not appear to be in doubt that this was CMP Pacific’s tax refund for the 2014 income year and it reflected a deemed tax assessment consistent with CMP Pacific’s return.

Payment to Mr Perez in relation to 2014

311    An invoice was issued by Grow Fast to CMP Pacific, dated 30 June 2014, for $35,000 plus GST. Mr Caruana says that he received this invoice on 16 June 2015. (It is extremely unlikely that this invoice was issued on the date that it bears, because the CMP Pacific Agreement was not executed until 18 September 2014.) CMP Pacific paid an amount of $35,000 into the bank account identified in the invoice on 30 July 2015. On 5 September 2015 Mr Perez sent Mr Caruana an email that said “… waiting to finalise your account, GST portion of your invoice”.

312    Interestingly, while the figure of $35,000 matched the amount listed as “R&D Consultant” in the 2014 CMP Pacific spreadsheet (which Mr Caruana says was not paid during the 2014 income year), it is less than the fee provided for in the CMP Pacific Agreement (20 percent of $185,214).

Application to AusIndustry for 2015

313    Although he had not been paid in full for his work in respect of the 2014 income year, Mr Perez moved quickly to secure the registration of CMP Pacific in respect of the 2015 year. The application for registration (the CMP Pacific 2015 AusIndustry application) was lodged on 14 September 2015. Mr Caruana deposes that he did not prepare or lodge this application and, so far as he is aware, nor did anybody else at CMP Pacific. At some stage before 14 September, Mr Perez had asked Mr Caruana to provide him with CMP Pacific’s profit and loss statement for the 2015 income year so that he could prepare its R&D claim. The only available inference is that it was Mr Perez, or someone working under his direction, who prepared and lodged the CMP Pacific 2015 AusIndustry application.

314    Like the CMP Pacific 2014 AusIndustry application, the CMP Pacific 2015 AusIndustry application listed Mr Caruana as the officer of the R&D entity who made the relevant declaration. This was not correct because Mr Caruana had not seen the document, or any draft of it, before it was lodged. However, unlike the CMP Pacific 2014 AusIndustry application, the CMP Pacific 2015 AusIndustry application answered “yes” to the question whether it had been prepared in reliance on advice from a tax agent or R&D consultant. Mr Perez’s details were supplied in connection with this question.

315    On 17 September 2015 Mr Caruana received a letter (dated 16 September) from the Department of Industry and Science headed “Notice of Registration for R&D Tax Incentive”.

Preparation of the R&D claim for 2015

316    On 6 October 2015, Mr Caruana emailed a document headed “Wow Fun Park Port Maq” to Mr Perez. The email had no text and its subject line merely repeated the file name of the document (CMP pacific Global 2015 Tax.xlsx), so that there is no indication of what discussions or emails might have preceded the sending of the email. Mr Caruana does not elaborate on this in his affidavit. The document appears to be a one page summary of CMP Pacific’s expenditure for the 2015 income year. Mr Perez replied later that day:

All ok at my end please let progress to the tax return

Email it to me before lodgement please

317    On 12 October 2015 Mr Perez sent an email to Mr Caruana which said, in part, “Please forward attached docs to your accountant so we can progress with claim”. This was a reply to an email sent by Mr Caruana earlier the same day that attached the notice of registration and simply said “Attached is the registration document”. I infer from the brevity of Mr Caruana’s email that it must have come after a discussion or an email in which Mr Perez asked to see the notice of registration. However, Mr Caruana does not describe any such discussion and his evidence is that the only information he had provided to Mr Perez in respect of the 2015 income year was the document referred to in the previous paragraph.

318    Attached to the email of 12 October were:

(a)    the notice of registration (which Mr Caruana had sent to Mr Perez);

(b)    a draft R&D tax incentive schedule; and

(c)    a one page spreadsheet containing R&D calculations.

319    The second and third of these documents were revised (evidently by Mr Perez) and the revised versions were sent to Mr Caruana under cover of an email on 13 October 2015.

(a)    The revised spreadsheet (the 2015 CMP Pacific spreadsheet) allocated 43% as the “R&D%” for all but two lines of expenses, for which the “R&D%” was 100%. These were “R & D Management Work” ($117,00) and “R&D Consultant” ($34,000). The total of the “R&D Amounts” was $383,195, leading to an expected refund of $172,437.87.

(b)    The revised R&D tax incentive schedule showed a total of notional deductions of $383,195 (aligning with the 2015 CMP Pacific spreadsheet), including $44,558 of salary expenditure, and a refundable R&D offset of $172,437.75.

320    The expense amounts listed in the 2015 CMP Pacific spreadsheet were mostly information that was kept as part of CMP Pacific’s accounts. The columns “R&D%” and “R&D Amount” were not prepared by Mr Caruana and it is fairly clear that they were prepared by Mr Perez. Mr Caruana does not know how the figure of 43 percent, applied to most items, was arrived at. It was evidently not based on any close study of CMP Pacific’s operations or discussions with him. Mr Caruana is not aware of Mr Perez ever having visited the fun park or spoken to any CMP Pacific staff. He gives the following evidence in relation to some of the specific items.

(a)    “New Business Purchase” ($150,000) was the purchase of another site and new equipment to expand CMP Pacific’s business. It had no relationship to the fitness app project or any other R&D activity.

(b)    “New Equipment/Rides” ($122,100) related to the purchase of a trampoline and trampoline mats. This also had no relationship to any R&D activity.

(c)    “Staffing/Employment Costs” ($63,214) was the salary and wages of CMP Pacific’s casual employees, none of whom was involved in the fitness app project. Mr Caruana was not asked for, and did not provide, any breakdown of the nature of work performed by each employee.

(d)    “Management/Contractors/Employment Costs” ($40,410) related to amounts due to Mr Caruana as director. He did not spend anything like 43 percent of his time on the fitness app project.

(e)    “Motor Vehicles” ($102,593) comprised the purchase and running costs of vehicles. These were ordinary business expenses and not related to the fitness app project.

(f)    “R&D Management Work” ($117,000) related to expenses associated with the development of the fitness app project. These were invoiced to CMP Pacific but not all were paid in the 2015 income year.

(g)    “R&D consultant” ($34,000) comprised Mr Perez’s fees. This amount must have been inserted by Mr Perez. It was neither invoiced nor paid before 30 June 2015.

Lodgement of the tax return for 2015

321    Following Mr Perez’s instruction to “forward attached docs to your accountant”, Mr Caruana forwarded Mr Perez’s email and its attachments to Bacchus Associates. He did not review the documents himself at this time as he understood that Mr Perez was “taking care of everything”.

322    Bacchus Associates lodged CMP Pacific’s 2015 tax return on 21 October 2015. Consistently with the figures shown in the revised R&D tax incentive schedule supplied by Mr Perez, it included a refundable R&D offset of $172,437.75. Between 30 October and 3 November three electronic deposits described as “refund”, totalling $175,060.25, were made to CMP Pacific’s bank account. It does not seem to be in dispute that these amounts came from the ATO and included the refundable R&D offset sought in CMP Pacific’s tax return.

Payment to Mr Perez in relation to 2015

323    On 3 November 2015 CMP Pacific made an electronic transfer of $67,400 described in its bank statement as “Grow Fast Flip Out”. Mr Caruana deposes that this included $37,400 in payment of an invoice dated 30 June 2015 (for $34,000 plus GST) that he had received from Mr Perez.

Application to AusIndustry for 2016

324    An application for registration of CMP Pacific in relation to the 2016 income year was lodged with AusIndustry (the CMP Pacific 2016 AusIndustry application) on 30 March 2017. Mr Caruana received a copy of this document from Mr Perez by email on the day it was lodged. Mr Caruana did not prepare this document and his understanding is that it was prepared by Mr Perez. There is no reason to doubt that this is correct.

325    The application listed Mr Caruana as the nominated contact person and as the person declaring that the information in it was true and correct. This was not accurate in circumstances where the first time he saw the application was after it had been lodged. The question whether the R&D entity had relied on advice from a tax agent or consultant was answered “No”, which was also incorrect.

326    Mr Caruana gave evidence that the CMP Pacific 2016 AusIndustry application contained a number of incorrect statements and figures or calculations whose basis he does not know. He did not provide this material to Mr Perez. For example, the application asserted that CMP Pacific’s total R&D expenditure for the 2016 income year was $305,934, that CMP Pacific had four employees and that two of them had engaged in R&D work. CMP Pacific in fact had up to 20 employees but Mr Caruana was the only person who did any work on the fitness app project.

327    On 6 April 2017 Mr Caruana received an email from AusIndustry enclosing a notice of registration for the 2016 income year. On 8 May 2017 Mr Caruana sent the notice of registration and its covering letter to Mr Perez.

Commencement of preparation of CMP Pacific’s R&D claim for 2016 and ATO review

328    On 5 April 2017 Mr Caruana sent Mr Perez an email attaching CMP Pacific’s financial statements for the 2016 income year. His covering email said:

Hello Jose,

Here is the accounts and calculations. Can you please check and get back to me so I can get off to the accountants.

Regards

Craig Caruana

329    I infer from the first sentence that this was a response to a request by Mr Perez for CMP Pacific’s financial information. The attached financial statements were general in nature; they did not purport to be limited to or specifically identify any R&D activities (except for a line item called “R&D consultant” which showed a payment of $19,536 in June 2016).

330    Later that day, Mr Perez sent Mr Caruana an email containing no text but attaching a document with the filename “Wow R&D calculations 2016.xlsx” (the original CMP Pacific 2016 spreadsheet). That document was a single table purporting to calculate the “R&D amount” for various items of CMP Pacific’s non-salary expenditure. This table is not easy to reconcile with the figures provided by Mr Caruana earlier in the day, but it can be noted that it contains an additional item described as “R&D Management Work” with an amount of $80,000. An “R&D %” of 43 percent was applied to all line items except for “R&D Management Work” and “R&D consultant”, which had an “R&D %” of 100 percent. The total R&D amount was $237,067 and the expected refund was $106,678.07.

331    Unusually, the original 2016 CMP Pacific spreadsheet contained annotations to the right of the table (which according to Mr Perez’s evidence were added by him) that said things like “No deductable” (next to “Admin/Accounts”); “Must explain how the 43% is linked to R&D activities, linked to payroll”; and “must have R&D diaries and here you have to substantiate 43%”. These are difficult to reconcile with Mr Perez having inserted 43% as the “R&D %” for nearly every line item and the lack of any evidence that he sought to discuss these entries with Mr Caruana or asked to see substantiating documents. Mr Perez’s explanation under cross-examination of why he had added these annotations was, like most of his evidence, difficult to follow and to accept. I infer that they were probably included so that Mr Perez could assert later, if necessary, that he was merely providing a template that CMP Pacific and its accountants could use to frame a properly supported claim. (Any such assertion is, however, contradicted by Mr Perez’s conduct in relation to the 2014 and 2015 income years and his later conduct, when he re-did the calculations himself and provided new figures in response to an ATO review.)

332    Around two weeks later, CMP received notification via Bacchus Associates that the ATO was undertaking a review of its R&D claims for the 2014 and 2015 income years. Mr Caruana forwarded the notification of the review to Mr Perez on 23 May 2017 under cover of an email which said (in part):

Can you please review and ensure that our project has been properly claimed as per the letter.

We want to ensure that we are not or have not claimed any expenses or costs that are not allowed for the project.

333    Mr Perez replied on 27 May 2017. He advised Mr Caruana to call the ATO and ask for “another extension”. He also identified documents that he would need to “assist [CMP Pacific] with the review”, consisting of “invoices and payroll breakdown” for the items highlighted by the ATO. Shortly afterwards they had a telephone conversation in which Mr Perez said that Mr Caruana would have to resubmit all CMP Pacific’s R&D claims. He said that the government had changed the rules and some things that CMP Pacific had claimed were no longer allowed.

334    Mr Caruana instructed Bacchus Associates to seek an extension of time from the ATO. On 3 June 2017, he re-sent to Mr Perez an email of 19 June 2015 which attached a bundle of invoices. Shortly after sending that email, Mr Caruana had another conversation with Mr Perez in which he told Mr Perez that the junior staff had not worked on R&D. Mr Perez responded that CMP Pacific could not claim for their wages and would have to change all these aspects of its claims. Mr Caruana was surprised: he thought that Mr Perez had known this from the start.

335    On 15 August 2017 Mr Caruana forwarded his earlier emails to Mr Perez under cover of an email which said:

Here is the invoices again (3rd time) for 2014. Some of these were not paid and cannot be claimed.

I have gone through your 2015 revised and it is so wrong. You have increased purchased which should not be, I do not know why. Please call me tomorrow to discuss.

336    That evening, Mr Caruana received an email from Mr Perez which simply said “Hi Craig, please review 2014”. Attached was a document with the filename “Wow R&D calculations 2014 reviewed.xlsx”. Curiously, this document was not merely a version of the CMP Pacific 2014 spreadsheet with the relevant R&D percentages adjusted. Some line items in the former document were missing and there was a new item called “R&D Other”. The total for “New Equipment/Rides” was changed from $295,850.00 to $155,000.00 but the “R&D %” for that item was now 100 percent (which is curious to say the least, in the light of Mr Caruana’s evidence that this expenditure was for CMP Pacific’s day-to-day operations and had nothing to do with the fitness app project). “R&D Other” also had an “R&D %” of 100 percent. All other items had an “R&D %” of five percent.

337    On 21 August 2017 at 8.00 pm, Mr Perez sent Mr Caruana a further revised version of the calculations for the 2014 income year. The amount for “R&D Other” had been revised downward but still had an “R&D %” of 100 percent; the “R&D %” for “New Equipment/Rides” was (very strangely) now also 100 percent; two lines had been inserted for “wages” (with one allocated an “R&D %” of 50 percent), and the “R&D %” for the other line items apart from “New Equipment/Rides” was reduced to zero. Again, there was no explanation in the covering email. As far as Mr Caruana can recall, the reason for the changes was advice from Mr Perez that a claim could only be made for amounts actually paid and not on an accruals basis.

338    On the same evening at 8.47 pm, Mr Perez sent Mr Caruana another email. This annexed two documents with filenames “Copy of RD calculations Reviewed 2015 v.4.xlsx” and “Wow R&D calculations 2016 v.2.xlsx”.

(a)    The first of these appears to be a revision of the 2015 CMP Pacific spreadsheet. Again, the “amounts” shown for some line items had been changed (in some instances to zero). Four line items (including “new equipment/rides” and “management/contractors/ employment costs”) had an “R&D %” of 100 percent. All other line items had the “R&D %” reduced to zero.

(b)    The second appears to comprise a reworking of the document referred to at [330] above comprising Mr Perez’s calculation of CMP Pacific’s R&D claim for the 2016 income year. The “R&D %” for most line items had been reduced to zero, but six items (now including “new equipment/rides” and “maintenance”) had an “R&D %” of 100 percent. The “expected refund” was reduced from $106,678.07 to $93,812.85. In contrast to the original version of the document, this did not contain any annotations concerning the need for explanation or substantiation. The broad-brush approach taken in this document was quite inconsistent with the import of those annotations. Mr Perez was asked in cross-examination whether he had done anything to satisfy himself that 100 percent of any expense was claimable. His answer was largely incoherent but seems to be to the effect that he had to depend on the accuracy of what he was told by his client. However, the evidence of Mr Caruana (which I generally accept) and the documentary records are wholly inconsistent with CMP Pacific having told Mr Perez in terms that all (or indeed any portion) of entire categories of expenses were related to the fitness app project.

339    The emails under cover of which these documents were sent contained no explanation of them. However, the cross-examination of Mr Caruana established that there were a number of conversations between him and Mr Perez during this period and Mr Caruana also had discussions with ATO officers. It can therefore be comfortably concluded that Mr Perez was directing the revision of CMP Pacific’s R&D claims, or at the very least advising and guiding Mr Caruana on the calculation of the claims. Strikingly, however, these exchanges do not indicate any close engagement by Mr Perez with CMP Pacific’s records or questioning of its staff about what they did (or any instructions that such analysis needed to be done). He was suggesting (if not directing) the allocation of “R&D %” figures to broad categories of expenditure, and always at the identical percentage across most such categories.

Amendment of the 2014 and 2015 income tax returns

340    On 30 August 2017 Mr Caruana sent an email to Bacchus Associates attaching what he described as “re-calculations from Growfast Corp”. The next day, Bacchus Associates sent Mr Caruana draft amended tax returns for the 2014 and 2015 income years. These were also sent to the ATO under cover of an email saying that they would be lodged that day. Bacchus Associates also sent to the ATO a bundle of documents relating to the fitness app project and the engagement of Grow Fast, which appear to have been provided by Mr Caruana. The proposed amended returns reduced the amounts refundable to CMP Pacific pursuant to the R&D tax incentive:

(a)    for the 2014 income year, from $185,214.15 to $123,395.85; and

(b)    for the 2015 income year, from $172,437.55 to $81,450.00.

341    An ATO officer responded on 1 September 2017 saying that CMP Pacific had had an earlier opportunity to self-amend and an attempt to amend the 2015 tax return now (with CMP Pacific already under review) would incur administrative penalties. The ATO proposed to treat the proposed amendments as a voluntary disclosure. The amended income tax returns do not appear to have been formally lodged. The ATO sent Bacchus Associates a position paper relating to the 2015 income year on 18 September 2017.

Lodgement of the 2016 tax return

342    Mr Caruana annexed to his affidavit a large document containing financial information about CMP Pacific which he said he had sent to Bacchus Associates (but did not specify when). Most of this bundle comprised expense records which Mr Caruana said that he maintained and had sent to Mr Perez. The last page of the bundle was a further revised calculation of CMP Pacific’s R&D refund for the 2016 income year, which Mr Caruana did not prepare. I infer that it was prepared by Mr Perez. It was a table containing only two line items (“new equipment” and “management”), which were allocated an “R&D %” of 100 percent. As noted earlier, the suggestion that expenditure coming within these descriptions could be wholly attributable to R&D is at least prima facie very strange. The “expected refund” (after adjusting for GST) was $46,312.20. Unlike the original version of the document, it was not annotated and there was nothing to suggest that it was anything other than Mr Perez’s final calculation of the figures that should be included in CMP Pacific’s income tax return.

343    On 26 October 2017, Bacchus Associates lodged CMP Pacific’s income tax return for the 2016 income year. It claimed a refundable R&D tax offset of $46,312.20 in accordance with the worksheet referred to in the previous paragraph. Between 30 October and 3 November 2017, three amounts totalling $175,060.25 were credited to CMP Pacific’s bank account by the ATO and described as either “Part Refund” or “Balance Refund”.

Outcome

344    The evidence does not appear to include any final amended return or amended assessment for the 2014 income year.

345    On 19 January 2018, CMP Pacific was issued with a notice of amended assessment for the 2015 income year. It reduced the refundable R&D tax offset from $172,437.75 to nil. The result was that CMP Pacific owed the ATO $182,559.20 including a shortfall interest charge. CMP Pacific was also issued a notice of assessment of shortfall penalty requiring it to pay $86,218.85.

346    After a discussion with an ATO officer about CMP Pacific’s R&D claim, Mr Caruana advised the ATO that he wished to withdraw CMP Pacific’s claim for the 2016 income year. He had formed the view that what Mr Perez had told him was incorrect and there was no point in resubmitting that claim. On or around 2 February 2018 CMP Pacific received a notice of amended assessment for the 2016 income year which reduced the refundable R&D tax offset to nil. The result was that CMP Pacific was required to pay $47,308.99 including a shortfall interest charge.

Mr Perez’s invoice in relation to the 2016 income year and refusal to refund earlier payments

347    Mr Perez had issued an invoice to CMP Pacific, dated 12 May 2016, for $34,465.57 (including GST) with the description “Planning, Coordinating & Consulting R&D Work”. It was emailed to Mr Caruana on 12 May 2016. Mr Caruana did not depose to having paid this invoice and I find that it was not paid. Bearing in mind the terms of the CMP Pacific Agreement (which only provided for Mr Perez to be paid a percentage of any R&D grants obtained), I infer that Mr Perez rendered this invoice in May 2016 in order to be able to inflate CMP Pacific’s R&D claim rather than in the expectation that it would be promptly paid.

348    In 2017 Mr Caruana had conversations with Mr Perez in which he asked him to refund the $72,400 that CMP Pacific had paid him in respect of the 2014 and 2015 income years. Mr Caruana dates the first of these conversations in May or June 2017 but I doubt that this is accurate: the ATO review continued until September of that year, and it was probably not clear in May or June that CMP Pacific would end up having to repay the refunds it had received. However, I accept that conversations did occur along the lines described by Mr Caruana.

349    One conversation included exchanges to the following effect:

Mr Perez:     I’m not returning the money.

[Mr Caruana]:     Well you know we relied on you.

Mr Perez:     No I told you from the start it’s your accountants’ responsibility. I’m not doing anything

[Mr Caruana]:     That’s bullshit.

…

Mr Perez:     Don’t answer any of their questions. Just put your company into liquidation.

[Mr Caruana]:     I am not putting my company into liquidation. I have invested too much money in it.

Mr Perez:     If you don’t they will come after me.

350    This is noteworthy as it is another example of Mr Perez attempting to shift responsibility on to the taxpayer’s accountants in circumstances where the R&D claim was entirely his own creation.

351    Mr Caruana sent Mr Perez an email on 31 August 2017 noting that the amounts CMP Pacific had paid pursuant to his invoices was around $31,000 more than the CMP Pacific Agreement provided for (20 percent of the refunds obtained) and asking for this amount to be refunded. Mr Perez responded:

I did get that money because you did not pay the full amount

Only refund will be when you show me that you have made yours.

And it may create problems for me as you may spark damages for more customers that it is under your contract

So we are looking to settle this account mid next year when the case is over

352    Mr Caruana sent an email the next day indicating that he understood CMP Pacific would have to repay $152,806.05 to the ATO and that this needed to be settled as soon as possible. Mr Perez responded:

If you have a short fall, it is because you provided to your Tax agent not enough information or inaccurate

This is a breach of our contract, there is no obligation in this regard from Grow fast to return any money, please read the contract

You have to pay 152k in full and finalise the audit before any other action must be taken, also must prove it by showing the portal, that 152k came from your pocket and it is fully paid

Normally this create damages to me, as ATO may take legal again against me or continuing auditing my customers and then take legal action

353    This, too, is consistent with Mr Perez’s general approach to this case: asserting that baseless claims for the R&D tax incentive (created solely by him and lodged on his instructions) were the responsibility of others and a breach of their contractual obligations to him; and thinking principally of potential consequences for him rather than the position of his client.

Conclusions in relation to CMP Pacific

Tax exploitation scheme

354    The approach taken to the R&D claim advanced in CMP Pacific’s income tax return for each of the 2014, 2015 and 2016 income years can readily be identified as a “scheme”, given the extremely broad meaning given to that term by s 995-1 of the ITAA97. Each scheme involved the preparation and lodgement of a return including such a claim.

355    Objectively, each scheme as so understood was directed towards the obtaining for CMP Pacific of a tax offset pursuant to Division 355 of the ITAA97. This was clearly a “scheme benefit” as defined by s 284-150 of the TAA. The obtaining of such a benefit for CMP Pacific was also, clearly, subjectively intended by at least Mr Perez and Mr Caruana. At the time of the relevant promoting conduct (as to which see below), therefore, it was clearly “reasonable to conclude” that one or more of the “entities” that entered into or carried out the schemes did so with the sole or dominant purpose of CMP Pacific getting a “scheme benefit” (TAA s 290-65(1)(a)(i)).

356    It was not “reasonably arguable” that the “scheme benefit” that (it was reasonable to conclude) was being sought by one or more of the entities entering into the CMP Pacific schemes was “available at law”. This is so for at least two reasons.

(a)    None of CMP Pacific’s expenditure in the relevant years was on activities that could plausibly be said to be “R&D activities” as defined in ss 355-25 or 355-30 of the ITAA97. There was therefore no basis on which it could be argued that any deduction arose under s 355-205. The only activity of CMP Pacific that involved any innovative aspect was Mr Caruana’s work on developing an app, which involved the application of well understood technology.

(b)    Even if it was reasonably arguable that the fitness app project constituted “R&D activity”, it is clear from the documents referred to above and the evidence of Mr Caruana that the amounts claimed as R&D expenditure in the course of implementing the CMP Pacific schemes: (i) were completely unsubstantiated (ie, not based on any records and unable to be justified); (ii) bore little if any relationship to any expenditure actually incurred on the relevant activities; and (iii) significantly overstated the amount (if any) that was expended on R&D activity. As outlined above in connection with Brandon Industries, “the scheme benefit” in s 290-65(1)(b)(i) should be understood to refer to the scheme benefit sought to be obtained or intended to be obtained. It was not reasonably arguable that that benefit was available at law. Through a course of conduct orchestrated by Mr Perez, CMP Pacific lodged income tax returns that (at best) vastly overstated the R&D tax offset to which it was entitled.

357    The CMP Pacific schemes were therefore “tax exploitation schemes” in the relevant sense.

Promoter

358    The conduct of Mr Perez was calculated to, and did, directly encourage interest in the schemes on the part of Mr Caruana. By the advice that he gave to Mr Caruana, his preparation and lodging of the CMP Pacific registration applications, and producing figures for inclusion in CMP Pacific’s tax returns, he led Mr Caruana to think that the business had a genuine claim for the R&D tax incentive in an amount that was worth pursuing. Mr Perez was clearly doing much more than merely advising on the schemes: he was both playing an integral role in implementing the schemes and encouraging Mr Caruana to believe that the R&D claim he had formulated was correct. Mr Caruana was relying on his expertise.

359    It is reasonable to conclude that these steps played a substantial role in respect of the marketing or encouragement of the schemes. Mr Perez also received “consideration” in respect of the marketing of each scheme, in that his efforts resulted in a contractually binding obligation on CMP Pacific to pay him a percentage of any R&D tax offset that it obtained and he in fact received payment in respect of the 2014 and 2015 income years.

360    For these reasons Mr Perez was a “promoter” of the CMP Pacific schemes and contravened s 290-50(1) of the TAA.

The limitation period

361    The CMP Pacific schemes involved, at least, reliance on false assertions about how much the company had spent on R&D activities in the relevant income years. This conclusion is justified by the evidence (referred to above) that CMP Pacific’s R&D claims were based on clear exaggerations of the amount that CMP Pacific had spent on the purported R&D activity and by the fact that no records existed that were capable of substantiating any amount of expenditure. Additionally, because it is reasonably clear that CMP Pacific’s activities did not involve anything within the concept of “R&D activities”, the schemes were bound to fail if any serious investigation was undertaken by the ATO of the activities upon which CMP Pacific’s claims was based. The possibility of the schemes’ success was thus (to adapt the language of Gleeson CJ in Meares) entirely dependent on the ATO not finding out the true facts. They were thus schemes which, if carried into effect, would involve “tax evasion” for the purposes of s 290-55(6) of the TAA.

362    For reasons explained at [71]-[75] above, it is the pre-2024 version of s 290-55(6) that is relevant; so that the limitation period in s 290-55(4) is displaced only if some tax was actually evaded. However, tax was evaded in each year. In each of the relevant years, lodgement of CMP Pacific’s tax return resulted in a deemed assessment that included a refundable R&D amount and generated refunds that were paid to CMP Pacific. As explained above, the reversal of some of these credits by amended assessments does not undermine that conclusion. The limitation period in s 290-55(4) therefore does not apply in relation to the CMP Pacific schemes.

363    If (contrary to my conclusion in the previous paragraph) s 290-55(4) does apply, the relevant version is the post-2024 version which imposes a six year limitation period. The Commissioner’s application was filed on 26 June 2020 and is therefore within time, in so far as it relates to each of the CMP Pacific schemes, if the last conduct resulting in Mr Perez being a promoter of that scheme occurred after 26 June 2014. That requirement is clearly satisfied. CMP Pacific did not enter into the CMP Pacific Agreement until September 2014, and Mr Perez continued after that time to encourage Mr Caruana to believe that CMP Pacific had viable R&D claims.

364    It is therefore not necessary to decide whether Mr Perez’s actions up to 30 August 2017 in reformulating the claims for the 2014 and 2015 income years (and advising Mr Caruana about what should be done in response to the ATO review) constituted promotion of these schemes. If necessary, I would find that Mr Perez was encouraging interest in the schemes up to this time: he was, in effect, encouraging Mr Caruana to remain committed to the schemes’ objectives, albeit on a smaller scale than previously, and seeking to preserve some of the tax benefit that CMP Pacific had obtained. That would be sufficient to bring his conduct in connection with CMP Pacific within the four year limitation period if that period applied.

Mr Perez’s contentions

365    Consistently with his approach to the other taxpayer schemes, Mr Perez sought to suggest that he was the real victim and CMP Pacific and its accountants had either failed in their responsibilities or misled him (or both). This had, broadly, two aspects.

366    First, Mr Perez sought to have Mr Caruana agree that he was not engaged as a tax agent or accountant and then suggested that “CMP sent document (sic) to the accountant, the accountant put it through, and then the taxation office are saying that you sent the wrong information”. Mr Caruana agreed that that was partly right but continued:

You compiled the information, you sent it to me, you asked it to be forwarded to the accountant, we forwarded it to the accountant, and then they submitted it.

367    Mr Caruana’s evidence in chief was to the effect that he understood Bacchus Associates were not reviewing or changing any of Mr Perez’s documents because he had held himself out as an expert in the field, and that he thought Mr Perez himself employed or worked with accountants. In cross-examining Mr Caruana, Mr Perez did not challenge this understanding but asked, elliptically, whether he (Mr Perez) “controlled” Bacchus Associates. Mr Caruana also deposed that Mr Perez had told him in their initial conversation that, among other things, “Me and my company will do everything for you”. None of the written communications is consistent with an understanding that Mr Perez was merely providing general advice about the R&D tax incentive, or draft (or template) documents for Bacchus Associates to use to formulate CMP Pacific’s claim. No client would have agreed to pay him 20 percent of any refund they received if that was all he was undertaking to provide.

368    Secondly, Mr Perez contended (as I understood it) that CMP Pacific did not own the intellectual property in the fitness app project and Mr Caruana, by not disclosing this to him, committed fraud. Even if this is correct, it is difficult to see how it has any bearing on the assessment of Mr Perez’s conduct. It remains the fact that the project could not plausibly be asserted to constitute R&D activity (by whatever entity was carrying it out) and that Mr Perez concocted (and procured the making of) R&D claims that were not based on any real analysis of the amounts invested in the project.

369    Mr Perez’s argument appears to be based on a suggestion that CMP Pacific paid a “subscription fee” to Flip Out or another entity, Engaged Venue Pty Ltd (Engaged Venue). He relied on two bodies of evidence, neither of which support the argument with any clarity.

(a)    A statutory declaration of Ross Campbell suggested that “CMP as far as I remember was a Franchise operator within Flipout which was utilising our software”. Mr Campbell was called as a witness by Mr Perez and in effect asked to agree that the fitness app project (in respect of which CMP Pacific claimed the R&D tax incentive) was the same as a project he had worked on for Flip Out (and which was licenced in return for a monthly subscription from around 2016). He was not able to shed any real light on this. Cross-examination of Mr Campbell established that he had been (and was still) a director of Engaged Venue (and never a director or employee of Flip Out, CMP Pacific or any associated company), and that he had no knowledge of any projects undertaken by CMP Pacific.

(b)    Mr Perez also relied on two contracts (between what appear to have been entities associated with Flip Out and a company referred to in these documents as “WeBunch”), dated 13 April 2016 and 6 June 2016, and documents on Engaged Venue letterhead that appear to relate to some form of software licensing. WeBunch was apparently a vehicle through which Mr Campbell’s former wife carried on business. The copies of the contracts that are in evidence have not been executed on behalf of WeBunch. Taken with the evidence of Mr Campbell, these documents indicate that Flip Out operated through franchisees and that some of these entities contracted to pay monthly licensing fees to entities operated by Mr Campbell or his former wife. However, these documents all post-date Mr Caruana’s commencement of work on the fitness app project and none of them has any obvious connection with CMP Pacific.

370    If relevant, I would find that the fitness app project was conceived and worked on by Mr Caruana in his capacity as director of CMP Pacific. Mr Caruana did not deceive Mr Perez in telling him that he was working on the project and seeking his advice and assistance to claim R&D tax deductions in connection with it.

Result

371    I find, therefore, that Mr Perez contravened s 290-50(1) of the TAA in relation to the promotion of the CMP Pacific schemes.

the concept roasting scheme

Background

372    Concept Roasting was founded (under a different name) in 2006. From 18 February 2016 its sole director was Andreas Martinu. It has operated a café in Ascot Vale, Victoria, called “Reverence Specialty Tea & Coffee”, since 2011. Since around late 2013, it has also operated a coffee roasting business.

373    During the 2016 income year, Concept Roasting engaged in the following activities.

(a)    roasting green coffee beans for sale on a wholesale basis to cafés and restaurants in Victoria;

(b)    supplying café businesses with ancillary products such as hot chocolate, tea and takeaway cups;

(c)    servicing coffee machines used by cafés;

(d)    operating its own café; and

(e)    providing barista training to employees of customers who bought its roasted beans.

374    It had around 12 employees. Two of these worked full time in its roasting business. The remainder were café staff employed on a casual basis. Sometimes café staff did work in the roasting business such as barista training, taste testing and quality control. Quality control consisted of staff members tasting cups of coffee made from Concept Roasting’s roasted beans to check that it tasted as it should. Mr Martinu was the managing director, responsible for the operations of both roasting operations and the café.

375    Mr Martinu swore an affidavit, which was relied on by the Commissioner, and was cross-examined by Mr Perez. I generally accept his evidence and what follows is largely drawn from it.

Initial contact

376    Mr Martinu first heard of the existence of a grant or tax concession for R&D in or around 2015 but did not take any steps to inquire into the details. At some stage before March 2017 he received a brochure in the mail which bore the logo of Grow Fast. He described the brochure as generic advertising or junk mail, not requested by him and not addressed directly to Concept Roasting, but recalled that it was directed to businesses in the coffee roasting industry. The brochure referred to R&D grants and represented that Grow Fast had experience and expertise in obtaining such grants. It included the contact details of Mr Santos. Mr Santos, meanwhile, deposed that on Mr Perez’s instructions he had sent what he described as “targeted letters” to coffee roasting businesses and he believed it was from one of these letters that Mr Martinu had obtained his contact details.

377    A few months later, Mr Martinu saw the brochure again and did a Google search for R&D consultants. His search produced at least one reference to Grow Fast being a specialist in the area and this gave him some assurance that it was a legitimate business.

378    On 31 March 2017 he sent Mr Santos an email, using the address contained in the brochure. Mr Santos replied promptly, providing his mobile telephone number. Mr Martinu called Mr Santos shortly thereafter. He recalled Mr Santos telling him that there was “still time” to lodge an R&D application but it needed to be done quickly. He also recalled Mr Santos saying words to the effect of “Jose is a tax agent and he will oversee everything”. Mr Santos’s evidence about this call was not materially different.

Provision of information and engagement of Grow Fast

379    Later the same day Mr Santos sent Mr Martinu an email asking for Concept Roasting’s “financials” for the 2016 income year and attaching a “Mutual Confidentiality Agreement”. This agreement was expressed to be between “Reverence Coffee Roasters” (a business name Concept Roasting was using at the time) and “Bryan Santos and Narciso Jose Perez Trading as Grow Fast Consulting” and bore Grow Fast’s details in a footer at the bottom of each page. It had been signed by Mr Santos on behalf of Grow Fast. (Mr Santos gave evidence that some clients sought a confidentiality agreement to protect their confidential or proprietary information and he understood that Mr Perez was happy for him to sign these agreements on behalf of Grow Fast.)

380    Mr Martinu then emailed to Mr Santos a copy of Concept Roasting’s profit and loss statement for the 2016 income year. Mr Santos responded asking for a version that showed “the Cost of Goods … so I can see how much your purchases (beans and others) are”, and Mr Martinu sent him a slightly more detailed version of the profit and loss statement.

381    At 3.58 pm on the same day, Mr Santos emailed to Mr Martinu a “Supply of Services Agreement”. In the covering email he said that he had “booked our call” for the following Monday. He asked Mr Martinu to allow one and a half hours for the call and said he would be seeking “as much information as I can to start writing up the first part of the grant”.

382    On 3 April 2017, Mr Martinu and Mr Santos had a telephone conversation that lasted around one and a half hours. Mr Martinu recalled explaining Concept Roasting’s activities and some of the issues that arose in relation to sourcing coffee beans and producing roasted beans. Among other things, he said words to the effect that the quality control process “involves tasting and testing the coffee, which is part of our day-to-day operations”. He also recalled Mr Santos saying, at various points, things like “Yes, this sounds eligible” and “That should be R&D”, while also making clear that “Jose” (ie, Mr Perez) would need to go over the material.

383    Mr Santos also deposed to having had a telephone conversation with Mr Martinu on 3 April 2017. He said that, as Mr Martinu described the business of Concept Roasting, he was typing the information into a Microsoft Word document and moulding it into responses to a “questionnaire” (a version of the Project Description Questionnaire referred to above) which he emailed to Mr Perez after the call.

384    During this phone call, Mr Martinu and Mr Santos went through a list of Concept Roasting’s employees and Mr Martinu outlined each employee’s role. In some instances Mr Martinu gave a rough estimate of how much of a particular employee’s time was spent tasting coffee to make sure that it tasted as it should. Mr Martinu explained in his affidavit that he had not had prior notice that he would be asked these questions and he was giving estimates without referring to any records. He described them as his “rough, impressionistic estimate” which “would not have been accurate”.

385    Mr Santos sent Mr Martinu two further emails on the evening of 3 April 2017. The first email said that Mr Santos would continue to work on the information provided and “get it to our team to write up the Tech Spec”, and proceeded to ask Mr Martinu for some further material: a payroll activity statement or wages report (listing all employees in the 2016 income year and how much they were paid); and a stock purchase report (showing all the invoices from coffee suppliers). The second email (sent one minute later) attached a tax invoice on Grow Fast letterhead for the sum of $2,000 (including GST). The description on the invoice was “R&D Consulting and grant submission – engagement fee”. Mr Santos’s contact details appeared at the bottom of the page.

386    Mr Martinu sent an email to Mr Santos on 10 April 2017, attaching a spreadsheet that showed the gross pay for each employee and a list of invoices paid to green coffee suppliers. He had further conversations with Mr Santos during April 2017 in which the latter reiterated that he worked for “Jose”, who would prepare the “R&D application”.

387    During April 2017, Mr Santos reminded Mr Martinu several times about the Supply of Services Agreement that he had sent by email on 31 March and urged him to sign it. He did this by way of emails and phone calls, saying words to the effect that there was a “cut-off date” at the end of April for R&D claims in relation to the previous income year. Mr Martinu felt that there was some urgency about lodging an R&D claim. Mr Martinu inserted Concept Roasting’s address into the agreement, signed it and sent it to Mr Santos on 19 April 2017 (the Concept Roasting Agreement).

388    The terms of the Concept Roasting Agreement that need to be mentioned for present purposes were similar to the terms of the other Supply of Services Agreements discussed in these reasons.

(a)    Clause 4.2 provided:

The Recipient warrants that any and all information and documentation provided to the Consultant is not false or misleading and is accurate, complete and up to date.

(b)    Item 4 of the Schedule provided for an “engagement fee” of $1,818.20 plus GST ($2,000) and a “success fee” of 18.5% of any “R&D Grant” obtained plus GST. Item 5 provided that the engagement fee was refundable if the application for registration with AusIndustry was not successful.

(c)    Item 3 of the Schedule described the “Services” as follows.

Assisting Company to obtain a Research and Development Grant in the capacity of a Consultant. The consultant facilitates seminars for individual companies to educate the company on the types of activities that may be eligible for an·R&D tax incentive/concession. The consultant will assist the company to identify the eligibility of each company's project under the new R&D tax incentive regime and or any other Federal or State government grant. The consultant will educate on how a company can proactively track and identify their projects for the future. Identify potential commerciality and benefit to each company, Work with the company's individual Accountants as they collect and confirm each company's expenditures and liabilities. Each Accountant needs to be satisfied after verification of all invoices included in recipient's application of each of the invoices validity prior to lodgement of the application. The consultant does not work with any of the recipient's invoices at any stage. The consultant will assist each company's technical person with project documentation which is always reviewed by a highly experienced technical person recommended by the recipient. The consultant does not do any form of tax agent work. The consultant only assists companies with Part A of the application prior to lodgement of applications which is completed by the company and its appointed officers. The consultant does not lodge any application at any stage.

389    Mr Martinu’s signature on the Concept Roasting Agreement bears the date 13 April 2017, but the document was not sent to Mr Santos until 19 April. On that day, before Mr Martinu sent through the executed agreement, there was an exchange of emails. Mr Martinu said that his accountant had looked over the agreement and asked for clarification of the last sentence of item 3 (set out above). Mr Santos responded as follows.

Sure no problem. That refers to the fact that we don’t lodge the tax return to the ATO. That's your accountants role and we complete the section of the lodgement only which relates to the R&D tax incentive grant ie the R&D Tax Incentive Schedule document - which your accountant includes with their documents to lodge to the ATO.

There is a stage where we submit the grant that we’ve written up to AusIndustry. That's not so much a lodgement as it is a submission to them on the Technical Specifications of what you and I have already spent time discussion and writing out. In fact, that’s ready for you to review. Once you've reviewed, then we send it to AusIndustry who will respond within 10 days of our submission with an IR number. This IR number is one of the things your accountant will need when they lodge your tax return in order to include the Tax incentive amount we're claiming. If they’ve already lodged your tax return, then it's simply an amendment that needs to be done.

390    Mr Santos’s explanation of the process was thus inconsistent with any suggestion that the role of Grow Fast was limited to (or focused on) facilitating “seminars” or assisting the company to identify eligible projects. It was also inconsistent with any expectation that the company’s accountants would satisfy themselves about the “validity” of invoices or otherwise assume responsibility for the contents of any R&D claim. Consistently with the pattern seen in connection with the other schemes discussed in these reasons, Mr Santos explained that Grow Fast would “complete the section of the lodgement” in so far as it related to the R&D tax incentive.

391    Around an hour later, Mr Santos sent Mr Martinu what he described as the “Tech Spec” under cover of an email which said, in part:

Could you please read over that and let me know that it all makes sense from your point of view ... If you could let me know asap then I can get them to submit this to AusIndustry.

392    Consistently with what these documents indicate, Mr Martinu deposed that he did not prepare the “Tech Spec”. He did not recall making any changes to the document. He considered that the information contained in it was broadly consistent with what he had told Mr Santos. He observed that:

Most, if not all, of the activities recorded in the “Tech Spec” document were activities carried out in Concept Roasting’s day-to-day business in the 2016 Income Year and by any coffee roasting business as part of its usual business activities.

Application for registration

393    An application for registration of Concept Roasting was lodged with AusIndustry on 26 April 2017 (the Concept Roasting AusIndustry application). Mr Martinu did not lodge this application and nor, to his knowledge, did anybody at Concept Roasting. He had not seen it until it was shown to him at a meeting with ATO officers in October 2017. Nor does he recall seeing a draft or having any input into its preparation. Mr Santos deposed, based on his understanding of Grow Fast’s usual process, that Mr Perez lodged the application. I accept that this is what happened.

394    The Concept Roasting AusIndustry application listed Mr Martinu as the “officer of the R&D entity” who made the relevant declaration in relation to the accuracy of its contents. This was clearly incorrect: Mr Martinu had not seen the document at the time it was lodged and could not possibly have verified the statements contained in it. The document also asserted that Concept Roasting had not relied on advice from a tax agent or R&D consultant to compile it. This too was at least in substance false: the only basis on which it could be claimed that Concept Roasting had not relied on “advice” was that the document was compiled without any discussion with Concept Roasting. Mr Martinu had, in fact, been advised by Mr Santos that Concept Roasting was likely to be eligible for the R&D tax incentive.

395    Concept Roasting received notification on 28 April 2017 that its application for registration was successful. On the same day, following an email reminder from Mr Santos, Mr Martinu caused $2,000 to be transferred from Concept Roasting’s bank account to the account identified in the invoice of 3 April.

Preparation of R&D claim for inclusion in Concept Roasting’s tax return

396    Mr Santos recalled a telephone conversation in which Mr Perez instructed him to seek further information from Concept Roasting. He asked for information about “which beans they are using for their experiments” including “beans which they had to throw away”. Mr Santos sent Mr Martinu an email on 4 May 2017 which said in part:

We have to identify which beans were used for testing, experimentation and in wastage.

I've given an example to give you an idea by highlighting in yellow what I need you to do please. I need you to go through those green bean purchases and highlight which ones you used for R&D purposes.

397    Attached to the email was a list of Concept Roasting’s coffee bean purchases in the 2016 income year, apparently based on information provided by Mr Martinu (the coffee purchase list). Some of the invoiced amounts had been moved into a separate column and highlighted in yellow (evidently by Mr Santos). At the bottom were totals for “Total Beans not for R&D” (which was the sum of the non-highlighted amounts), “Total Beans for R&D usage” ($78,707.29, which was the sum of the highlighted amounts), “Total Green Bean Purchases” and “Percent of beans used for R&D” (17.7 percent).

398    Mr Santos’s email also asked whether Concept Roasting had a depreciation schedule for the 2016 income year. Mr Martinu replied on 9 May 2017, attaching a depreciation schedule.

399    The documentary evidence does not include a direct response by Mr Martinu to the coffee purchase list. However, he gave evidence that, some time after 4 May 2017, he went through a bundle of invoices and marked some items with a highlighter in order to nominate purchases that would reach a “certain level” in order to be allocated to purported R&D expenditure. He did this in response to what he understood to be Mr Santos’s instructions and it took around 10 to 20 minutes to complete. The exercise was not based on any contemporaneous records but on his working knowledge of the business and his “rudimentary understanding of what might be R&D or potential R&D” and the result was “…at best…a vague estimation”.

400    On 10 May 2017, Mr Santos sent Ms Cleaves an email attaching documents relating to Concept Roasting and asking her to “please organise the calcs for this customer”. It is not clear why this particular request was put through Ms Cleaves when Mr Santos had been discussing Concept Roasting with Mr Perez directly. The documents that he attached were:

(a)    Concept Roasting’s profit and loss statement for the 2016 income year;

(b)    the notification letter from AusIndustry;

(c)    the depreciation schedule that Mr Martinu had provided;

(d)    a one page spreadsheet entitled “Concept Roasting Employees PAYG for 2015 - 20” which purported to list each employee’s gross pay, the percentage of their time spent on R&D activities and a brief indication of the nature of those activities (which I infer had been compiled by Mr Santos following his discussions with Mr Martinu – Mr Martinu having provided him with a payroll activity statement on 10 April 2017 that listed only employee names and gross amounts); and

(e)    the coffee purchase list that he (Mr Santos) had sent to Mr Martinu, which had not been amended in any way.

401    Later on 10 May 2017, Ms Cleaves forwarded Mr Santos’s email and its attachments to Mr Perez under cover of an email which said “Excel calculations please”.

402    On 22 May 2017 Mr Santos sent Mr Martinu an email which said:

Sorry for the delay. Here are the calculations for the R&D Tax incentive grant. Please review to ensure everything looks correct from your point of view. Once you have done that let us know asap so we can get the ATO schedule sorted and have it ready for your accountant to lodge.

403    Attached to this email was a three-page Excel spreadsheet (the Concept Roasting spreadsheet). Because of the way the pages relate to each other and the similarities with comparable documents prepared in the other schemes, I infer that the pages as they appear attached to this email in the evidence have been reproduced in reverse order. Allowing for that, the spreadsheet contained the following elements.

(a)    The first page listed Concept Roasting’s employees, their gross pay, the amount of time they had spent on R&D activities and the general nature of those activities. The information on this page was identical to what was contained in the corresponding document sent by Mr Santos to Ms Cleaves on 10 May 2017. This page purported to show that $71,562 — 51.96 percent of Concept Roasting’s total wages bill — had been spent on R&D activities.

(b)    The second page contained a list of heads of expenditure, with an “R&D %” of 51.96 percent applied to each one to produce a total “R&D Amount” of $72,682.19. To this was added $78,707.00 (the total of highlighted figures in Mr Santos’s coffee purchase list from 4 May 2017), described as “Stock Used R&D”, to produce a total of $151,389.19.

(c)    The third page added the total (purported) R&D expenditures shown in the first and second pages to produce a total of $222,950.69 and then showed an “Expected Refund” of $33,442.60.

404    On 29 May 2017 Mr Martinu received another email from Mr Santos which said:

Hi Andreas,

Attached are the following docs:

•     Registration Notification Letter

•    The R&D Tax Incentive Schedule for the ATO

•    The calculations document in excel

•    The R&D diary, you’re still completing.

Could you pass these on to your accountant. They'll need to add the R&D Tax Incentive Schedule with the tax return they've already lodged.

You can normally expect to receive funds between 2-4 weeks from the date your accountant lodges.

If you or your accountant have any questions please let me know.

405    The “calculations document” was the Concept Roasting spreadsheet. No changes to this document had been made since the 22 May 2017 email.

406    The R&D Tax Incentive Schedule was the standard ATO form for claiming R&D tax deductions, which had been filled in with the relevant details of Concept Roasting (other than its tax file number) and amounts that matched those in the Concept Roasting spreadsheet.

407    Mr Santos gave evidence that it was Mr Perez who prepared these documents and he did not explain to Mr Santos how the various figures had been arrived at. This is perhaps slightly disingenuous because some of the important information came directly from documents that Mr Santos had created. Mr Santos would have known, and does not appear have to conveyed explicitly to Mr Perez, that these figures were at best rough estimates (in the case of employees’ time spent on R&D) and at worst completely made up (in the case of the cost of coffee beans purportedly used for experiments). Mr Martinu deposed that he had not previously seen the documents attached to the 29 May 2017 email (which is probably incorrect given that the Concept Roasting spreadsheet and the notification of registration had been sent to him on previous occasions). He also deposed that he had had no involvement in the preparation of these documents and relied on the expertise of Grow Fast. I accept that this is the case, while noting that some of the figures in the documents seem to have been taken from estimates given orally by Mr Martinu and others came from the coffee purchase list, which he had been sent as an “example” of information requested from him.

408    As to Mr Santos’s reference in the 29 May 2017 email to “the R&D diary”, Mr Martinu deposed that, in one of their conversations in April 2017, Mr Santos asked Mr Martinu whether he had a diary. He said: “You need a diary. It’s like a roster”. On that occasion Mr Martinu responded that he did not have a diary but had records of each roast, including who had performed the roast and how much time was spent. Concept Roasting did have accurate, contemporaneous records of its roasting operations in the 2016 income year, but these had been prepared before any question of seeking the R&D tax incentive arose. The point to be noted for present purposes is that Mr Santos (and therefore Mr Perez) had not seen any records of Concept Roasting that could meet the description of an “R&D diary” and was acknowledging that, eleven months after the end of the relevant income year, those records were still to be created.

Lodgement of the income tax return

409    On 1 June 2017, following Mr Santos’s instruction, Mr Martinu forwarded the 29 May 2017 email and its attachments to Concept Roasting’s accountant, Ekaterina Gkekas of KG Partners. His covering email referred to some unrelated issues and then said:

In the menatime (sic) please see email below and attached for a R&D grant submission required by you. If you're not familiar with it, please advise if you need any info to submit.

410    Ms Gkekas prepared a draft amended tax return, incorporating the figures provided by Grow Fast, and sent it to Mr Martinu for signature on 27 June 2017.

411    On 3 July 2017, Mr Martinu received an email from Mr Santos “[j]ust touching base to see if your refund has come through yet”. Mr Martinu responded as follows.

Not sure if it’s been lodged by the accountant yet, they rang me about some concerns they had this morning and whether I could verify our claims should we get audited after speaking to Aus Industry.

Can you confirm the amount you said the refund would be?

412    It appears that Ms Gkekas had been sent all of the documents attached to the 29 May 2017 email but could not see how the attribution of employees’ time to R&D activities (which produced the figure of 51.96 percent used throughout the calculations) had been arrived at. Mr Santos responded to Mr Martinu’s email later the same day, confirming an expected refund of $33,442.60 and saying that the accountant could contact him directly with any questions. On 4 July 2017, Mr Martinu sent an email to Ms Gkekas in which he said:

Spoke to the company that prepared the grant application, they still claim what i'm doing are legitimate R&D activities.

413    It appears from this sequence of emails that there was at least one conversation between Mr Martinu and Ms Gkekas in which the latter raised questions as to whether the claim for the R&D tax incentive could be substantiated. Mr Martinu does not give any direct evidence about this conversation. It is possible that he spoke to Mr Santos as well. In any event, his response to Ms Gkekas was, in effect, that he had been advised the claim was legitimate and was content to proceed on that basis. In cross-examination, Mr Martinu said that Ms Gkekas had “no experience with grants” and (in effect) she accepted Mr Martinu’s assurance that he had received specialist advice and did not think it was up to her to question it.

414    On 11 August 2017, KG Partners lodged Concept Roasting’s amended income tax return for the 2016 year, incorporating an R&D schedule that used the figures supplied by Mr Santos.

Review by the ATO

415    On 15 August 2017, Mr Santos asked again whether Concept Roasting had received its refund. On the same day, Mr Martinu was informed by KG Partners that Concept Roasting’s refund was being withheld. (Although I have not been directed to it anywhere in the evidence, it appears that Concept Roasting was issued with an amended assessment around this time that recorded a refundable tax offset of $100,327.95. This can be inferred from the adjustments recorded in the later notice of amended assessment (referred to below), which showed a refundable tax offset of that amount being reduced to zero.)

416    On 21 August 2017, Mr Martinu received an email from Ms Gkekas asking for “the itemised calculations that appeared on the R&D incentive”. She said that the ATO “have requested how the figures that appear in the R&D have been calculated”. Mr Martinu forwarded this email to Mr Santos on the same day at 2.58 pm. Mr Santos forwarded the email chain to Mr Perez at 4.20 pm under an email saying: “Could you please respond to the client below as discussed”. Mr Santos then replied to Mr Martinu at 4.51 pm saying:

I’ve forwarded on to Jose who does the calculation estimates and he will respond to you shortly with the info you need.

417    Mr Perez replied to Mr Santos at 5.21 pm. He annexed a copy of the Concept Roasting spreadsheet (which Mr Santos could probably have found for himself if he searched his earlier emails) and said:

As per your request,

But please review it before send it to the customer

418    It is not clear what Mr Santos was meant to do by way of “review” of a document that had been prepared by Mr Perez and had already been used as the basis for Concept Roasting’s amended income tax return. Mr Santos professed no expertise in relation to the R&D tax incentive and had only ever acted as a conduit between Mr Perez and clients. This may simply be another instance of Mr Perez attempting to create a paper trail that would allow him to make other people responsible for his actions. In any event, Mr Santos sent a reply email to Mr Martinu at 5.36 pm (15 minutes later), attaching the Concept Roasting spreadsheet (which, of course, Mr Martinu had already been sent on 29 May 2017) and saying “Here are the calculations that were based on the FY2016 financials provided.”

419    On 21 September 2017, there was an exchange of emails between Mr Santos and Mr Martinu. It was initiated by a message from Mr Santos at 12.06 pm which said “Just checking in to see if you needed any help with anything and also see where things are at”. After some emails back and forth, Mr Martinu said at 1.53 pm:

They just called me and want to review our application.

Will be doing an on-site assessment and sending me a list of what they want for me to have ready.

420    Mr Santos responded at 2.35 pm, saying:

Please get in contact with Jose who I’ve cc’d in this email. He can help you from here in preparation for what’s needed. As a start could you please email him the tax return that was submitted.

I’ll leave it with the both of you to discuss.

421    In the meantime, Mr Martinu had received an email from Mr Sherpa of the ATO proposing a meeting on site. He forwarded this to Mr Santos at 2.38 pm. Mr Santos responded “Just get in touch with Jose and he can help and help you on-site too”.

422    Mr Martinu deposed that he had a telephone discussion with Mr Perez on 26 September 2017 to discuss a request for information that the ATO had issued to Concept Roasting. He did not claim to remember the whole conversation but deposed that Mr Perez had said words to the following effect.

“Give them something and it will be fine, like figures regarding the electricity expenses.”

“Get the roster or diary to match up with the percentages.”

“We will get through this and get the grant.”

423    Mr Martinu understood from this conversation that Mr Perez wanted him to prepare a diary or adjust his staff rosters so that the numbers or percentages would match the Concept Roasting spreadsheet. He also recalled another conversation around this time in which Mr Santos urged him to “get us a diary”. None of this evidence was challenged.

424    On 5 October 2017, there was a meeting between Mr Martinu and officers of the ATO at Concept Roasting’s premises. Mr Martinu did not ask Mr Perez to attend, but he said that he would come when told about the meeting. Mr Perez arrived before the ATO officers and spoke to Mr Martinu. Mr Martinu’s recollection is that Mr Perez said words to the following effect to him.

Don’t worry. What you’ve done is eligible.

This is your money. You are entitled to this money. We’ve done everything we have to. We’ve ticked all the boxes. I don’t know why they’re doing this to you. This is bullshit. You should have the money already.

The ATO doesn’t want to give it to you. AusIndustry have got the budget. They have millions of dollars.

It’s fine. You deserve the money. We will get the money. There is no reason not to. I have got plenty of other grants. I can get this grant first. Then we can get other grants for you.

We can tell the ATO I made a mistake. One number was higher, and we can remove this, and maybe this, and give them something so they can say yes.

I will coach you about what to say to the ATO. If you don’t know the answer to a question, just say I don’t know. Speak to Jose.

Make sure you use the words ‘for testing purposes’ a lot. They like to hear it.

425    This evidence was also not challenged. Mr Martinu gained the impression that Mr Perez believed Concept Roasting’s R&D claim could be shown to be legitimate. However, after the meeting with the ATO, Mr Martinu came to the view that there were “serious problems” with the claim. After the meeting he had a conversation with Mr Perez which he recalled as follows.

[Mr Martinu]:     Can I walk away from this? I don’t feel right.

Mr Perez:     Well, you can’t do anything now because, if you do, they’re going to fuck you before they fuck me.

426    On 9 October 2017, Mr Martinu received a further request for information from the ATO and an email containing links to information about “the voluntary disclosure process”. He received an email from Mr Perez on 12 October 2017 offering assistance in answering the ATO’s request. At around this time he also had a conversation with Mr Perez in which the latter proposed making a voluntary disclosure conceding some of the expenses that had been claimed. He observed that some of the claimed expenses were things that Concept Roasting had to pay “regardless of R&D” and said words to the effect of “[w]e will give them a couple off and that should be fine”.

427    On 7 November 2017 at 11.08 am, Mr Perez sent Mr Martinu an email asking “How are you going with all docs that ATO is reviewing?” He added: “Happy to assist you mate, free of charge, as it is of our services”. Mr Martinu replied outlining the steps that he was taking to locate documents for the purpose of responding to the ATO. Mr Perez replied at 11.20 am as follows.

Ok Perfect,

Let me assist you

Ask Mingma for extensions, as you are a small business and must stop your business to supply info,

Let me please see the dairies before you send them

The dairy control was ok and I think the dairy time sheet will be ok too

Only the note of testing records, important the dates and frequency of the tests must balance back to dairies

428    A few minutes later, Mr Martinu sent Mr Perez a photograph of a handwritten page which he said was “one week of the diary”. Mr Perez replied “Looks good to me … This together with dairies control report should meet requirement”. It is apparent that Mr Martinu was doing a lot of work to try to come up with diaries that would provide support for Concept Roasting’s R&D claim. He understood that it was necessary that the information in the diaries should match and reconcile with the figures on which the claim had been based. He was trying, in November 2017, to reconstruct and purportedly record work that had been done from July 2015 to June 2016. He finished this task around 16 November 2017. On or about that day he posted to the ATO a bundle of material that included:

(a)    the handwritten diary records he had created;

(b)    an amended expenses spreadsheet with the “R&D %” reduced to zero in respect of some expenses and 47.67 percent for the remainder (which, to the best of his recollection, he did not prepare);

(c)    an amended employees spreadsheet which Mr Perez had prepared; and

(d)    a bundle of invoices in which he had highlighted certain items.

429    On 28 November 2017, Mr Martinu received a letter from the ATO enclosing a position paper which addressed Concept Roasting’s R&D claim (the position paper). The covering letter invited a written response by 5 January 2018.

430    On 8 December 2017 Mr Martinu received an email from Mr Perez asking him to send the position paper “so we can act on it”. Mr Martinu deposed that he ignored this request because, having read the position paper, he considered it to be clear that Concept Roasting was not entitled to the R&D tax incentive for the 2016 income year.

431    Later in December 2017, Concept Roasting engaged KG Partners to respond to the position paper. Ms Gkekas sent an email to Mr Sherpa, requesting an extension of time, on 19 December 2017. The response was eventually submitted on 3 February 2018. It did not contest the position taken by the ATO in relation to the R&D claim but sought a remission of the penalty.

432    On 27 February 2018, a notice of amended assessment was issued to Concept Roasting. It reduced the R&D offset to nil, with the result that Concept Roasting was required to pay $100,327.95. Concept Roasting was also issued with a notice of assessment of shortfall penalty in the amount of $50,163.95.

Conclusions in relation to Concept Roasting

Tax exploitation scheme

433    The approach taken to the R&D claim advanced in Concept Roasting’s amended income tax return can readily be identified as a “scheme”, given the extremely broad meaning given to that term by s 995-1 of the ITAA97. The scheme involved the preparation and lodgement of a return including that claim.

434    Objectively, the scheme as so understood was directed towards the obtaining for Concept Roasting of a tax offset pursuant to Division 355 of the ITAA97. This was clearly a “scheme benefit” as defined by s 284-150 of the TAA. The obtaining of such a benefit for Concept Roasting was also, clearly, subjectively intended by at least Mr Martinu and Mr Santos. In light of the evidence that Mr Perez made all the significant decisions in the conduct of Grow Fast’s business, and that it was he who constructed the numbers in the Concept Roasting spreadsheet, I find that the obtaining of that “scheme benefit” for Concept Roasting was also his intention. At the time of the relevant promoting conduct (as to which see below), therefore, it was clearly “reasonable to conclude” that one or more of the “entities” that entered into or carried out the scheme did so with the sole or dominant purpose of Concept Roasting getting a “scheme benefit” (TAA s 290-65(1)(a)(i)).

435    It was not “reasonably arguable” that the “scheme benefit” that (it was reasonable to conclude) was being sought by one or more of the entities entering into the Concept Roasting scheme was “available at law”. This is so for at least two reasons.

(a)    It is tolerably clear that Concept Roasting did not incur any expenditure in the 2016 income year on activities that could reasonably be said to be “R&D activities” as defined in ss 355-25 or 355-30 of the ITAA97. There was therefore no basis on which it could be argued that any deduction arose under s 355-205. The closest that any activity of Concept Roasting came to experimentation was staff members tasting coffee made from various blends of beans to verify that it tasted as it should. While Cherry Beans (considered above) made some claim to be interested in developing new blends and flavours, Concept Roasting did not. Its taste testing appears to have been at least primarily directed at ensuring palatability and consistency: one can easily understand why its customers would have wanted this. In any event, roasting and taste testing, as Mr Martinu noted, was an everyday activity for coffee roasters. It was not an activity that proceeded from hypothesis to experiment, observation, evaluation and logical conclusions. Nor was it an activity that generated “new knowledge”; it was well understood that the variability of the raw product demanded constant adjustment on the part of the roaster.

(b)    Even if it was reasonably arguable that Concept Roasting’s coffee tasting constituted “R&D activity”, it is clear from the documents referred to above and the evidence of Mr Martinu that the amount claimed as R&D expenditure in the course of implementing the Concept Roasting scheme: (i) was completely unsubstantiated (ie, not based on any records and unable to be justified); (ii) bore no relationship to any expenditure actually incurred on the relevant activities; and (iii) significantly overstated the amount (if any) that was expended on R&D activity. As outlined above in connection with Brandon Industries, “the scheme benefit” in s 290-65(1)(b)(i) should be understood to refer to the scheme benefit sought to be obtained or intended to be obtained. Through a course of conduct orchestrated by Mr Perez, Concept Roasting lodged an amended tax return for the 2016 income year that (at best) vastly overstated the R&D tax offset to which it was entitled. For example, it included claims that:

(i)    Mr Martinu, who directed the entire operations of Concept Roasting (a commercial roasting business and a café), spent 80 percent of his time on R&D; and

(ii)    51.96 percent of all of Concept Roasting’s expenses other than on stock (including eg electricity, heating, rent and insurance) were spent on R&D, when its purported R&D activity consisted of taste testing coffee that its commercial roasting operation produced; and

(iii)    17.7 percent of all the raw coffee beans that it bought were consumed by R&D activities.

436    The Concept Roasting scheme was therefore a “tax exploitation scheme” in the relevant sense.

Promoter

Mr Santos

437    Mr Santos clearly encouraged “the growth of the scheme or interest in it” (TAA s 290-60(1)(a)). He probably sent the brochure to Concept Roasting that led to Mr Martinu being interested in the R&D tax incentive and contacting him, and he had discussions with Mr Martinu that encouraged the latter to think that the business had a viable, and fairly substantial, claim. He became the conduit by which Mr Perez was supplied with financial information on which Concept Roasting’s claim was (albeit loosely) based and by which Concept Roasting was supplied with the necessary document to make the claim (the Concept Roasting R&D tax incentive schedule) and the spreadsheet which purportedly justified the numbers in that document; and he telephoned Mr Martinu to urge him to cause the amended income tax return to be lodged despite reservations expressed by Concept Roasting’s accountant, Ms Gkekas. Further, he “had a substantial role” in promoting the scheme (TAA s 290-60(1)(c)).

438    Mr Santos also received consideration in respect of the marketing or encouragement of the scheme (TAA s 290-60(1)(b)), in that his company AGV Group became entitled to be remunerated by Mr Perez under the arrangement described at [21] above. He was thus a “promoter” of the scheme.

439    It is also tolerably clear that Mr Perez engaged in “conduct” that resulted in Mr Santos being a promoter of the scheme, within the meaning of s 290-50(1), and contravened the provision on that basis. That conduct included entering into the arrangement with Ms Cleaves and Mr Santos pursuant to which Mr Santos would refer prospective clients to Mr Perez and coordinate the flow of information between Mr Perez and the clients he recruited, as well as the training and guidance provided to Mr Santos and the payment of remuneration to Mr Santos through AGV Group. In effect, everything that Mr Santos did as a promoter of the Concept Roasting scheme was done as the agent and representative of Mr Perez. It was clear in all of Mr Santos’s communications with Mr Martinu that he was working on behalf of “Jose”, who would be making all of the decisions about whether a claim should be made and in what amount. Relevant “conduct” of Mr Perez also included drafting Concept Roasting’s application for registration and the contents of the Concept Roasting spreadsheet for Mr Santos to supply to Concept Roasting and its accountant.

Mr Perez

440    The conduct of Mr Perez was also calculated to, and did, directly encourage interest in the scheme on the part of Mr Martinu. By preparing and lodging the application for registration (which was successful), and later the figures contained in the Concept Roasting spreadsheet, he led Mr Martinu to think that the business had a genuine claim for the R&D tax incentive in an amount that was worth pursuing. By sending a pre-populated R&D tax incentive schedule, which (it can safely be inferred) he knew Mr Santos would ask to be sent to Concept Roasting’s accountant to be lodged with the ATO, Mr Perez was doing much more than merely advising on the scheme: he was both playing an integral role in implementing the scheme and giving an implicit assurance that the R&D claim he had formulated was correct. Mr Martinu was relying on his expertise.

441    After the commencement of the ATO review, Mr Perez provided advice and assistance (although its effectiveness may have been doubtful) to Mr Martinu in defending the claim, reformulated the claim in ways that were (ostensibly at least) intended to make it more palatable to the ATO and encouraged Mr Martinu to persist. Even after Concept Roasting had received the ATO position paper, on 8 December 2017, Mr Perez was asking for a copy so that he could help to develop a response.

442     It is reasonable to conclude that these steps played a substantial role in respect of the marketing or encouragement of the scheme. Mr Perez also received “consideration” in respect of the marketing of the scheme, in that his efforts resulted in a contractually binding obligation on Concept Roasting to pay him a percentage of any R&D tax offset that it obtained (and he in fact received payment of the engagement fee).

443    For these reasons Mr Perez was himself a “promoter” of the Concept Roasting scheme and contravened s 290-50(1) of the TAA on this basis as well.

The limitation period

444    The Commissioner pointed out in written submissions that Mr Perez had exchanged emails with Mr Martinu about the Concept Roasting scheme as late as 9 April 2018. This was when Mr Martinu asked for a refund of the $2,000 engagement fee and received a response to the effect that everything that had gone wrong was his own fault. Although Mr Perez did say in one of these emails that “[e]very one is wining the second review” and “[y]ou still having a change of wining”, the overall tone of the exchange was not one that would have encouraged Mr Martinu to place any reliance on Mr Perez or be interested in a scheme suggested by him. In any event, by this time Concept Roasting through its accountants had abandoned its claim to the R&D tax offset, an amended assessment had issued and it was only seeking (through Ms Gkekas) a reduction of the shortfall penalty.

445    However, this does not matter. Proceedings were commenced in respect of the Concept Roasting scheme on 26 June 2020. Promotion of the Concept Roasting scheme did not even begin until 31 March 2017. Accordingly, even if the four year limitation period under the pre-amendment version of s 290-55(4) applied, proceedings were commenced within time. It is not necessary to determine whether the Concept Roasting scheme “involved” tax evasion within the meaning of s 290-55(6).

Mr Perez’s contentions

446    Mr Perez sought to avoid responsibility by relying on the warranty (in cl 4.2 of the Concept Roasting Agreement) as to the provision of accurate, complete and up to date information by Concept Roasting to Grow Fast. The point does not assist him. None of the financial information provided by Concept Roasting has been shown to have been inaccurate; and Mr Martinu’s estimates of the time employees spent on activities he was led to believe might constitute R&D were clearly no more than rough estimates that were provided by telephone to Mr Santos before any contractual relationship existed. In any event, the terms of the contract between Mr Perez and Concept Roasting have no bearing on whether the scheme constituted a “tax exploitation scheme” or whether Mr Perez in fact promoted that scheme. Again, the scope of what Mr Perez was formally engaged to do by his written contract with the client does not affect the statutory characterisation of what he actually did.

Result

447    I find, therefore, that Mr Perez contravened s 290-50(1) of the TAA in relation to the promotion of the Concept Roasting scheme.

the fresco gourmet schemes

Background

448    At all material times Fresco Gourmet operated a business that involved:

(a)    importing and distributing food from European suppliers, such as prosciutto and other processed meats and cheese, in a form suitable to be supplied immediately (ie, without any modification) to wholesale customers such as supermarket chains;

(b)    storing these imported products and delivering them to wholesale customers;

(c)    assisting overseas suppliers to design packaging that would comply with Australian health requirements and customers’ needs; and

(d)    asking overseas suppliers to develop products or recipes that Fresco Gourmet would import for testing.

449    Antonella Brocca was a director of Fresco Gourmet. Raymond Leung and Rocco di Pillo, both of whom gave evidence in the proceeding, were the finance manager and supply chain manager respectively. Mr di Pillo’s responsibilities included:

(a)    managing the quarantine and import of Fresco Gourmet’s products, including dealing with customs brokers and logistics;

(b)    dealing with supermarket customers, accepting orders and placing orders with overseas suppliers; and

(c)    ensuring compliance with regulatory requirements.

450    Mr Leung and Mr di Pillo were both cross-examined but their affidavit evidence was generally not challenged. I accept their evidence. What follows is largely drawn from it.

Initial contact with Grow Fast

451    Neither Mr Leung nor Mr di Pillo had any knowledge of the R&D tax incentive before the events they describe in their affidavits.

452    Around the end of 2014, Mr Leung learned from a person at a neighbouring business that that business had made a successful R&D claim and had been assisted in doing so by Ms Cleaves. That person gave Ms Cleaves’s contact details to Mr Brocca and Mr Leung. Mr Brocca expressed interest in making a claim to Mr Leung. Mr Leung called Ms Cleaves on 9 February 2015 to discuss whether Fresco Gourmet would be eligible for an R&D grant and find out what would be involved in making a claim.

453    Later that day, Ms Cleaves sent Mr Leung an email which said, in part:

We help companies get a range of grants but the “easiest” one to obtain in the first instance is called a research and development tax incentive grant. The government will reward you for being innovative or for developing a new system or process or product that will boost your business and ultimately enable you to employ more people, grow your company and therefore in the long run the economy as well.

…

I can give you an approximate figure on Wednesday of what you would be entitled to. We then decide together if that figure is worth the time and effort needed by you and myself to get the grant approved. The second part which is the project itself will be straightforward process that I can take you through one step at a time.

454    In this email Ms Cleaves also said that she would need to see Fresco Gourmet’s profit and loss statement for the 2014 income year and balance sheet as at 30 June 2014. She also asked for a payroll activity statement but indicated that it would not be essential. Ms Cleaves’s evidence was that this was consistent with the general practice of Grow Fast and that the “approximate figure” referred to in her email would be calculated by Mr Perez.

455    On the morning of 11 February 2015, Mr Leung sent Ms Cleaves an email with four attachments. It appears from the file names of the attachments that they comprised profit and loss statements, a balance sheet and a document called “activity summary”. Later that morning he met Ms Cleaves at Fresco Gourmet’s premises. He recalled that Ms Cleaves explained what the “R&D grant” was and what was involved in making a claim. He recalled an exchange along the following lines during their conversation.

[Mr Leung]:     What projects qualify for R&D?

Ms Cleaves:     You need to do something new, something that has not been done in Australia before. What does Fresco Gourmet do?

[Mr Leung]:     We import products from overseas. It has to go through some testing requirements to ensure that the products get through customs. The food products need to comply with food guidelines so that our customers like Woolworths and Coles approve the product. We are also trialling a new product, Ready Meals, that is not available in Australia and to make sure shelf life is stable. Rocco is looking after this. The overseas supplier is doing the testing.

Ms Cleaves:     That could qualify as R&D. I need to check with Jose. He’s a tax agent and qualified with a R&D licence. He’ll review the project before it’s submitted to AusIndustry.

456    The project that Mr Leung referred to in this exchange (the Ready Meals project), which is referred to further below, involved developing food packaging that would allow a prepared meal to be stored for a long period without refrigeration and reheated in its original packaging. One of Fresco Gourmet’s overseas suppliers (Dama) was doing the development work on its own behalf and sending sample meals to Fresco Gourmet.

457    Ms Cleaves also recalled this meeting but in less detail. While she expressed the effect of what was said in different words, her evidence did not materially disagree with that of Mr Leung. Ms Cleaves also recalled having a discussion with Mr Perez about Fresco Gourmet’s suitability as a potential client of Grow Fast in which he said words to the effect of “[t]hey sound like a good client”. Mr Perez himself gave evidence that he said to Ms Cleaves “[w]ell, it looks like it’s R&D. Let’s put it through”. The day after her meeting with Mr Leung, Ms Cleaves sent him an email which said (in part):

I spoke with my partner about you and he is excited to work together and thinks we should be able to do something along the lines of what we discussed yesterday.

I’ll call you tomorrow to discuss how it would work and what next steps are with Fresco.

If we say you are going to move into manufacturing and packaging options as the grant description then we can add some of your cost of sale into the expenses so I think we will move down that path for Fresco in order to maximise the grant available and use some of COGS on the P&L.

458    Ms Cleaves deposed that her reference to “my partner” was to Mr Perez and the suggestion in the last paragraph of her email came from information supplied by him.

Engagement of Grow Fast

459    On 16 February 2015, Ms Cleaves emailed Mr Leung a Supply of Services Agreement and what she described as a “rough draft” of a project questionnaire which she asked him to complete. Both of these documents were templates that Mr Perez had given to her some time earlier.

460    The Supply of Services Agreement that appears as an annexure to Mr Leung’s affidavit is not executed. However, to the best of Mr Leung’s knowledge, Mr Brocca signed this agreement on or after 13 March 2015. I have proceeded on the basis that the agreement was executed at some stage by Mr Perez and by a person with appropriate authority on behalf of Fresco Gourmet and that its terms constituted the entire agreement between the parties.

461    The agreement is in substantially similar terms to the other agreements considered in these reasons. The details of the “Recipient” have not been inserted into the unexecuted copy that is in evidence. The other party to the agreement is identified as “Narciso Jose Perez trading as Grow Fast Consulting… (Consultant)”. Clause 2.1 required the Recipient to pay Mr Perez the fee specified in Item 4 of the Schedule upon the “the Grant being obtained” and irrespective of any termination of the agreement. Item 5 of the Schedule provided, as a “special condition”, that no fee was to be charged “until Grant is obtained”. Item 4 identified the fee as “20% of R&D Grant obtained plus GST”. The “services” to be provided were specified in item 3 of the Schedule as follows.

Assisting the Recipient to obtain a Research and Development Grant (“Grant”) in the capacity of a consultant to the Recipient only. The Consultant as and where necessary shall facilitate seminars for individual companies to educate the company on the types of activities that may be eligible for an ·R&D tax incentive/concession. The Consultant will assist the Recipient to identify the eligibility of each project of the Recipient under the new R&D tax incentive regime and or any other Federal or State government grant. The Consultant will educate the Recipient as to how it can proactively track and identify its projects for the future. The Consultant will Identify potential commerciality and benefit to the Recipient by, working with the Recipient's own accountants as they collect and confirm the expenditures and liabilities of the Recipient. The Recipient appointed accountant must be fully satisfied after verification of all invoices included in the Recipient’s application for a Grant as to the validity of all invoices prior to lodgement of any application for a Grant. The Consultant does not and will not deal with any of the recipient's invoices at any stage. The Consultant will assist the Recipient’s technical personnel with project documentation which must be reviewed by a highly experienced technical personnel recommended by the Recipient. The Consultant does not do any form of tax agent work for the Recipient. The Consultant only assists the Recipient with Part A of the application for a Grant prior to lodgement of any application which is completed by the Recipient and its appointed officers. The Consultant does not lodge any application at any stage for a Grant.

2014 income year – provision of information and application for registration

462    Ms Cleaves’s email of 16 February 2015 asked Mr Leung to provide “bullet point answers” to each of the questions that were included in the attached questionnaire. The questionnaire contained a series of questions grouped under the following headings.

(a)    “A – Project Objective”

(b)    “B – For every project what was the new knowledge or new technology that the company did not have before”

(c)    “Technical Uncertainties”

(d)    “Core of activities”

463    Annexed to Mr di Pillo’s affidavit is a copy of the questionnaire with answers to some of the questions inserted in blue text. Mr di Pillo gave evidence that he prepared these responses. Answers were only inserted to the questions under the first heading in the questionnaire: that is, nothing was said about any “new knowledge or new technology” that the project would produce or “technical uncertainties” and there was no detailed description of the “activities” involved.

464    Ms Cleaves sent Mr di Pillo another email on 23 February 2015 asking when he would be able to “get that extra information across to me”. It would seem that there had been another email or a conversation in which more information was sought. Mr di Pillo replied “[g]ive me a couple of days and I will come back with further information”. “Meanwhile”, he attached two documents comprising a marketing presentation for “Dama Ready Meals” and a certificate of analysis for two products from Silliker Australia.

465    On 25 February 2015, Ms Cleaves sent an email to Mr Perez which said:

Please review and advise.

The Project Description Attached.

Attachment One is the testing and analytical results already completed by this company.

I have also attached their financials.

466    The attachments to this email do not appear in the evidence and Ms Cleaves deposed that she no longer has them. Her best recollection is that the documents to which she was referring were the project questionnaire with answers filled in by Mr di Pillo, the analytical results that had been sent to her by Mr di Pillo on 23 February 2015, and the financial documents sent to her by Mr Leung on 11 February 2015.

467    Mr Perez replied on 13 March 2015 as follows.

This customer will qualify easily, but the project that they are doing has testing materials for this financial year, and we are doing last financial year

They should be able to claim a good money in stock used for testing

I think this customer will be good to give him a visit and talk more

Please ask him to sign the contract and email it to me please

468    Ms Cleaves sent an email to Mr Leung and Mr di Pillo the next day which said, in part:

My partner Jose and I need to come and have chat to work out a bit more clarity how we will get you the R&D Grant.

At the moment the testing was done this financial year but we are claiming last financial year so we need to adjust what we wrote.

Jose thinks it will be easily done but best explained and worked out face to face.

469    On 20 March 2015 Ms Cleaves and Mr Perez attended Fresco Gourmet’s premises for a meeting. Mr Leung met with them and it is possible that Mr di Pillo did as well (he deposes to having met Mr Perez on one occasion). Also present was Andrea Busetti, whom Mr Leung described as Fresco Gourmet’s BAS agent. Mr Leung recalls Mr Perez explaining what was involved in a successful R&D claim and saying that this was his specialty. He also recalls either Mr Perez or Ms Cleaves saying that they had helped a lot of companies to make R&D claims.

470    On 23 March 2015, Mr Leung sent two emails to Ms Cleaves which attached booking details for flights to Auckland and Rome that were taken by Mr Brocca. He deposes that Ms Cleaves had requested these. Ms Cleaves sent a reply suggesting another meeting with Mr Perez about “stock that you have written off”. She sent a further reply a few minutes later asking whether Mr Brocca had taken two international flights for research. Mr Leung responded that the flight to New Zealand “was for a project for Fresco to become an agent to another business” and “You may use it if you see fit”. Ms Cleaves did not recall what prompted Mr Leung to send her copies of invoices (this being something that Mr Perez did not usually ask for). However, she deposed that, as with all other documents received from clients, she forwarded these to Mr Perez.

471    On 25 March 2015 Ms Cleaves sent an email to Mr Leung inquiring after “the stock excel spreadsheet”. A little over an hour later, Mr Leung replied. He attached a spreadsheet and invited Ms Cleaves to “discuss with Rocco should you need more info”. It can be inferred that Ms Cleaves also forwarded this document to Mr Perez.

472    Mr Leung deposed that he had another meeting with Mr Perez and Ms Cleaves at Fresco Gourmet’s premises on 30 March 2015 to discuss the “written off stock”. Written off stock comprised food products that had passed their use by date. Mr Leung asked Mr Perez and Ms Cleaves whether it was possible to treat the cost of this stock as an expense for R&D purposes. He said that he asked this question because he regarded Mr Perez as an expert and Fresco Gourmet did not want to do anything that was not allowed.

473    On 21 April 2015, Ms Cleaves emailed to Mr Leung a three page document that she described as a “summary document”. She asked him to review it and “let me know if you are ok with what we have written”. Ms Cleaves deposed that this document was drafted by Mr Perez. The summary document included some text that appears to have been taken from Fresco Gourmet’s questionnaire responses describing the Ready Meals project. One thing that is notable about the summary document is that it contains many more grammatical errors than other project descriptions which, I have found, were prepared by Mr Perez. The standard of written English is more akin to Mr Perez’s emails, many examples of which are quoted in these reasons. However, this difference in the quality of the writing is explained by the evidence of Ms Cleaves and Mr Santos that they corrected the grammar in project descriptions drafted by Mr Perez for the purpose of submission to AusIndustry.

474    Mr Leung forwarded Ms Cleaves’s email to Mr di Pillo and Mr Brocca early on 22 April 2015. Later that day he replied to Ms Cleaves “[y]es, please go ahead with the submission”.

475    An application for registration of R&D activity was lodged with AusIndustry on behalf of Fresco Gourmet on 25 April 2015 (the Fresco Gourmet 2014 registration application). The application described the Ready Meals project. Its essential elements were described as follows.

This is a process that makes food shelf live more stable (ie does not require refrigeration) Shelf stable gourmet food with long shelf life than current products in this market that need refrigeration.

Current approx. shelf life of meat goods is 30days. We are working in a new innovating production process that will allow us to extend shelf live for approx. 12 months, also designing new techniques of packaging and adapting this new production process so we can use it mass production.

We are the first company in Australia to grant an import permit for that type of products (quarantine – risk products), we are willing to make gourmet food more accessible to the Australian market and New Zealand and Asian markets. The only way to reach overseas market is by extending the sheft live of the product, so the products will be at top shelf conditions for longer period of time, at low cost.

We have developed a plastic film covering the container that can also withstand this high degree of heat (200 deg Celsius) and cold there fore extending the shelf live dramatically, and help with sales/ stock handling.

(Original spelling, grammar and punctuation.)

476    Ms Cleaves deposes that Mr Perez prepared this document. Mr Leung and Mr di Pillo say that they did not see any version of it before it was lodged. I find that it was prepared by Mr Perez.

477    The Fresco Gourmet 2014 registration application named Mr Leung as the officer of the R&D entity who made the relevant declaration. This is clearly not correct, as Mr Leung had not seen the document when it was lodged. The document also contained a negative answer to the question whether the R&D entity had relied on advice from a tax agent or R&D consultant “to compile this application”. In fact, Fresco Gourmet had not compiled the application at all; but, to the extent it had given any imprimatur to the document, it had relied heavily on the advice of Mr Perez.

478    The description of Fresco Gourmet’s activities in the Fresco Gourmet 2014 registration application was accurate in so far as it said Fresco Gourmet was seeking to import food in a form that was shelf stable, but otherwise (as explained by Mr Leung in his affidavit) was not correct. As noted earlier, Fresco Gourmet was not the entity that was developing or testing new packaging materials or methods. Dama was doing the substantive work, taking the technical and financial risks and would own any resulting intellectual property.

479    On 27 April 2015, the Department of Industry and Science issued a notice of registration for the R&D tax incentive to Fresco Gourmet.

Preparation of Fresco Gourmet’s 2014 R&D claim and lodgement of amended tax return

480    On 14 May 2015, Mr Leung received the following documents as attachments to an email from Ms Cleaves:

(a)    the registration letter referred to above;

(b)    the Fresco Gourmet 2014 registration application;

(c)    an Excel spreadsheet containing R&D calculations (the Fresco Gourmet 2014 spreadsheet); and

(d)    an R&D tax incentive schedule for the 2014 income year (the Fresco Gourmet 2014 R&D schedule).

481    Ms Cleaves’s email said:

Please see attached information relating to the R&D Grant.

Please forward onto your accountant so they can amend your tax return. Expected grant amount is $82,392.82

482    It will be noted that the terms of this email did not invite questions, comments or further review. The amount of the “R&D Grant” and the calculations supporting it were being treated as settled, with the next step being lodgement of an amended income tax return by Fresco Gourmet’s accountants.

483    The Fresco Gourmet 2014 spreadsheet comprised four parts.

(a)    The first part was headed “Payroll Activity [Summary]”. It set out the names of nine employees, their wages and an “R&D %” and “R&D Amount” ascribed to each. Mr Leung explained that the employee names and wage totals were taken from Fresco Gourmet’s records but the “R&D %” and “R&D Amount” figures were not; he assumed that Ms Cleaves had inserted them. No explanation was given for these allocations. This table appears to suggest that Mr Brocca (who ran the business) spent 45 percent of his time on the Ready Meals project; Mr di Pillo (who was responsible for the project, but also the supply chain manager for the business) 35 percent; and all other employees between five and 35 percent. Mr Leung was not listed. The total “R&D amount” was $74,767.56, giving an “R&D ave” of 24.1 percent.

(b)    The second part consisted of a table of “Expenses”. The table appears to be the overheads of Fresco Gourmet’s business, allocated to 24 categories with an “R&D %” of 24.1 percent applied to each, to produce a total “R&D amount” of $38,810.17.

(c)    Next, under the heading “Purchases”, were listed various costs including “Purchase Cheese”, “Purchase Processed Meat”, “Quality Testing” and “Customs Charges”, with a total of $6,169,202.55. There was then a “Usage Estimation” of six percent, giving an “R&D Amount” of $372,210.26. “Other stock usaga” (sic) was added to this to arrive at a total of $435,707.76.

(d)    The final part was a table adding together the totals mentioned above to give an overall total of $549,285.49 and an “Estimated Refund” of $82,392.82.

484    The Fresco Gourmet 2014 R&D schedule was the standard ATO form, populated with figures consistent with the Fresco Gourmet 2014 spreadsheet.

485    Based on Mr Leung’s evidence, the evidence of Ms Cleaves about Grow Fast’s practices and the production of very similar documents in connection with the other schemes addressed in these reasons, I find that Mr Perez prepared these documents and sent them to Ms Cleaves to be sent on to the client. In cross-examination, Mr Perez appeared to accept that he prepared these documents for each client, although he attempted to portray them as “some type of calculator for them to estimate the thing themselves”. While the documents could potentially have been used in that way, in context it is obvious that Mr Perez was not simply giving the client a template document that it could use to calculate its notional R&D deductions; he was purporting to do the calculations himself and seeking to procure the lodgement of a tax return embodying them. Ms Cleaves captured the point in cross-examination when, in response to a suggestion by Mr Perez that “I don’t … give any information to the Australian Government”, she said “Indirectly you did … indirectly, you gave them the information to put in the tax return that got lodged”.

486    On 15 May 2015, Mr Leung forwarded Ms Cleaves’s email to Mr Busetti (copying in Mr Brocca and Mr di Pillo) under cover of an email which said “[p]lease find successful R&D government grant with documents attached for your info”. I infer from this language that Mr Leung regarded the amount Fresco Gourmet would receive as settled (that is, not requiring further analysis by anyone at Fresco Gourmet or its accountants). On 19 May 2015, he forwarded the email and its attachments to Becky Lee of Duncan Dovico, Fresco Gourmet’s external accountants. His covering email said (in part):

Please find R & D grant approval with document attached for your info.

Could you please kindly organise an amendment with Fresco Tax return?

Please let us know should there be any issue.

487    On 20 May 2015, Duncan Dovico lodged Fresco Gourmet’s amended income tax return for the 2014 income year. Consistently with the figures supplied by Mr Perez, it claimed notional R&D deductions of $549,286 and a refundable tax offset of $247,178.70.

488    Fresco Gourmet was issued an amended assessment for the 2014 year, dated 16 June 2015, that produced a credit of $82,392.90. A tax statement of account showed this amount as having been credited on 28 May 2015. Mr Leung deposes that this amount was credited to Fresco Gourmet’s bank account.

2015 income year – provision of information

489    On 2 June 2015, Ms Cleaves sent Mr Leung an email suggesting a meeting with Mr Perez on 18 June. Mr Leung deposes that this put into his mind the idea of Fresco Gourmet lodging a further R&D claim in respect of the 2015 income year. He forwarded this email to Mr Brocca and Mr di Pillo.

490    It is not clear whether a meeting actually occurred in June 2015. Ms Cleaves was also assisting Mr Brocca in seeking to obtain grants or tax concessions for a farm that he owned which was not related to the Ready Meals project.

491    On 3 September 2015, Ms Cleaves sent an email to Mr Leung, Mr di Pillo and Mr Brocca which said (in part):

Rocco – I’ll want to have a chat with you after the farm chat about getting started on the 2014/15 R&D Grant for Fresco

492    Mr Leung deposed to having had a meeting with Mr Perez and Ms Cleaves in September 2015. He recalled that the meeting was to discuss whether Fresco Gourmet could make a further R&D claim for the 2015 year. He recalled Ms Cleaves saying words to the effect of:

Fresco Gourmet is still doing R&D. It should make another R&D application for the next year. You’ll need to send us your financials for the 2015 year.

493    Being satisfied that Ms Cleaves and Mr Perez knew what they were doing, Fresco Gourmet decided to make a further R&D claim. On 10 September 2015, Mr Leung sent to Ms Cleaves Fresco Gourmet’s profit and loss statement for the 2015 income year, its balance sheet as at 30 June 2015 and a payroll activity summary. Ms Cleaves forwarded this material to Mr Perez.

2015 income year – application for registration

494    An application for registration of R&D activities in the name of Fresco Gourmet was lodged with AusIndustry on 27 October 2015. The description of Fresco Gourmet’s purported R&D activities was substantially similar to what was contained in the application lodged for the 2014 income year. Again, the application listed Mr Leung as the officer of the R&D entity who made the relevant declarations and answered “No” to the question whether advice from a tax agent or R&D consultant had been relied on. Although Mr Leung was identified as the nominated contact person, Ms Cleaves’s email address was given. Mr Leung and Mr di Pillo both deposed that they did not see any version of this document before it was lodged. Ms Cleaves affirmed that Mr Perez prepared the document.

495    On 28 October 2015, Ms Cleaves sent an email to Mr Leung informing him that the application for registration had been lodged. She continued:

Once we have that approval I will email you across the expense schedule for your accountant so that you can finalise or prepare the end of year tax return.

496    Mr Leung replied the next day saying that Fresco Gourmet’s accountant “would like to see the submission as we urgently need to close the tax for FY2015”. Ms Cleaves responded that “our stuff” could not be included in the tax return without the relevant “IR number” from AusIndustry. On 5 November 2015, Ms Cleaves emailed Mr Leung saying “Its been approved officially and we have your schedule”.

497    A little later on 5 November 2015, Ms Cleaves emailed three documents to Mr Leung:

(a)    the notice of registration issued by the Department of Industry, Innovation and Science dated 28 October 2015;

(b)    a spreadsheet containing R&D calculations (the Fresco Gourmet 2015 spreadsheet); and

(c)    an R&D tax incentive schedule.

498    The Fresco Gourmet 2015 spreadsheet was in three parts.

(a)    The first part was a table headed “Payroll Activity [Summary]”. It listed seven employees, their wages and an “R&D %” and “R&D Amount” for each one. Mr Brocca and Mr di Pillo were listed as having spent 65 percent of their time on R&D, and the other employees either 35 percent, 5 percent or (in one case) nil. The total “R&D Amount” was $136,299.73, giving an “R&D Ave” of 43.05 percent.

(b)    The second part comprised two tables headed “Materials” and “Expenses”.

(i)    “Materials” included purchases (mostly processed meat) and other costs including freight and customs charges. Each line in this table was allocated an “R&D %” of 10.8 percent. The total “R&D amount” was $434,863.79.

(ii)    “Expenses” listed 25 categories of overheads. Most had an “R&D %” of 43.05 percent but one (“R&D Oversea Expenses”) was allocated 100 percent. The total “R&D amount” was $71,632.76.

(c)    The third part was a table in which the totals for the first and second parts were added together to give a total of $642,796.28, with an “expected credit” of $96,419.44.

499    The R&D tax incentive schedule was the standard ATO form, populated with figures consistent with the Fresco Gourmet 2015 spreadsheet. It claimed total notional R&D deductions of $642,796 and a refundable R&D tax offset of $289,258.20.

500    Ms Cleaves’s email of 5 November 2015 forwarded an email to her from Mr Perez, and I infer that the documents had been sent to her under cover of this email. Ms Cleaves deposed that these documents had been prepared by Mr Perez and I accept this. Mr Leung deposed that the names of employees listed in the payroll activity summary matched the records of Fresco Gourmet, but the allocations of “R&D %” and “R&D Amount” were not based on information supplied by anyone at the company. For most if not all of the employees listed, the percentages attributed to R&D were clearly inconsistent with his understanding of what they did. Ms Cleaves’s email said “[s]end this onto your accountant – any questions tell him/her to give me a call”.

501    Fresco Gourmet’s 2015 income tax return does not appear to have been lodged until 6 June 2016. However, it claimed notional R&D deductions and a refundable R&D tax offset in the same amounts as the schedule provided by Ms Cleaves.

Payments to Grow Fast

502    Mr Leung deposed that Fresco Gourmet was issued invoices by Grow Fast for the 2014 and 2015 income years and Fresco Gourmet paid these invoices. He was not able to produce the invoices and they are not in evidence, but this aspect of his evidence is not challenged.

R&D diaries

503    On 8 January 2016, Ms Cleaves sent an email to Mr Leung and Mr di Pillo which said, in part:

We need to sit down and complete an R&D Diary for 2014 Grant and 2015 Grant.

The auditors are asking for it and also it is good practice to have our ducks lined up in case we do get audited down the track.

I have the template ready so will just need both of you to fill in blanks associated with when you did activities relating to the grant

eg: May 2014 - Rocco spent 5hours doing R&D - the details of the activity are as follows

- email correspondence with supplier

- internet research for australian law relating to importing

504    According to Ms Cleaves’s affidavit, this was in a context where the owners of Fresco Gourmet were preparing the business to be sold. She had been contacted by auditors assisting with the sale, seeking documents to support the R&D claims that had been made. She deposed that she handed over the documentation that she had. She also deposed that she had not previously asked Fresco Gourmet for an “R&D Diary” because she understood from Mr Perez that it was not essential.

505    Mr Leung also deposed that there had been no previous discussion of a need for an “R&D Diary”. To the best of his knowledge no records were kept of any “testing” done as part of the Ready Meals project. He understood that he and Mr di Pillo were being asked to “back-create” documentation to support the claims that had been made and that there was a risk of Fresco Gourmet being audited by the ATO. He observed that Mr di Pillo was very angry and upset about Ms Cleaves’s email.

506    Mr di Pillo deposed that his “testing” of products essentially amounted to observing and sometimes tasting products imported from overseas suppliers and that no records, logs or notes were kept. As at January 2016 he did not know what an “R&D diary” was, and he was “angry and shocked” after receiving Ms Cleaves’s email of 8 January.

507    On 20 January 2016 Ms Cleaves sent an email to Mr di Pillo which said:

Please find attached the R&D calculations for 2015 Financial Year

There is also 2 templates attached to choose from regarding the layout of your diary

Any questions just give me a call

508    Later the same day, Mr di Pillo replied:

Can you please tell me how did you assign the R&D payroll % to employees in the file?

As I said this is the first time that I see this document and percentage splitting, I asked Ray and also for him this is a novelty.

Can you please confirm from who you received approval to submit this paperwork?

Sure of your prompt reply I wish you a nice day.

509    Ms Cleaves’s reply, sent the same afternoon (and based on information from Mr Perez), said in part:

The % are allocated based on the person job description. In this instance we estimated and assumed Anto as a managing director would have been heavily involved in the project as is usually the case.

We do also ask if queries or questions prior to your accountant lodging with ATO then to give us a call.

510    Mr di Pillo seems to have been unimpressed. He replied the following morning:

Can you please forward your email to our accountant with calculations?

On the other side since the Payroll calculation is the crucial part of the R&D claim, the part that gives a value to the project, we were expecting a deep focusing on it.

Estimations and assumptions in this case didn't work.

Please provide as much information as possible on the matter.

511    Later in this chain of correspondence, an email from Ms Cleaves said in part:

Once we get the grant approved from Aus Industries we send the calculations to you for your accountant to review and lodge as part of your company tax return. The calculations should be reviewed at this step. This is what was missed from your 2015 return.

If at that point you decided to change the calculations then simply adjust them prior to lodging with ATO.

512    Nobody at Fresco Gourmet ever created an R&D diary in respect of the 2014 and 2015 income years.

No R&D claims for later years

513    In November 2015, Mr Leung and Ms Cleaves had exchanged emails about the prospect of making further R&D claims. She informed him that claims could be made for up to three years in respect of one project and that further claims could be made if Fresco Gourmet had other “ideas or projects” that met the criteria.

514    Mr di Pillo left Fresco Gourmet around April 2016 and Fresco Gourmet then lost the connection with Dama that he had fostered. Fresco Gourmet started working on a new project involving the importation of mortadella. Around April or May 2016, Mr Leung had a conversation with Ms Cleaves in which she indicated that the new project could merit an R&D grant. She asked him to prepare a diary logging the time that was spent on developing new packaging. However, Mr Leung was not involved in any testing and did not want to be responsible for creating a diary.

515    On 24 January 2017, Ms Cleaves sent Mr Leung an email with the subject line “Fwd: Fresco draft calculations 2016”. Attached was a spreadsheet in the same form as those described elsewhere in these reasons and typical of Mr Perez’s method of formulating an R&D claim. I was not referred to evidence about the source of the financial information used as the basis for these calculations; it may be that Fresco Gourmet’s financial reports for the 2016 income year had been sent to him at some stage. The calculations included $400,000 in “materials” which was clearly no more than a guess: this line was highlighted in yellow and identified in Ms Cleaves’s covering email as “what we need to work out still”. In contrast to earlier communications, Ms Cleaves’s email also struck some cautionary notes:

In order to validate the grant you need to have completed testing.

In order to complete testing you need to have used materials, raw product, meat etc.

In order to claim materials we need matching invoices and invoice numbers etc.

516    Mr Leung recalls looking at this material and thinking the proposed claim was “way too much and … could not be explained”. After having a discussion with Mr Brocca, he informed Ms Cleaves and Fresco Gourmet’s accountant that the company had decided not to make an R&D claim in respect of the 2016 income year. The reasons for this decision included that Fresco Gourmet was unable to provide a log of hours that were allocated to its new project and that, upon reflection, there was no basis for the calculation of “R&D Amounts” upon which the claims in respect of the previous years had been based.

Review by the ATO

517    Around late 2017 (by which time Mr Leung and Mr Brocca had also left the company), Mr Leung became aware that the ATO was auditing Fresco Gourmet’s R&D claims for the 2014 and 2015 income years. The review concluded with Fresco Gourmet (through its new director Julia Sorbara) acknowledging error in its R&D claims, agreeing to amend its tax returns for 2014 and 2015 so as to reduce these claims to zero, and identifying Mr Perez as the R&D consultant who had assisted it.

518    Fresco Gourmet amended its tax returns for the 2014 and 2015 income years, so as to reverse the R&D offset, on 26 March 2018. Amended assessments were issued on 3 April 2018 (for 2015) and 11 April 2018 (for 2014), as a result of which Fresco Gourmet had to pay amounts (including shortfall interest charges) totalling $201,957.41.

Conclusions in relation to Fresco Gourmet

Tax exploitation scheme

519    The approach taken to the R&D claims advanced in Fresco Gourmet’s amended income tax return for 2014 and its return for 2015 can readily be identified as “schemes”, given the extremely broad meaning given to that term by s 995-1 of the ITAA97. The schemes involved the preparation and lodgement of tax returns including those claims.

520    Objectively, the schemes as so understood were directed towards the obtaining for Fresco Gourmet of tax offsets pursuant to Division 355 of the ITAA97. These were clearly “scheme benefits” as defined by s 284-150 of the TAA. The obtaining of such benefits for Fresco Gourmet was also, clearly, subjectively intended by at least Messrs Leung and Brocca and Ms Cleaves. In light of the evidence that Mr Perez made all the significant decisions in the conduct of Grow Fast’s business, and that it was he who constructed the numbers in the Fresco Gourmet spreadsheets, I find that the obtaining of that “scheme benefit” for Fresco Gourmet was also his intention. At the time of the relevant promoting conduct (as to which see below), therefore, it was clearly “reasonable to conclude” that one or more of the “entities” that entered into or carried out each scheme did so with the sole or dominant purpose of Fresco Gourmet getting a “scheme benefit” (TAA s 290-65(1)(a)(i)).

521    It was not “reasonably arguable” that the “scheme benefit” that (it was reasonable to conclude) was being sought by one or more of the entities entering into each scheme was “available at law”. This is so for at least two reasons.

(a)    Fresco Gourmet did not incur any expenditure in the 2014 and 2015 income years on activities that could reasonably be said to be “R&D activities” as defined in ss 355-25 or 355-30 of the ITAA97. There was therefore no basis on which it could be argued that any deduction arose under s 355-205. To the extent that the Ready Meals project involved development of new materials or methods for food packaging, that work was being done overseas by Dama and the plastics manufacturer from which it obtained materials. Mr di Pillo read technical materials about plastics and relayed suggestions to Dama, but it was Dama (or its supplier) that had the necessary equipment and did all of the product development and testing. Dama was taking the risks of the project and would be entitled to any benefits of it. The closest that any activity of Fresco Gourmet came to experimentation was Mr di Pillo storing sample meals and heating them to see how they looked and tasted; and, as noted above, no records were kept of this “testing”. It was not an activity that proceeded from hypothesis to experiment, observation, evaluation and logical conclusions. Nor was it an activity that generated “new knowledge”. In cross-examination, Mr Perez agreed that Fresco Gourmet’s activities did not constitute R&D.

(b)    Even if it was reasonably arguable that Fresco Gourmet’s involvement in the Ready Meals project constituted “R&D activity”, it is clear from the evidence referred to above that the amounts claimed as R&D expenditure in the course of implementing the Fresco Gourmet schemes: (i) were completely unsubstantiated (ie, not based on any records and unable to be justified); (ii) bore no relationship to any expenditure actually incurred on the relevant activities; and (iii) significantly overstated the amount (if any) that was expended on R&D activity. As outlined above in connection with Brandon Industries, “the scheme benefit” in s 290-65(1)(b)(i) of the TAA should be understood to refer to the scheme benefit sought to be obtained or intended to be obtained. Through a course of conduct orchestrated by Mr Perez, Fresco Gourmet lodged income tax returns for the 2014 and 2015 income years that (at best) vastly overstated the R&D tax offsets to which it was entitled. For example, the 2014 scheme included claims that:

(i)    Mr Brocca, the director of Fresco Gourmet (a food importing business), spent 45 percent of his time on a project which, in fact, amounted to no more than Mr di Pillo corresponding with an overseas supplier and taste testing sample meals; and

(ii)    around a quarter of all of Fresco Gourmet’s overheads and six percent of its stock were devoted to the same project.

522    The Fresco Gourmet schemes were therefore “tax exploitation schemes” in the relevant sense.

Promoter

Ms Cleaves

523    Ms Cleaves clearly encouraged “the growth of the scheme or interest in it” (TAA s 290-60(1)(a)) in each of the relevant income years. She held the initial discussions with Fresco Gourmet which encouraged its staff to think that it had a viable claim, was present at the meetings involving Mr Perez and managed the flow of communications. This included providing what purported to be calculations of the R&D tax offset to which Fresco Gourmet was entitled, with instructions to send the material to Fresco Gourmet’s accountant. She initiated the process of developing Fresco Gourmet’s claim for the 2015 income year. Further, she “had a substantial role” in promoting the schemes (TAA s 290-60(1)(c)).

524    Ms Cleaves also received consideration in respect of the marketing or encouragement of the schemes (TAA s 290-60(1)(b)), in that her company Design & Construct became entitled to be remunerated by Mr Perez under the arrangement described at [14] above. She was thus a “promoter” of the schemes.

525    It is also clear that Mr Perez engaged in “conduct” that resulted in Ms Cleaves being a promoter of the schemes, within the meaning of s 290-50(1) of the TAA, and contravened the provision on that basis. That conduct included entering into the arrangement with Ms Cleaves pursuant to which she would refer prospective clients to Mr Perez and coordinate the flow of information between Mr Perez and the clients she recruited, as well as the training and guidance provided to Ms Cleaves and the payment of remuneration to her through Design & Construct. In effect, everything that Ms Cleaves did as a promoter of the Fresco Gourmet schemes was done as the agent and representative of Mr Perez. It was clear in all of Ms Cleaves’s communications with Mr Leung and Mr di Pillo that she was working on behalf of “Jose”, who would be making all of the decisions about whether a claim should be made and in what amount. Relevant “conduct” of Mr Perez also included instructing Ms Cleaves to send material including a “sales pack” to Fresco Gourmet; conveying to Ms Cleaves that Fresco Gourmet would be a good client and would easily qualify for an R&D grant; and drafting Fresco Gourmet’s applications for registration and the contents of the Fresco Gourmet spreadsheets and R&D tax incentive schedules for Ms Cleaves to supply to Fresco Gourmet and its accountant.

Mr Perez

526    The conduct of Mr Perez was also calculated to, and did, directly encourage interest in the schemes on the part of Fresco Gourmet’s officers. He participated in some of the meetings with Mr Leung and Mr di Pillo. By preparing and lodging the applications for registration (which were successful), and later the figures contained in the Fresco Gourmet spreadsheet, he led responsible officers of Fresco Gourmet to think that the business had a genuine claim for the R&D tax incentive in an amount that was worth pursuing. By sending pre-populated R&D tax incentive schedules, which (it can safely be assumed) he knew and intended that Ms Cleaves would ask to be sent to Fresco Gourmet’s accountants to be lodged with the ATO, Mr Perez was doing much more than merely advising on the scheme: he was both playing an integral role in implementing the scheme and giving an implicit assurance that the R&D claim he had formulated was correct. Mr Leung was relying on his expertise.

527    It is reasonable to conclude that these steps played a substantial role in respect of the marketing or encouragement of the scheme. Mr Perez also received “consideration” in respect of the marketing of the scheme, in that his efforts resulted in a contractually binding obligation on Fresco Gourmet to pay him a percentage of any R&D tax offset that it obtained (and he in fact received payment).

528    For these reasons Mr Perez was himself a “promoter” of the Fresco Gourmet schemes and contravened s 290-50(1) on this basis as well.

The limitation period

529    The Fresco Gourmet schemes involved, at least, reliance on false assertions about how much the company had spent on R&D activities in the relevant income years. This conclusion is justified by the evidence (referred to above) showing that Fresco Gourmet’s R&D claims were based on clear exaggerations of the amount (if any) that it had spent on the purported R&D activity and by the fact that no records existed that were capable of substantiating any amount of R&D expenditure. Additionally, because it is reasonably clear that Fresco Gourmet’s activities did not involve anything within the concept of “R&D activities”, the schemes were bound to fail if any serious investigation was undertaken by the ATO of the activities upon which its claims was based. The possibility of the schemes’ success was thus (to adapt the language of Gleeson CJ in Meares) entirely dependent on the ATO not finding out the true facts. They were thus schemes which, if carried into effect, would involve “tax evasion” for the purposes of s 290-55(6) of the TAA.

530    For reasons explained at [71]-[75] above, it is the pre-2024 version of s 290-55(6) that is relevant; so that the limitation period in s 290-55(4) is displaced only if some tax was actually evaded. However, tax was evaded in each year. After amending its 2014 income tax return, Fresco Gourmet obtained an amended assessment and a refund. Its 2015 return, as explained above, resulted in a deemed assessment that included the effect of the tax offset it had claimed. It is not to the point that, as a result of later events, Fresco Gourmet filed further amended returns and incurred debts to the ATO as a result. The limitation period in s 290-55(4) therefore did not apply to the Fresco Gourmet schemes.

531    If s 290-55(4) did apply, it applied in its post-amendment version (for reasons explained above) and the relevant limitation period was therefore six years. I consider that the last conduct constituting “promotion” of the Fresco Gourmet schemes was the emails that Ms Cleaves sent to Mr Leung and Mr di Pillo between 8 and 20 January 2016 concerning the need to construct R&D diaries. One aspect of those communications involved discussion of potential amendments to Fresco Gourmet’s tax returns if it considered that the claims it had made could not be fully substantiated and the prospect of an audit by the ATO. Ms Cleaves was, in substance, encouraging further effort by Fresco Gourmet to protect the results that had been achieved by the schemes. Proceedings were commenced in respect of the Fresco Gourmet schemes on 26 June 2020, which was within the six-year limitation period on this analysis.

532    If this were not correct, the last acts constituting promotion would be Ms Cleaves’s emails of 14 May 2015 (for the 2014 scheme) and 5 November 2015 (for the 2015 scheme). Each of these also occurred less than six years before proceedings were commenced.

Mr Perez’s contentions

533    Mr Perez cross-examined Mr Leung to the effect that Grow Fast had not sent any advertising material to Fresco Gourmet; rather, it was he (Mr Leung) who initiated contact with Ms Cleaves. If this was intended to suggest that he therefore did not promote the Fresco Gourmet schemes, it was obviously incorrect. Mr Perez engaged in, and caused Ms Cleaves to engage in, several forms of conduct which encouraged interest in the schemes, as discussed above.

534    Consistently with his approach more generally, Mr Perez sought to attribute responsibility and blame to others. He embraced the proposition that the activities of Fresco Gourmet did not constitute R&D and contended that Fresco Gourmet had intentionally deceived him. (His written opening submissions went further and alleged that the invoices provided to him by Fresco Gourmet were “fake”, but no attempt was made to prove this assertion.) If this were correct, it would potentially be relevant to the issue of penalty; it would not stand in the way of a finding that Mr Perez engaged in conduct that promoted schemes which, considered objectively, were tax exploitation schemes. But it is not correct. Mr Perez has not pointed to any evidence of an employee or officer of Fresco Gourmet providing him or Ms Cleaves with information about the Ready Meals project that was false. In particular, there is nothing to suggest that Mr Perez (or Ms Cleaves) was ever told that Fresco Gourmet was engaging directly with plastics manufacturers, packaging test batches of food, testing the behaviour of packaging materials, conducting chemical analysis, or doing anything in the nature of experimentation.

535    In the course of formulating R&D claims on behalf of Fresco Gourmet, and encouraging those claims to be made, Mr Perez showed no interest in any of these matters. He did not inquire into where activities were being carried out or the ownership of any intellectual property that would be developed. The questionnaire which (through Ms Cleaves) he asked Fresco Gourmet to complete did not touch on such matters. In any event, the questionnaire was only partially completed, and this did not prevent Mr Perez from pressing ahead. Despite having no concrete notion of what Fresco Gourmet was actually doing (and no specialist knowledge of or background in the food industry), Mr Perez told Ms Cleaves that Fresco Gourmet “will qualify easily” in circumstances where it was clear that Ms Cleaves (who claimed no expertise in R&D) was working on commission and therefore incentivised to encourage Fresco Gourmet to make a claim. Mr Perez said under cross-examination that he had told the staff of Fresco Gourmet that R&D activity needed to be undertaken in Australia in order to qualify and that the entity claiming the tax offset would need to own the intellectual property. However, I have not accepted him as a witness of truth, and none of the other witnesses mentions him saying any such thing.

536    I accept the Commissioner’s submission that Mr Perez’s assertions that clients failed to disclose things that became fundamental flaws in the R&D claims that he propounded (such as that they were not taking the financial or technical risk or did not own the relevant intellectual property) are an attempt to evade the fact that Mr Perez was simply not interested in whether his clients had viable claims. His priority was to ensure that a claim was lodged (usually based on a cursory engagement with the client’s financial information) in order to receive a commission.

537    In his opening submissions Mr Perez also contended that the problem was that Fresco Gourmet’s accountants did not understand the R&D tax offset and did not do the necessary due diligence. The problem with this contention is that, in accordance with Mr Perez’s modus operandi, figures for R&D expenditure and (purported) supporting calculations were presented to Fresco Gourmet and its accountants on the footing that they were final (that is, that Mr Perez, an expert in the field, had done the necessary work). It was never suggested that the accountants would need to be satisfied of the accuracy of the figures and take professional responsibility for them; instead, there was a vague suggestion that the accountants should contact Ms Cleaves if they had any questions. The accountants can perhaps be criticised for lodging tax returns that relied on Mr Perez’s calculations without checking that they had some foundation in reality. However, that observation does not change the character of Mr Perez’s conduct.

Result

538    I find, therefore, that Mr Perez contravened s 290-50(1) of the TAA in relation to the promotion of the Fresco Gourmet schemes.

the peaberrys scheme

Background

539    Adrian Rigon and his wife Debbie have been the directors of Peaberrys since its incorporation in 2000. Both were responsible for the management of the business but it was only Mr Rigon who dealt with Grow Fast. Peaberrys conducted its business from premises in Islington, New South Wales, that contained a warehouse, an office and a café. During the 2016 income year, Peaberrys’s business involved:

(a)    purchasing raw coffee beans, which originated in several parts of the world, from brokers who imported them into Australia;

(b)    roasting raw coffee beans and packing them (usually in 1 kg bags);

(c)    marketing and selling beans on a wholesale basis to café businesses; and

(d)    operating a café which sold both beans and coffee beverages to consumers.

540    Mr Rigon affirmed an affidavit, which was relied on by the Commissioner, and was cross-examined by Mr Perez. The evidence in his affidavit was not challenged in cross-examination and I accept it. Mr Rigon presented as a careful witness who was doing his best, in the face of sometimes confusing questioning, to recount relevant events as best he could remember them.

Initial contact with Grow Fast

541    In or about early 2017, Mr Rigon received a brochure in the mail that was headed “R&D Government Grants for Coffee Roasters, Food & Beverage Manufacturers”. The brochure carried the logo of Grow Fast and included Mr Santos’s contact details. It referred to activities of the kind that Peaberrys was then carrying out and suggested that businesses of this kind could be eligible for, and were receiving, government grants for carrying out R&D. Mr Rigon gained the impression that Grow Fast had considerable experience in the area and was well equipped to handle the services that it was pitching.

542    On 14 March 2017, Mr Rigon sent an email to Mr Santos’s address asking if he was available to talk “about how Grow Fast works”. Shortly afterwards he received a call from Mr Santos, which was the first of a series of discussions that they had. During one of their early conversations, Mr Rigon recalls Mr Santos saying that he represented Grow Fast, which specialises in making R&D claims; Grow Fast had experience in making such claims for coffee roasting businesses; and it had been successful in this. Mr Rigon gained the impression that Mr Santos worked in a support capacity and was not the owner of Grow Fast; however, he did not hear of, or from, Mr Perez until some time later.

Provision of information and engagement

543    Over the course of one or two “comprehensive” phone calls, Mr Santos asked and Mr Rigon answered questions about Peaberrys’s business. He explained that Peaberrys was a commercial coffee roaster; that, because coffee is an organic product susceptible to all sorts of changes, Peaberrys was constantly testing and evaluating sample roastings. He also mentioned that Peaberrys had both specific equipment to test beans for colour, moisture content and taste and data logging software that it used to record the results of its sampling and testing. He recalls Mr Santos saying, on several occasions during these calls, words to the effect of “that’s R&D”. He also deposed that Mr Santos did not ask to see any of the records of Peaberrys’s testing.

544    Mr Santos also gave evidence of telephone conversations with Mr Rigon. He deposed that he spoke with Mr Rigon in order to fill in the “project description questionnaire” which, consistently with usual practice, he sent to Mr Perez.

545    On 17 March 2017, at Mr Santos’s request, Mr Rigon emailed to Mr Santos copies of Peaberrys’s trading statement, profit and loss statement and balance sheet for the 2016 income year as well as a “mutual confidentiality agreement” that he had signed. This agreement was expressed to be between Peaberrys and “Bryan Santos and Narciso Perez trading as Grow Fast Consulting” and had the Grow Fast logo on each page. Mr Santos forwarded these documents to Mr Perez.

546    Around 21 March 2017, Mr Rigon received a document entitled “Supply of Services Agreement” from Mr Santos. The agreement is expressed to be between “Narciso Jose Perez and Bryan Santos trading as Grow Fast Consulting” (defined as the “Consultant”) and the “Recipient specified in Item 1 of the Schedule”. The copy that is in evidence (annexed to the affidavits of both Mr Rigon and Mr Santos) has been signed by Mr Santos, but the space for the “Recipient” in Schedule 1 is blank and it has not been signed on behalf of the recipient. Mr Rigon deposed that he did not have a counter signed copy of the agreement and could not remember signing it. It is therefore not clear whether the agreement was ever executed on behalf of Peaberrys. However, as will appear below, invoices were issued by Grow Fast and paid by Peaberrys that were consistent with the fee structure set out in Schedule 1 to the agreement.

Application for registration

547    On 20 April 2017, an application for registration of Peaberrys in respect of R&D activities was lodged with AusIndustry (the Peaberrys AusIndustry application). Mr Rigon did not prepare or lodge this application and does not recall seeing any version of it before it was lodged. Mr Santos deposed that Mr Perez prepared this document. The application included Mr Santos’s email address but listed Mr Rigon as the officer of the “R&D entity” who made the declarations set out in it. Mr Rigon, not having seen the application or played a role in its preparation, could not have made that declaration. The application also answered “no” to the question whether the entity had relied on advice from a tax agent or R&D consultant in compiling it. As in the other schemes discussed in these reasons, Peaberrys itself had had no hand in “compiling” the application; it was wholly the work of a “tax agent or R&D consultant”.

548    Mr Rigon gave fairly detailed evidence concerning the veracity of statements about Peaberrys and its activities in the Peaberrys AusIndustry application. It is not necessary to recount this evidence in detail. Its substance was that the project description in the application did not reflect the way Mr Rigon had described Peaberrys’s activities to Mr Santos; Peaberrys simply did not have a “project” by the name of “Peaberry new processes and range of flavours”; the expenditure figures in the application were not supplied by Mr Rigon; and Peaberrys’s testing and analysis was not experimental in nature and directed at producing “new knowledge”. That testing and analysis was done in the context of quality control (which was part of Peaberrys’s day-to-day business activities), directed at consistency of flavour and ensuring that products supplied to customers were free of taints or undesirable flavours.

549    On 6 April 2017, Peaberrys received an invoice on Grow Fast letterhead for $1,818.20 plus GST. The invoice bore Mr Santos’s telephone number and email address. The description on the invoice was “R&D Consulting and grant submission – engagement fee”. The amount and the description were consistent with the “engagement fee” provided for in the Schedule to the Supply of Services Agreement referred to above. Mr Rigon gave unchallenged evidence that he arranged for $2,000 (the total amount of the invoice) to be transferred from Peaberrys’s bank account to Grow Fast. This suggests that Mr Santos and Mr Rigon were proceeding on the basis that the Supply of Services Agreement reflected the terms of a contract between them.

Preparation of the claim for inclusion in Peaberrys’s tax return

550    On 20 April 2017, Mr Rigon received a notice of registration of Peaberrys issued by the Department of Industry, Innovation and Science. On 28 April 2017 Mr Rigon sent Mr Santos an email explaining that his accountant was away and he did not have answers about “the different COG amounts”. This obviously indicates that Mr Santos had asked him for a breakdown of Peaberrys’s cost of goods for the 2016 income year. Mr Santos deposed that he had picked up, from working with Mr Perez on claims for other coffee roasters, that this was “something to seek further clarification from clients on”.

551    On 10 May 2017 Mr Rigon asked Ben Nix and Scott Edden of Pitcher Partners (Peaberrys’s accountants) for Peaberrys’s depreciation schedule for the 2016 income year, explaining that “[t]here is a chance we may be able to claims some of the equipment for R&D purposes”. On 11 May 2017, Mr Nix emailed a depreciation schedule to Mr Rigon. Mr Rigon deposed that Mr Santos had asked for this material and he forwarded it to Mr Santos.

552    On 24 May 2017, Mr Rigon received an email from Mr Santos attaching three documents:

(a)    a notice of registration issued by the Department of Industry, Innovation and Science;

(b)    an Excel spreadsheet containing R&D calculations (the Peaberrys spreadsheet); and

(c)    an R&D tax incentive schedule.

553    Mr Santos deposed that he received the Peaberrys spreadsheet from Mr Perez and Mr Rigon’s evidence was that he did not play a role in constructing it. I accept that it was the work of Mr Perez. This document was in three parts.

(a)    The first part was a table headed “Expenses”, which listed expenses (apparently based on Peaberrys’s accounts) divided into 42 categories. Each category was allocated an “R&D %”. The largest category by value was “Shrinkage/Spoilage for R&D tests” and had an “R&D %” of 100 percent. All other categories had an “R&D %” of 18 percent. The total of all expenses was $456,908.61 and the total of the respective “R&D amounts” was $203,995.21.

(b)    The second part dealt with wages. It listed ten employees and their respective wages with a “%” and an “R&D amount” for each. The percentage allocated was 50 percent for two employees, 20 percent for four and zero for the others. The total of the “R&D amounts” ($69,336.50) divided by the total wages ($378,228.71) gave an “R&D AVE %” of 18.3 percent, which appears to be the source of the 18 percent figure used in most lines of the Expenses table. One difference from the spreadsheets produced in connection with the other schemes is that the table had a column headed “Activity R&D” in which, for each of the six employees allocated an “R&D %” other than zero, there was a purported indication of the activities they were involved in. These were selected from:

(i)    “A: Conduct weekly production QC comprehensive @ Analysis”;

(ii)    “B: Experiment & Testing for improvement of Coffee Blend - to assist in Brand remaining competitive”;

(iii)    “C: Participated sensory analysis & improvements against benchmarks & Coffee profiles”; and

(iv)    “D: Getting Client feedback to roasting team”.

(c)    The third part was a table in which the total R&D amounts shown in the first and second parts were added together to give a total of $273,333.71, with an “Expected Refund” of $40,999.76.

554    The R&D tax incentive schedule was the standard ATO form, populated with figures consistent with the Peaberrys spreadsheet. It claimed total notional R&D deductions of $273,332 and a refundable R&D tax offset of $122,999.40. Mr Santos also deposed that he received this document from Mr Perez.

555    Mr Rigon gave some evidence about the information in the Peaberrys spreadsheet in his affidavit. The evidence is detailed and I merely summarise it here. He recognised some of the information (such as employees’ names, wages and some of the expense amounts) as drawn from, or at least consistent with, the information in Peaberrys’s accounts. He also said that the four activities referred to in the payroll section of the spreadsheet was consistent with information he had given Mr Santos over the phone (a point which Mr Santos confirmed in oral evidence). However, he did not recognise the “R&D amounts” as coming from any information he had provided. He said that Peaberrys had some log books in respect of the four tasks referred to as “Activity R&D” but did not have any records that could have supported the allocation of “R&D %” figures to the salaries or other expenses. In the light of this evidence, which I accept, I consider that Mr Santos was mistaken when he accepted in cross-examination that Mr Rigon had provided “the percentages” used in the Peaberrys spreadsheet.

556    Mr Rigon made two other points that should be noted. The first was that the activities listed in the payroll table and treated as R&D were part of Peaberrys’s day-to-day operations. (I interpolate that the descriptions of the activities do not suggest activities that were designed to develop new knowledge or were experimental in any relevant sense.) The second point was that many of the amounts allocated to (purported) R&D activities were clearly grossly exaggerated. One example of this was that a percentage of expenses which Peaberrys incurred as part of its ordinary business (eg security, postage, rent, rates and taxes) was treated as R&D expenditure. Another is that Mr Rigon (who knew the roles that each of the employees was performing) was able to affirm, in relation to each employee, that that person either was not involved in the purported R&D activities at all or was not involved to anything like the extent that the table suggested.

557    Mr Rigon does not suggest that he appreciated these points about the Peaberrys spreadsheet at the time he received it; they are his observations in hindsight, based on his knowledge of Peaberrys’s business.

558    Mr Santos’s email, under cover of which these documents were sent to Mr Rigon, said in part:

Attached are the following docs:

Registration Notification Letter

•    The R&D Tax Incentive Schedule for the ATO

•    The calculations document in excel

•    The R&D diary, you’re still completing.

Could you pass these on to your accountant. They'll need to add the R&D Tax Incentive Schedule with the tax return they've already lodged.

…

If you or your accountant have any questions please let me know.

559    Mr Rigon deposed that, before receiving this email, he had not had any discussion with Mr Santos about an “R&D diary” and did not know what an “R&D diary” was. He thought that he had provided Mr Santos with all the necessary information and documentation. The reference to completing an “R&D diary” made no sense to him.

560    On 24 May 2017 (the same day that he received Mr Santos’s email), Mr Rigon forwarded the email and its attachments to Mr Edden of Pitcher Partners for the purpose of preparing an amended income tax return.

Amended tax return, amended assessment and payment to Grow Fast

561    On 6 June 2017, Pitcher Partners lodged Peaberrys’s amended income tax return for the 2016 income year. It included an R&D tax incentive schedule in the same terms as the one prepared by Mr Perez.

562    On 16 June 2017, Mr Nix sent an email to Toni Challice at Peaberrys (copied to Mr Rigon) informing her that a refund had been credited to “the ATO account”. The anticipated refund had been offset against some other amounts and a refund of $3,451.25 was expected to be paid on 20 June. Mr Rigon forwarded this email to Mr Santos on 19 June 2017 and asked him to call. Mr Santos sent this on to Ms Cleaves. Ms Cleaves sent it to Mr Perez, with a message which said in part “I think they got a grant of $45K and now their tax liability is down to $17K”. Mr Perez replied (copied to Mr Santos) “Correct!! We should invoice the customer based on the $45,099.78 credit”.

563    Peaberrys was issued a statement of account by the ATO on 20 June 2017 which showed a credit of $45,099.78 (processed on 9 June 2017) and confirmed that a refund of $3,451.25 had been forwarded to its bank account.

564    Around 19 June 2017, Mr Rigon received an invoice on Grow Fast letterhead (with Mr Santos’s contact details) in the amount of $8,343.46 plus GST (totalling $9,177.80). Mr Santos deposed that the amount of the invoice was calculated as 18.5 percent of $45,099.78 in accordance with Mr Perez’s instructions. Mr Santos chased up payment of this invoice by way of an email to Mr Rigon on 3 July 2017. On the same day the amount of $9,177.80 was transferred from Peaberrys’s bank account to the account listed on the invoice.

Review by the ATO and withdrawal of the R&D claim

565    Around 2 March 2018, Peaberrys received a letter from the ATO advising that the Commissioner had concerns regarding its R&D claim. The letter attached two schedules (referred to as “Schedule 1” and “Schedule 2”), which Peaberrys was asked to complete and return by 13 April 2018.

566    Mr Rigon called Mr Santos, who told him that he no longer worked for Grow Fast but that Grow Fast would “sort this out”. Mr Santos gave Mr Rigon the contact details of his “colleague”, who was either Ms Cleaves or her sister Rachael Cleaves.

567    Mr Rigon filled in Schedules 1 and 2 on 9 March 2018. In Schedule 1 he selected “Option 2”, which read “I have reviewed my R&D tax incentive claim/s and do not believe there to be errors”. This response is consistent with Mr Rigon’s evidence, including under cross-examination, that he had faith in the advice he was receiving and saw no reason to doubt that Peaberrys was entitled to the tax offset it had claimed. In Schedule 2 Mr Rigon included the contact details of Mr Santos and Grow Fast. He then emailed a copy of the ATO letter and its schedules, including his proposed responses in Schedules 1 and 2, to Rachael Cleaves. His covering email said:

Growfast prepared and lodged our RnD grant for the 2016Fy. We were granted the tax incentive (refund)

I received the attached letter from the ATO this week. I contacted Bryan Santos who acted on our behalf and lodged the application.

Bryan recommended I forward you the letter from ATO (attached) and discuss prior to replying to the ATO.

Please contact me as a matter of urgency as I would like to reply to the ATO “that I do not believe there are any errors”. I would like Growthfast (sic) to confirm this to be the case as I have no details of the lodgement from Growfast only the attached excel spread sheet.

568    On 11 March 2018, Mr Rigon received a reply from Rachael Cleaves informing him that “Jose Perez will contact you regarding responding to the letter”. Shortly afterwards he received an email from Mr Perez asking him to call and providing a telephone number.

569    On 12 March 2018, Mr Rigon called Mr Perez. He deposed that Mr Perez was “insistent I follow his directives”. He said words to the effect of “[s]end me the letter from the ATO” and “[d]on’t talk to the ATO”. On 13 March 2018, Mr Rigon sent Mr Perez an email attaching the ATO letter and Schedules 1 and 2 containing his proposed responses. On 14 March 2018 he received a reply from Mr Perez which said:

Please lets talk on Friday

I just adjust your letter, must better this way

570    Attached to Mr Perez’s reply were copies of Schedule 1 and Schedule 2 with some further handwritten insertions and notes evidently added by Mr Perez. The response in Schedule 1 was changed to Option 1: “I have identified an error in my R&D tax incentive claim/s and will lodge a self-amended income tax return”. In Schedule 2, where Mr Rigon had described the services of Grow Fast as “[t]o collate, prepare & lodge our R&D grant with AusIndustry”, Mr Perez had added:

R&D Rules & Regulation, R&D Law

R&D Methodology & concepts.

571    Mr Rigon replied providing his telephone number and saying that he was available to speak earlier.

572    On 19 March 2018, Mr Rigon had a discussion with Mr Perez on Skype which lasted for 21 minutes. He deposed that, before this, Mr Perez had said “I only want to talk to you via Skype”. When the Skype call started, Mr Perez asked Mr Rigon to move his laptop around so that the camera would show the room that he was in and asked Mr Rigon whether there was anyone else in the room. During the Skype call, Mr Perez said words to the following effect:

We need to make some adjustments.

I’ve had plenty of clients receive this letter and it’s because there’s changes with the way they’re processing grants now. We’ve just got to do it different.

We’re going to modify and re-submit the claim.

Don’t tick Option 2. It’s a mistake. Things have changed in the way the ATO are reviewing grants and you would be forced to pay it all back.

Do as I say and we have a chance of getting around it.

573    Mr Perez also gave Mr Rigon instructions about amending Peaberrys’s R&D claim, to the following effect.

You need to re-submit, make some changes, and substantiate the R&D claim.

You need to increase the amount of wages expenses claimed for R&D, by increasing the percentages for each employee’s wages which related to R&D, including your own wage.

You need to get all or as much of the wage component into R&D.

You need to change the item recorded as “Shrinkage/Spoilage for R&D tests” into R&D expenses.

Change these other items in the profit and loss statement into R&D expenses.

You need to make wage diaries to substantiate the wages claimed for R&D.

Whatever you do, do not send the letter back to the ATO with option 2. That will be a big mistake. If you do, the ATO will review the grants and you will have to pay back the ATO.

574    Despite giving these detailed instructions about the claim (which, Mr Rigon understood, were asking him to adjust and manipulate the expenses and wages referred to and to create records to substantiate the claim), Mr Perez sought to distance himself from responsibility for what had occurred. Mr Rigon recalled him saying words to the effect of:

I am not responsible for any error in the R&D claim. It is not my fault.

It was your accountant who lodged the amended income tax return and who is responsible for the figures.

575    Mr Rigon was uncomfortable about doing what he understood Mr Perez to be proposing. He responded to the effect that he was not prepared to make up or fabricate things and asked Mr Perez not to contact him again. He did not follow Mr Perez’s advice and cut off contact with him. (During cross-examination, Mr Rigon recalled indicating to Mr Perez that he no longer believed Peaberrys was entitled to an R&D grant. However, given the subsequent chronology referred to below, it is likely that this occurred after their Skype call on 19 March 2018.)

576    On 3 April 2018, Mr Edden from Pitcher Partners sent an email to Mr Perez which said in part:

I am tax agent and accountant for Adrian Rigon and his company Peaberrys .

As you are aware, Adrian has been selected by the ATO for a random R & D Tax Incentive review. Adrian needs to respond to the ATO request no later than 13 April 2018.

As your firm prepared and lodged the registration for FY 2016 for the company with Auslndustry, and provided us with details to be lodged in the 2016 income tax return, we require some additional information from you as follows:.

1.     Copy of the Application for registration for R & D Activities for FY 2016 for Peaberrys.

2.     Copy of your final report with detailed findings as to the eligibility of Peaberrys as an R & D entity, conducting eligible R & D Activities, and details of what records were reviewed for substantiation of the claim.

3.     Details of the methodology of apportionment of expenses, differentiating R & D expenses from normal business expenses.

4.     If there are any concerns that you may have around the claim, especially in light of any disclosures that Adrian may need to make to the ATO.

577    Mr Perez’s reply, sent later the same day, did not respond directly to Mr Edden’s requests. It was as follows.

The ATO is asking Peaberry to review themselves, they have not been selected for a full review yet

Application attached

We do not produce final reports, this is with whoever tax agent has lodged 2016 tax return, the figures and methodology is for part one, copy attached services provided as per contract

Figures and methodology already provided to the customer, but it is for part 1 or A (Auslnsdustry) not ATO

I am not aware of any concerns in regards to the customer

578    Around 10 April 2018, Mr Rigon instructed Pitcher Partners to withdraw Peaberrys’s R&D claim. On 16 April 2018, Peaberrys lodged an amended income tax return for the 2016 income year which omitted any claim for an R&D tax offset. On 27 April, a notice of amended assessment issued to Peaberrys, recording a shortfall (including interest) of $46,787.03. Mr Rigon arranged for that amount to be paid to the ATO.

Conclusions in relation to Peaberrys

Tax exploitation scheme

579    The approach taken to the R&D claim advanced in Peaberrys’s amended income tax return can readily be identified as a “scheme”, given the extremely broad meaning given to that term by s 995-1 of the ITAA97. The scheme involved the preparation and lodgement of a return including that claim.

580    Objectively, the scheme as so understood was directed towards the obtaining for Peaberrys of a tax offset pursuant to Division 355 of the ITAA97. This was clearly a “scheme benefit” as defined by s 284-150 of the TAA. The obtaining of such a benefit for Peaberrys was also, clearly, subjectively intended by at least Mr Rigon and Mr Santos. In light of the evidence that Mr Perez made all the significant decisions in the conduct of Grow Fast’s business, and that it was he who constructed the numbers in the Peaberrys spreadsheet, I find that the obtaining of that “scheme benefit” for Peaberrys was also his intention. At the time of the relevant promoting conduct (as to which see below), therefore, it was clearly “reasonable to conclude” that one or more of the “entities” that entered into or carried out the scheme did so with the sole or dominant purpose of Peaberrys getting a “scheme benefit” (TAA s 290-65(1)(a)(i)).

581    It was not “reasonably arguable” that the “scheme benefit” that (it was reasonable to conclude) was being sought by one or more of the entities entering into the Peaberrys scheme was “available at law”. This is so for at least two reasons.

(a)    Peaberrys did not incur any expenditure in the 2016 income year on activities that could reasonably be said to be “R&D activities” as defined in ss 355-25 or 355-30 of the ITAA97. There was therefore no basis on which it could be argued that any deduction arose under s 355-205. As explained by the evidence of Mr Rigon (outlined above) in relation to the Peaberrys registration application, Peaberrys, like other coffee roasting businesses, undertook quality control and tested different blends as part of its ordinary business activities and in response to the well-recognised variability of raw coffee beans. These were not activities that proceeded from hypothesis to experiment, observation, evaluation and logical conclusions. Nor were they activities that generated “new knowledge”.

(b)    Even if it was reasonably arguable that Peaberrys’s coffee tasting constituted “R&D activity”, it is clear from the documents referred to above and the evidence of Mr Rigon that the amounts claimed as R&D expenditure in the course of implementing the Peaberrys scheme: (i) were completely unsubstantiated (ie, not based on any records and unable to be justified); (ii) bore no relationship to any expenditure actually incurred on the relevant activities; and (iii) significantly overstated the amount (if any) that was expended on R&D activity. As outlined above in connection with Brandon Industries, “the scheme benefit” in 290-65(1)(b)(i) should be understood to refer to the scheme benefit sought to be obtained or intended to be obtained. Through a course of conduct orchestrated by Mr Perez, Peaberrys lodged an amended tax return for the 2016 income year that (at best) vastly overstated the R&D tax offset to which it was entitled; and the “tax benefit” was to that extent not reasonably arguable. This emerges from Mr Rigon’s analysis of the contents of the Peaberrys spreadsheet, which is summarised above.

582    The Peaberrys scheme was therefore a “tax exploitation scheme” in the relevant sense.

Promoter

Mr Santos

583    Mr Santos clearly encouraged “the growth of the scheme or interest in it” (TAA s 290-60(1)(a)). He probably sent the brochure to Peaberrys that led to Mr Rigon being interested in the R&D tax incentive and contacting him, and he had discussions with Mr Rigon that encouraged the latter to think that the business had a viable, and fairly substantial, claim. He became the conduit by which Mr Perez was supplied with financial information on which Peaberrys’s claim was (albeit loosely) based and by which Peaberrys was supplied with the necessary document to make the claim (the Peaberrys R&D tax incentive schedule) and the spreadsheet which purportedly justified the numbers in that document; and he sent the email directing Mr Rigon to cause the amended income tax return to be lodged including the claim thus formulated. Further, he “had a substantial role” in promoting the scheme (TAA s 290-60(1)(c)).

584    Mr Santos also received consideration in respect of the marketing or encouragement of the scheme (TAA s 290-60(1)(b)), in that his company AGV Group became entitled to be remunerated by Mr Perez under the arrangement described at [21] above. Mr Santos was thus a “promoter” of the scheme.

585    It is also tolerably clear that Mr Perez engaged in “conduct” that resulted in Mr Santos being a promoter of the scheme, within the meaning of s 290-50(1), and contravened the provision on that basis. That conduct included entering into the arrangement with Ms Cleaves and Mr Santos pursuant to which Mr Santos would refer prospective clients to Mr Perez and coordinate the flow of information between Mr Perez and the clients he recruited, as well as the training and guidance provided to Mr Santos and the payment of remuneration to Mr Santos through AGV Group. In effect, everything that Mr Santos did as a promoter of the Peaberrys scheme was done as the agent and representative of Mr Perez. Although Mr Perez appears to have stayed in the background until Mr Rigon asked for guidance about responding to the letter from the ATO, Mr Rigon understood that Mr Santos was not the “brains” behind Grow Fast. When Mr Santos emailed the Peaberrys spreadsheet and the R&D tax incentive schedule to Mr Rigon, he did so by forwarding an email from Mr Perez to which those documents were attached (and which contained no text), making it clear that it was Mr Perez who made the decisions about what should be claimed. Relevant “conduct” of Mr Perez also included drafting Peaberrys’s application for registration and the contents of the Peaberrys spreadsheet for Mr Santos to supply to Mr Rigon.

Mr Perez

586    The conduct of Mr Perez was also calculated to, and did, directly encourage interest in the scheme on the part of Mr Rigon. By preparing and lodging the application for registration (which was successful), and later the figures contained in the Peaberrys spreadsheet, he led Mr Rigon to think that Peaberrys had a viable claim for the R&D tax incentive in an amount that was worth pursuing. By sending a pre-populated R&D tax incentive schedule, which (it can safely be assumed) he knew Mr Santos would ask to be sent to Peaberrys’s accountant to be lodged with the ATO, Mr Perez was doing much more than merely advising on the scheme: he was both playing an integral role in implementing the scheme and giving an assurance that the R&D claim he had formulated was correct.

587    After the commencement of the ATO review, on 19 March 2018, Mr Perez provided advice to Mr Rigon. The evidence about his conversation with Mr Rigon via Skype indicates that Mr Perez was well aware that the R&D claim he had formulated would not withstand scrutiny, and he sought to have Mr Rigon re-engineer the claim so that some part of the tax benefit that had been obtained might survive. This, I find, was an attempt to avoid a situation in which closer attention from the ATO would make it clear to Mr Rigon that Peaberrys had no viable claim at all. Encouraging Mr Rigon to make amendments to Peaberrys’s claim was thus conduct amounting to promotion, in that it encouraged continued interest in the scheme.

588    It is reasonable to conclude that these steps played a substantial role in respect of the marketing or encouragement of the scheme. Mr Perez also received “consideration” in respect of the marketing of the scheme, in that his efforts resulted in a contractually binding obligation on Peaberrys to pay him a percentage of any R&D tax offset that it obtained (and he in fact received payment of that percentage).

589    For these reasons Mr Perez was himself a “promoter” of the Peaberrys scheme.

The limitation period

590    Proceedings were commenced in respect of the Peaberrys scheme on 9 March 2020. This was comfortably within time, even if a four year limitation period applied (given that promotion of the scheme did not even begin until March 2017).

Mr Perez’s contentions

591    Mr Perez sought to cross-examine Mr Rigon to the effect that his external accountants did not carry out “due diligence” in respect of Peaberrys’s R&D claim and Grow Fast did not control the process of lodging Peaberrys’s amended tax return. None of the accountants from Pitcher Partners has been called as a witness (or had any allegation put to them) and it is not appropriate to make any finding as to their performance of their professional obligations. Mr Rigon did agree in cross-examination that his accountants had not asked him for any other documents. However, for reasons already explained, this misses the point. It was Mr Perez who constructed an R&D claim for Peaberrys, filled in an R&D tax incentive schedule to reflect that claim and then (through his representative Mr Santos) urged Mr Rigon to have his accountants lodge it as part of an amended return. He did so while holding himself out as an experienced and successful consultant with expertise in the field and having asked for and been given (through his representative Mr Santos) a range of information about Peaberrys’s business and finances. None of the communications with Mr Rigon suggested that, despite Mr Perez having done this work (and charging 18.5 percent of any tax offset as his fee), Pitcher Partners were supposed somehow to review the claim and ensure that its details were correct. Even if Pitcher Partners were open to criticism, it would not affect the characterisation of Mr Perez’s activities.

Result

592    I find, therefore, that Mr Perez contravened s 290-50(1) of the TAA in relation to the promotion of the Peaberrys scheme.

the icon integration schemes

Background

593    Icon Integration (Icon) was a consulting business founded in 2010. Its main service was implementing complex software products (developed by other entities) in the businesses of its clients. One of the software providers whose products Icon Integration dealt with was a business referred to as SAP. During the 2014 and 2015 income years, Icon was providing services in two main areas:

(a)    supply chain and logistics; and

(b)    data and analytics.

594    Peter Collett was one of the co-founders and joint managing directors of Icon. He had had a career in software development, sales and consulting. He affirmed an affidavit in the proceeding and was cross-examined by Mr Perez. He presented as a careful witness whose evidence was not materially challenged.

Initial contact with Grow Fast

595    From around 2011 or 2012, Icon Integration had retained Rozalin Robic of Tax Edge as its tax agent. In or around early 2015, Mr Collett had a conversation with Ms Robic from which he first learned of the existence of the R&D tax incentive scheme. Around this time, Icon was working on a project which Mr Collett described in his affidavit as follows (the Icon project).

The Project was considering a means by which Icon Integration could combine the two sides of its business (logistics and analytics) by extending and enhancing the SAP software. The intention was to utilise Icon Integration’s experience in both logistics and analytics by developing a solution that produced bespoke reports that could then be sold back to SAP as an extension to their system and used by other SAP customers.

The Project consisted of performing tests and undertaking system development. This involved testing prototype activities using the SAP Data Integrator ETL solution and its data profiling functionality to test the output of extraction routines. Icon Integration had set out to develop a solution that would extract and model data from the SAP Warehouse Management application allowing decision makers to assess whether key performance indicators were being met. This capability was not available natively in the SAP system.

596    Ms Robic told Mr Collett (as he recalled it) that she had met someone who was “helping organisations access a special R&D grant”, she did not know him personally, but she could put Mr Collett in touch with him. She provided him with a telephone number which was that of Mr Perez. Mr Collett called Mr Perez and gave him some “basic background” about Icon’s business. They arranged to meet for a further discussion at Icon Integration’s offices.

597    Mr Perez and Ms Cleaves attended Icon’s offices a short time later and had a meeting with Mr Collett (which some other staff of Icon also attended). Mr Perez asked some basic questions about Icon’s business including how many employees it had and how much it spent on salaries. There was a discussion about commissions and the likely size of Icon’s R&D claim. Mr Collett’s recollection was that it seemed that any claim would only be for “a few tens of thousands of dollars” because the only work that could be described as “innovative” (and for which Icon would retain the intellectual property derived) was the Icon project referred to above. Despite this, Mr Perez assured Mr Collett that he would be happy to help. In a s 353-10 interview, Mr Collett described Mr Perez saying things like “I work with some very big companies that are building products and building IP and I’m helping them navigate the IP grant”.

598    From that time on, Mr Collett did not meet or speak to Mr Perez again. All of Icon’s dealings in relation to its R&D claim were with Ms Cleaves. Mr Collett understood that Ms Cleaves was working for or on behalf of Mr Perez.

Engagement of Grow Fast

599    Following the meeting referred to earlier, Mr Collett was provided by Ms Cleaves with a “Supply of Services Agreement”. At the time of affirming his affidavit he no longer had a copy of that agreement; however, the evidence includes an email sent to Mr Collett by Ms Cleaves on 21 March 2015 that refers to the agreement having been signed off by Grow Fast the previous day. When he was asked about Mr Perez’s remuneration at his s 353-10 interview, Mr Collett recalled that he took “a percentage commission on the claim”.

2014 income year – preparation of Icon’s claim

600    As noted earlier, after the initial meeting Icon dealt with Ms Cleaves. She asked Mr Collett questions about Icon’s business and the Icon project, including the time and resources devoted to it, and he answered those questions. This was done partly in person and partly by telephone. Ms Cleaves recalled a particular meeting attended by Mr Collett and two other directors, at a time when she understood he was “not onboard with using Grow Fast”. At this meeting she “spoke about Grow Fast’s services, how it could help [Icon] and how successful Grow Fast had been with other clients”.

601    On 21 March 2015, Ms Cleaves sent an email to Mr Collett asking him to authorise Ms Robic to send her Icon’s profit and loss statement and payroll activity statement for 2013-2014 and its balance sheet as at 30 June 2014 and proposing that she would obtain job titles and functions from another staff member at Icon. Ms Cleaves gave evidence that this was consistent with the usual practice at Grow Fast and with what Mr Perez had previously asked her to do. Mr Collett provided his assent on 23 March 2015 and Ms Robic provided the requested documents to Ms Cleaves later that day. Consistently with the usual practice, Ms Cleaves forwarded these documents to Mr Perez.

602    Ms Cleaves also sought technical information about Icon’s operations, which was provided to her by another staff member, and provided Mr Collett and others with written descriptions of the business and the Icon project for their comment.

603    On 21 April 2015, Ms Cleaves sent Mr Collett an email attaching four documents. The email said:

Financial information Jose used to calculate R&D expense schedule along with the excel document that he is proposing

Please review and adjust accordingly

604    Three of the attached documents were material that Ms Cleaves had received from Ms Robic. The fourth was a spreadsheet (the first Icon 2014 spreadsheet) which, Ms Cleaves deposes, was prepared by Mr Perez. That spreadsheet comprised the following parts.

(a)    A table headed “Payroll Employee Summary” listed the employees of Icon and their earnings for the 2014 income year. Each employee was allocated an “R&D %” which was applied to their earnings to produce an “R&D amount”. The percentages ranged from 60 percent (for Mr Collett and his co-managing director, Mr Roddis) down to zero. The total of the “R&D amounts” was $496,242.67. Underneath the table appeared the figure “42%”, which equated to Icon’s total salary bill divided by the total of the “R&D amounts”.

(b)    A table without a heading listed expenses relating to Icon’s business in the 2014 income year. Every expense item was allocated an “R&D %” of 42 percent. The total of the resulting “R&D amounts” was $697,621.56.

(c)    A table headed “R&D Calculation Summary” added the totals of the first and second tables to produce a “total” of $1,193,864.23. Underneath this there appeared “Expected Refund $179,079.63”.

605    Mr Collett treated this as a starting point for Icon to provide feedback. On 22 April 2015, Ms Cleaves sent Ms Robic an email which suggests that Mr Collett had raised some concerns about the content of the spreadsheet and Mr Perez had spoken to him. Ms Cleaves’s email said in part:

Jose seems to think it is all ok. He explained to Pete that we estimated the maximum amount possible when submitting to Aus Industries to allow us a buffer and make us look good.

Aus Industries approve the grant and claim amount.

Then Jose and I and you and Pete will sit down and review what is justifiable out of those draft calculations. It is easier to reduce the amount you are claiming for then [sic] to increase the amount you are claiming for.

Jose is going to educate me (and you if you want to learn about this) how the expense side of things works so that we can be positioning this sort of thing in advance.

The reality is that everything is super rushed because we didn't start working together early enough to get this across the line before the deadline.

606    Mr Collett did not recall having a discussion with Mr Perez at this time. Because Ms Cleaves’s information about the discussion was second hand (evidently from Mr Perez), it is not possible to be confident that it occurred. In any event, on 23 April 2015 Mr Collett provided (or caused to be provided) to Ms Cleaves an amended version of the spreadsheet with changes made by someone (he does not remember who) at Icon. Mr Collett deposed that the amendments to the spreadsheet were “based on employee timesheets which gave a rough understanding of how much time an employee could have spent on an R&D activity”.

607    In the afternoon of 23 April 2015 Ms Cleaves sent Ms Robic another email, attaching a document with the filename “Updated icon RD schedule 2013 and 2014 Pete Update.xlsx” (the second Icon 2014 spreadsheet). Her email said, in part:

Pete has sent me through an adjusted expense schedule to lodge

It will work out to be a $19K grant they receive.. a long way off what they could claim but he isn't comfortable and it's his company, his call.

I've attached the adjusted one to this email for your records

No need to do anything yet - we are now just waiting for Aus Industries to approve so we can lodge the company tax return.

Like you said yesterday, credibility was lost from day one so Pete thinks Jose is from dodgy brothers and I can't really mend that perception.

If the boys got audited we would be in the same position as them.. it's not just a case of being made to pay the money back. Jose would lose his R&D licence if a client didn't pass an audit so there is just as much risk to us when submitting a claim to make sure it is defendable.

608    The second Icon 2014 spreadsheet comprised the following:

(a)    A table headed “Payroll Employee Summary” which, as before, listed the employees of Icon and their earnings for the 2014 income year. Each employee was allocated an “R&D %” which was applied to their earnings to produce an “R&D amount”. The percentages now ranged between zero and 10 percent. The total of the “R&D amounts” was $95,091.03 and the percentage figure at the bottom of the table was “8%”.

(b)    A table without a heading listed expenses relating to Icon’s business in the 2014 income year. Every expense item was now allocated an “R&D %” of eight percent, except for “Contract Work”, “Software Licences” (which were the largest expenses) and “Training Manuals Expense” which were allocated zero. The total of the resulting “R&D amounts” was $33,796.33.

(c)    A table headed “R&D Calculation Summary” added the totals of the first and second tables to produce a “total” of $128,887.36. Underneath this there appeared “Expected Refund $19,333.10”.

2014 income year – AusIndustry application

609    On 24 April 2015, an application for registration of Icon for the 2014 income year was lodged with AusIndustry (the 2014 Icon registration application). The claimed R&D activities related to the Icon project. Ms Cleaves deposed that it was Mr Perez who prepared and lodged this application and she did not see it during the period when she was dealing with Icon. Mr Collett recalled the team at Icon “working with” Ms Cleaves on the “wording” of the application but could not recall whether he or anyone else at Icon reviewed the document in the form in which it was lodged. He also did not recall whether or not the application had been lodged by someone at Icon or by Ms Robic as its tax agent.

610    The application listed Mr Collett as the nominated contact person and as the officer who declared the truth of the information contained in it. Because this was the first such application that Mr Collett or Icon had been involved with, I consider it unlikely that he would not have been fairly closely involved in settling the document, or that he would have forgotten the process of preparation and lodgement, if those steps had been taken by Icon. It is also noteworthy that the application contains a negative answer to the question whether the entity relied on advice from a tax agent or R&D consultant. This also makes it unlikely that the application was prepared and lodged by someone at Icon (or by Ms Robic), because the answer was untrue and none of these people had any reason to conceal Mr Perez’s involvement.

611    I therefore consider it most likely that Ms Cleaves’s evidence is correct and that it was Mr Perez who prepared and lodged the application, using the description of Icon’s business and the Icon project that Ms Cleaves had developed with staff at Icon as a starting point. Given that there is unchallenged evidence that Mr Perez prepared and lodged documents of this kind in relation to the other schemes discussed in these reasons, and included (untrue) negative answers to the question about reliance on a consultant in nearly all of them, the fact that this application disclaimed reliance on a tax agent or R&D consultant does not call for any hesitation in accepting that Mr Perez prepared and lodged the application. Ms Cleaves deposed to a conversation with Mr Perez (although she could not remember when it occurred) in which he said that ticking “no” to this question “means that the lodgement with AusIndustry gets approved quicker”, which tends to confirm that this was a deliberate practice of his.

2014 income year – preparation of claim for lodgement with the ATO

612    On 7 May 2015, Mr Collett received an email from Mr Perez which said:

Please find Attached your R&D Tax schedule 2014, make sure that Rozalin gets the Registration letter, and the registration number is correct and confirmed

You should receive your payment automatically

As soon your tax return is lodged

613    The attachments to the email included a spreadsheet containing calculations, which was identical to the second Icon 2014 spreadsheet, and an R&D tax incentive schedule in the standard ATO form that contained figures for R&D expenditure and notional deductions consistent with those in the spreadsheet. The “refundable R&D tax offset” claimed was $57,999.15.

614    Icon’s income tax return for the 2014 income year was lodged by Ms Robic on or about 14 May 2015. It was accompanied by an R&D schedule that included the following figures.

(a)    R&D expenditure – salary expenditure” – $88,548;

(b)    “R&D expenditure – Other” – $21,696;

(c)    “Total notional R&D deductions” – $110,244; and

(d)    “Refundable R&D tax offset” – $49,609.80.

615    The difference between these numbers and those which had been supplied by Mr Perez on 7 May 2015 indicates that either Ms Robic or somebody at Icon gave further consideration to what expenses of Icon could be justified as R&D expenditure. Mr Collett does not discuss this in his affidavit. Mr Perez was granted leave to issue a subpoena to Ms Robic, but she was not called. The process that led to the finalisation of the quantum of Icon’s R&D claim for the 2014 income year is therefore unknown.

616    As a consequence of including the R&D claim in its income tax return (and the lodgement of that return creating a deemed assessment), Icon became entitled to a tax credit of $49,609.80. That credit became an offset against the tax payable by Icon. On 15 May 2015, Icon paid the ATO the sum of $53,519.70 in respect of the 2014 income year.

2014 income year – payment to Grow Fast

617    On 28 May 2015, Ms Cleaves and Ms Robic exchanged emails about Icon’s R&D tax offset and tax liability. Ms Robic confirmed that the grant amount was “taken off the tax liability at the time of lodgement” and Icon had “lodged and paid” on 15 May.

618    Also on 28 May 2015, Mr Collett received an email from Ms Cleaves attaching an invoice. Ms Cleaves’s email said “[a]s discussed the grant amount was $19,333.10”, which reflected the “expected refund” in the second 2014 Icon spreadsheet. It appears that Ms Cleaves did not know that Icon’s tax return had included figures for R&D expenditure that were somewhat lower than those in the spreadsheet (which suggests an assumption on her part that Icon would have used the figures provided by Mr Perez rather than performing its own analysis).

619    The invoice was in the name of “Grow Fast Consulting Pty Ltd”. The invoice was for an amount of $3,402.60 (including GST) for “[p]lanning, coordinating and consulting on R&D work”. It is not clear how this amount was calculated. The bank details were for an account in the name of Grow Fast Consulting and the contact details at the bottom of the page were those of Mr Perez. According to Mr Collett’s evidence, Icon paid the invoice in full at or around the time it was received.

2015 income year – AusIndustry application

620    An application for registration of R&D activity for Icon was lodged on 14 January 2016. Again, the claimed R&D activities related to the Icon project. Mr Collett deposed that he did not recall seeing this document or drafts of it before it was lodged and did not remember whether anyone from Icon lodged the document. Ms Cleaves deposed that the document was prepared and lodged by Mr Perez. This evidence was not challenged and I accept it.

621    Ms Cleaves also deposed to Mr Perez having said to her from time to time that clients could make R&D claims in respect of the same project every year if the project spanned multiple years. She understood from this that Mr Perez wanted her to liaise with clients about making claims for more than one income year if their projects went across multiple years. It is therefore not surprising that Mr Perez would have acted on his own initiative to have Icon registered in respect of the 2015 income year, so as to prepare the ground for a further claim.

622    As with the 2014 Icon registration application, this application:

(a)    identified Mr Collett as the nominated contact person;

(b)    identified Mr Collett as the person making the declaration that its contents were true; and

(c)    represented that Icon had not relied on advice from a tax agent or R&D consultant in compiling it.

623    For the reasons explained above in relation to the 2014 Icon registration application, these features (combined with the absence of recollection on Mr Collett’s part of having seen the document before its lodgement) make it very unlikely that Mr Collett or anyone else associated with Icon was responsible for preparing and lodging the application.

2015 income year – preparation of the R&D claim

624    On 18 January 2016, Mr Collett received an email from Ms Cleaves. The subject of the email was “Fwd: Icon”, and I infer that Ms Cleaves was forwarding material sent to her by Mr Perez (which is consistent with her evidence that the source of the information in the email and the attached document was Mr Perez). The email said, in part:

R&D Calculations that need to be looked at and adjusted.

The big ones are obviously payroll that you will need to clarify with the timesheet records you have.

…

The fixed expenses are an estimation based on legislation. The legislation says that you can claim up to 50% of your fixed expenses and attribute that to R&D. It's obviously safer to play below that number.

… 38% is a pretty standard number we have used with other clients. The other option is to go with a number similar to your payroll number (i.e: staff on average spent 20% of their time in R&D related activities so the general expenses you could claim 20% related to R&D)

625    Attached to Ms Cleaves’s email was a spreadsheet containing R&D calculations (the first Icon 2015 spreadsheet). It comprised the following tables.

(a)    A table headed “Payroll Employee Summary” contained a list of employees and their earnings and allocated an “R&D %” to each in order to arrive at an “R&D amount”. The figures in the “R&D %” column ranged from 65 percent (for Mr Collett and Mr Roddis) down to zero. The total of the “R&D Amounts” was $712,610.30 which, divided into Icon’s total wage expenditure, led to an “R&D Ave” of 38.7 percent.

(b)    A table headed “Expenditure” listed expenses under various headings, with a total of $1,441,088.00. An “R&D %” of 39 percent was applied to every item, so that the total of the respective “R&D Amounts” was $556,994.38.

(c)    A third table added together the totals for “Payroll” and “All other expenses”, to give a total of $1,269,604.68 and an “expected Refund” of $190,440.70.

626    I have not been directed to any evidence about where Mr Perez obtained the data required to produce these tables (including whether the figures for wages and expenses came from Icon’s accounts). In cross-examination, Mr Perez insisted that Mr Collett had developed these figures himself. Given that the document came from Mr Perez, and that the similar claim framed by Mr Perez for the previous year had been significantly reduced after a discussion with Mr Collett, this was highly implausible.

627    On 4 February 2016, Ms Cleaves sent another email to Mr Collett (copied to Ms Rozic and another person) with the subject line “ICON R&D for 2015 return”. In her email she said: “[t]he approval came through so everything should be good to go”, which was presumably a reference to the registration application. Attached were a further spreadsheet (the second 2015 Icon spreadsheet) and an R&D tax incentive schedule populated with figures consistent with those in the spreadsheet.

628    The second 2015 Icon spreadsheet had the same structure as the first 2015 Icon spreadsheet and used the same data as the basis for its calculations.

(a)    In the table headed “Payroll Employee Summary” the figures in the “R&D %” column had been adjusted down so that they ranged from 17 percent down to zero percent. The total of the “R&D Amounts” was $89,604.42 which, divided into Icon’s total wage expenditure, led to an “R&D Ave” of 4.9 percent.

(b)    In the table headed “Expenditure”, three items had an “R&D %” of zero and the others were allocated five percent. The total of the “R&D Amounts” was $55,002.65.

(c)    The third table added together the totals for “Payroll” and “All other expenses”, to give a total of $144,607.07 and an “expected Refund” of $21,691.06.

629    Mr Collett deposed that he did not recall “who at [Icon] made the amendments to the spreadsheet”, which suggests an understanding on his part that the changes were made by somebody at Icon. In the light of what happened in relation to the spreadsheets for the 2014 income year (and Mr Perez’s practice, evident throughout these reasons, of proposing unrealistically large claims), it does appear likely that either Mr Collett or someone under his direction intervened to reduce Icon’s R&D claim to something they thought was justifiable. However, it is also the case that the second 2015 Icon spreadsheet was a document sent to Mr Collett by Mr Perez. There may have been a process of discussion and exchange of drafts between Icon staff and Mr Perez; however, it has not found its way into the evidence.

2015 income year – lodgement of income tax return

630    Icon’s 2015 income tax return was lodged by Ms Robic on or about 30 March 2016. It was accompanied by a R&D tax incentive schedule that included figures consistent with those in the schedule received from Ms Cleaves on 4 February 2016 (which, in turn, were consistent with the second 2015 Icon spreadsheet).

631    Icon received a tax credit of $65,073.60, which was offset against its tax liabilities and left an amount of $24,457.80 payable to the ATO. This amount was paid on or about 4 April 2016.

2015 income year – payment to Grow Fast

632    Around 23 February 2016, Icon received an invoice in the sum of $3,579.00 (including GST) on “Grow Fast Consulting Pty Ltd” letterhead. The invoice was dated 23 February 2016, the bank account details listed an account in the name of Grow Fast Consulting and the contact details were those of Mr Perez. It is not clear why this invoice was sent before Icon had lodged its tax return and become entitled to a tax offset. Be that as it may, Icon paid the invoice in full around the time it was received.

Review by the ATO

633    On 2 March 2018, Icon received a letter from the ATO advising that the Commissioner had concerns about its R&D claims for the 2014 and 2015 income years (the ATO letter). The ATO letter had annexed to it two Schedules. Schedule 1 asked Icon to advise whether it believed there were errors in its R&D claims and whether it would be lodging amended returns. Schedule 2 asked for information about any reliance on R&D consultants.

634    Ms Cleaves recalled a meeting with Mr Collett after this letter was received, in which Mr Collett demanded to know why Grow Fast had not asked for the kind of information that the ATO was seeking in its letter, to which she responded that she was not an employee of Grow Fast and did not understand the R&D grant.

635    Email correspondence ensued between Ms Cleaves, Ms Beattie of Icon and Ms Robic, in which Ms Cleaves sought a copy of the ATO letter and said that she would get Mr Perez to respond to it. On 9 April 2018, Ms Cleaves sent an email to Mr Collett and Ms Beattie saying:

Jose said you need at least $20K of R&D spend in order to qualify for the grant. 2015 is now $14K and 2014 is now $13K.

What would you like to do? Did you want to relook at the numbers to see if you can make it work?

636    I infer from this that discussions were occurring within Icon as to whether some more limited version of its R&D claims could be maintained. The details of those discussions are not in evidence; nor is there evidence of any advice or other assistance being provided by Mr Perez. On 10 April 2018, Ms Beattie instructed Ms Robic to amend both of the tax returns so as to include no R&D claim: this was on the footing that she and the “three owners” were comfortable with a “revised R&D … claim” (and could provide documentation including timesheets to support it), but “after reviewing as per request we come in under the threshold”.

637    On or about 11 April 2018, Icon lodged an amended income tax return for each of the 2014 and 2015 income years which no longer included the R&D claims. On 13 April 2018, Ms Beattie emailed to the ATO Schedules 1 and 2 of the ATO letter which had been completed and signed by Mr Collett. Schedule 2 provided the names of Mr Perez, Ms Cleaves and Grow Fast, described the services offered by Grow Fast and annexed one of its invoices.

638    Icon was issued notices of amended assessment on 18 April 2018 (for the 2014 income year) and 16 May 2018 (for the 2015 income year), as a result of which it was required to pay a total of $43,212.01.

Conclusions in relation to Icon

Tax exploitation scheme

639    The approach taken to the R&D claim advanced in each of Icon’s amended income tax returns can readily be identified as a “scheme”, given the extremely broad meaning given to that term by s 995-1 of the ITAA97. The schemes involved the preparation and lodgement of returns including R&D claims.

640    In the case of Icon, two versions or iterations of each scheme need to be kept in mind. There was a version that was actually implemented by the lodgement of an amended income tax return and resulted in Icon becoming entitled to a tax credit. This involved a very modest claim that staff at Icon had worked on and (apparently) satisfied themselves was justifiable. There was also an earlier version of each scheme, put forward by Mr Perez in the spreadsheet that he created. This version involved a much larger claim which, in common with the schemes promoted to other taxpayers, did not have any foundation in the taxpayer’s business records and could not possibly have been substantiated.

641    Objectively, the schemes (in both their iterations) were directed towards the obtaining for Icon of a tax offset pursuant to Division 355 of the ITAA97. This was clearly a “scheme benefit” as defined by s 284-150 of the TAA. The obtaining of such a benefit for Icon was also, clearly, subjectively intended by at least Mr Collett and Ms Cleaves. In light of the evidence that Mr Perez made all the significant decisions in the conduct of Grow Fast’s business, and that it was he who created the first Icon spreadsheet in each year, I find that the obtaining of such a “scheme benefit” for Icon was also his intention. At the time of the relevant promoting conduct (as to which see below), therefore, it was clearly “reasonable to conclude” that one or more of the “entities” that entered into or carried out the scheme did so with the sole or dominant purpose of Icon getting a “scheme benefit” (TAA s 290-65(1)(a)(i)).

642    I did not understand the Commissioner to submit that the Icon project involved no activities capable of being understood as R&D activities within the meaning of ss 355-25 or 355-30 of the ITAA97. While it is far from obvious that software development has the necessary qualities of experimentation and creating new knowledge, I accept that there might be circumstances where it arguably does have that character. I have proceeded on the assumption that, had Icon had available records to establish that all of the expenses it claimed as R&D expenditure in its income tax returns were attributable to the Icon project, it would have been “reasonably arguable” that the “scheme benefit” that (it was reasonable to conclude) was being sought by one or more of the entities implementing the Icon scheme was “available at law”.

643    However, that condition was not met. I have referred above to Mr Collett’s evidence that, when revising the payroll summary in the process that led to the second 2014 Icon spreadsheet, he was working from “employee timesheets which gave a rough understanding of how much time an employee could have spent on an R&D activity” (emphasis added). That was a significant advance on the essentially fictional approach taken by Mr Perez, but still manifestly incapable of producing a claim that was sustainable. At his s 353-10 interview (the transcript of which was in evidence and was referred to by the Commissioner in submissions) Mr Collett expanded on how, when he and his team attempted to frame a response to the ATO letter, they realised that Icon did not have sufficiently detailed records of the time actually spent on the Icon project to support even the relatively modest claims they had made. The “scheme benefit” that was being sought at the time of implementation of each scheme was, for this reason, not “reasonably arguable”.

644    This point is much clearer if attention is directed to the earlier iteration of each scheme, which Mr Perez and Ms Cleaves were at least implicitly encouraging Icon to be interested in when he prepared (and she forwarded) the first Icon spreadsheet for each year. Each of those iterations involved a much larger claim, obviously not based on anything more than optimistic guesswork concerning the time spent on the Icon project by particular employees, and unthinkingly applying the “R&D %” derived from that guesswork to every item of Icon’s other expenses. The spectacular reduction in the size of each claim that occurred when staff at Icon actually considered it serves to confirm that the earlier iteration was far from being “reasonably arguable”.

645    The Icon schemes were therefore “tax exploitation schemes” in the relevant sense.

Promoter

Ms Cleaves

646    Ms Cleaves clearly encouraged “the growth of the scheme[s] or interest in [them]” (TAA s 290-60(1)(a)). She gave evidence of a conversation with Ms Robic in early 2015 in which she mentioned that Grow Fast had a “licensed R&D agent” and asked what Icon was doing, which is probably what led to Ms Robic making contact with Mr Perez. In cross-examination she seemed to agree that she was friends with Ms Robic. She attended the initial meeting with Icon along with Mr Perez and then she became the point of contact between Icon and Grow Fast. In this role she had at least one conversation with Mr Collett where, according to her evidence, she “spoke about Grow Fast’s services, how it could help [Icon] and how successful Grow Fast had been with other clients”. In relation to the 2016 income year, Ms Cleaves sent the email of 18 January 2016 (quoted above), which attached the first 2015 Icon spreadsheet and included advice (attributed to Mr Perez) to the effect that it was sensible for Icon to inflate its R&D claim at the stage of applying for registration with AusIndustry. She later attempted to assist Icon in responding to the ATO letter. Ms Cleaves “had a substantial role” in promoting each scheme (TAA s 290-60(1)(c)), both in its initial version and in the more modest version that was actually implemented.

647    Ms Cleaves also received consideration in respect of the marketing or encouragement of the scheme (TAA s 290-60(1)(b)), in that her company Design & Construct became entitled to be remunerated by Mr Perez under the arrangement described at [14] above. She was therefore a “promoter” within the meaning of s 290-60.

648    It is also tolerably clear that Mr Perez engaged in “conduct” that resulted in Ms Cleaves being a promoter of the Icon schemes, within the meaning of TAA s 290-50(1), and contravened the provision on that basis. That conduct included entering into the arrangement with Ms Cleaves pursuant to which Ms Cleaves would refer prospective clients to Mr Perez and coordinate the flow of information between Mr Perez and the clients she recruited, as well as the training and guidance provided to Ms Cleaves and the payment of remuneration to Ms Cleaves through Design & Construct. In effect, everything that Ms Cleaves did as a promoter of the Icon schemes was done as the agent and representative of Mr Perez. When Ms Cleaves emailed spreadsheets and other documents to Mr Collett and relayed advice, she made it clear that it was Mr Perez who had made the decisions about the contents of those documents and he was the source of such advice as her emails contained. Relevant “conduct” of Mr Perez also included drafting Icon’s applications for registration and the contents of the first Icon spreadsheet in each of the income years.

Mr Perez

649    The conduct of Mr Perez was also calculated to, and did, directly encourage interest in the schemes on the part of Mr Collett and others at Icon. He participated in the initial meeting with Mr Collett and spoke about the success of Grow Fast’s services. By preparing and lodging the applications for registration (which were successful), and the figures contained in the first spreadsheet in each year, he led Mr Collett to think that Icon had a viable claim for the R&D tax incentive in an amount that was worth pursuing. By engaging in these activities, Mr Perez was doing much more than merely advising on the schemes: he was both playing an integral role in implementing the schemes and purporting to give an assurance that the R&D claims he had formulated were maintainable. This remains true even though staff at Icon substantially reduced the quantum of each claim after making their own assessments of the company’s records. Indeed, two points should be made about the client having intervened in this way.

(a)    Mr Perez seemed to accept in cross-examination that, when presented with the figures as revised by Icon, he had done nothing to satisfy himself that relevant heads of expenses were claimable at the rate that had been inserted. This was part of a denial that he was providing tax agent services, but it serves to confirm that he was facilitating the implementation of the schemes and not advising on them.

(b)    In respect of the 2014 income year Icon had reduced the claim that he proposed, based on 42 percent of salaries being attributable to R&D activities, to one based on 8 percent of salaries and not applied at all to some expense categories. Yet in January 2016, he proposed a claim based on 38 percent of salaries and with that percentage applied to every category of expenses. The covering email that Ms Cleaves sent to Icon observed that 38 percent was “a pretty standard number we have used with other clients” but adverted to another “option”. This serves to confirm that the figure of 38 percent had been selected with a view to maximising the claim to be advanced (and therefore Mr Perez’s commission) and not as a real attempt to give advice on what was an appropriate claim.

650    It is reasonable to conclude that these steps played a substantial role in respect of the marketing or encouragement of the schemes. Mr Perez also received “consideration” in respect of the marketing of the schemes. While the contract between Mr Perez and Icon is not in evidence, Mr Collett was not challenged in his understanding that the agreement was for Mr Perez to be paid a percentage commission on whatever R&D grant was obtained. Invoices were rendered in close proximity to the filing of each of the income tax returns (which is consistent with the existence of such an agreement) and these invoices were paid.

651    For these reasons Mr Perez was himself a “promoter” of each of the Icon schemes.

The limitation period

652    Proceedings were commenced in respect of the Icon schemes on 27 March 2020. As late as 9 April 2018, Ms Cleaves (who, as noted above, was acting as the representative of Mr Perez and on his instructions) was emailing staff at Icon about their response to the ATO letter, relaying advice from Mr Perez and encouraging them to “relook at the numbers to see if you can make it work”. This puts the proceeding comfortably within time in relation to both income years, even if a four year limitation period applied.

653    Alternatively, Mr Perez was actively assisting the implementation of the first scheme (for the 2014 income year) up to 7 May 2015, when he sent Mr Collett the notice of registration and a second copy of the first Icon 2014 spreadsheet, and doing the same for the second scheme (for the 2015 income year) up to 4 February 2016, when he provided the first Icon 2015 spreadsheet via Ms Cleaves). If these are understood to be the dates when Mr Perez “last engaged in conduct” that resulted in him being a promoter of the respective schemes, it follows that proceedings were commenced within the six year period which, as explained above, is the relevant one for the purposes of s 290-55(4) of the ITAA97.

654    Additionally, in common with the other schemes discussed in these reasons, the success of the Icon schemes depended on an absence of inquiry by the ATO into the facts purporting to underpin them. They are different from the other schemes in that they were based on activities that could arguably constitute R&D and that, in their final form, they reflected a real attempt by the taxpayer to claim something like the correct amount. However, even in that final form, they rapidly evaporated when questions were asked. Certainly, in the form that Mr Perez initially sought to have implemented, each scheme was one which depended for its success on the ATO not finding out the true facts. If necessary, therefore, I would hold that tax was “evaded” pursuant to each scheme when Icon lodged its return and became entitled to a tax credit, and each scheme was one “involving tax evasion” within the meaning of s 290-55(6). On that footing, no limitation period applied.

Result

655    I find, therefore, that Mr Perez contravened s 290-50(1) of the TAA in relation to the promotion of the Icon schemes.

the scaffold logistics scheme

656    Scaffold Logistics (Scaffold) was incorporated in August 2008. At times relevant to these proceedings its business included supplying structural steel and scaffolding, manpower and rigging services, mainly to construction companies. Its managing director was Michael Adshead and its Chief Financial Officer was George Choo.

657    Mr Choo affirmed an affidavit, which was relied upon by the Commissioner. He was cross-examined by Mr Perez. The evidence in Mr Choo’s affidavit was largely unchallenged. He appeared as a careful witness who, in the face of sometimes confusing questions, did his best to give accurate evidence.

Initial contact with Mr Perez and engagement of Grow Fast

Background

658    Mr Choo’s first contact with Mr Perez was around October 2014 when the latter attended Scaffold’s office, introduced himself and said “Mike [Adshead] told me to talk to you”. Mr Perez spoke about the R&D tax incentive scheme. This was the first time Mr Choo had heard of the scheme. Mr Perez seemed to accept in cross-examination that this meeting occurred and he had spoken about his success in obtaining R&D grants for clients.

659    On 9 October 2014, Mr Choo received an email from Mr Perez. In the email Mr Perez said that he was attaching “detailed information about the R&D opportunity for your consideration” and that “you should be entitle of 820k refund for the next 4 years”. Mr Perez was asked about this estimate in cross-examination and could not give any coherent explanation of how he had made it. He then said:

Also attached it is my service agreement contract, please sign it and email it back to me so I can start assisting you in obtaining your benefit

I will look forward to your email so we can action on it

660    Several documents were attached to the email, including:

(a)    a “Supply of Services Agreement”;

(b)    a set of PowerPoint slides with Grow Fast Consulting’s logo, which explained the benefit of using Grow Fast’s services;

(c)    various guidelines and fact sheets, including a “Customer Information Guide” to the R&D Tax Incentive (issued by AusIndustry and last updated on 6 March 2012), an information sheet on differences between the R&D Tax Incentive and the (former) R&D Tax Concession, an “Overview” of the R&D Tax Incentive dated August 2011 and the Guidelines for Research and Development Plans 2001 (Cth).

661    Mr Perez sent Mr Choo a further email on 16 December 2014, proposing a date for “a meeting related to Scaffold R&D Application” and asking “Did you get my samples”? This was presumably a reference to the documents Mr Perez had attached to his earlier email. Mr Choo replied the following day that he had passed on the “samples” to his boss and the “contract will be returned today”. Mr Perez sent another email to Mr Choo, saying “Please do not forget about the Contract for the R&D Job”.

662    On 18 December 2014, Mr Choo signed the “Supply of Services Agreement” on behalf of Scaffold. The agreement as executed (the Scaffold Agreement) is expressed to be between Scaffold and “Narciso Jose Perez trading as Grow Fast Consulting”. It has the Grow Fast logo on each page. Clause 2.1 requires the “Recipient” (ie, Scaffold) to pay to the “Consultant” the fee specified in Item 4 of the Schedule, in consideration of “the Services”, “[u]pon Government grant approval being lodged by the Consultant”.

663    The “Services” are defined by item 3 of the Schedule as follows.

SERVICES: Assisting Company to obtain a Research and Development Grant In the capacity of a Consultant. The consultant facilitates seminars for individual companies to educate the company on the types of activities that may be eligible for an R&D tax incentive/concession. The consultant will assist the company to identify the eligibility of each company's project under the new R&D tax incentive regime and or any other Federal or State government grant. The consultant will educate on how a company can proactively track and identify their projects for the future. Identify potential commerciality and benefit to each company, Work with the company's individual Accountants as they collect and confirm each company's expenditures and liabilities. Each Accountant needs to be satisfied after verification of all invoices included in recipient's application of each of the invoices validity prior to lodgement of the application. The consultant does not work with any of the recipient's invoices at any stage. The consultant will assist each company's technical person with project documentation which is always reviewed by a highly experienced technical person recommended by the recipient. The consultant does not do any form of tax agent work. The consultant only assists companies with Part A of the application prior to lodgement of applications which is completed by the company and its appointed officers. The consultant does not lodge any application at any stage.

664    The fee was defined by item 4 in the Schedule as “20% of R&D Grant obtained plus GST”. Item 5 provided:

SPECIAL CONDITIONS, no fees to be charged until Grant is obtained. No Grant No Fees. Once Grant refund has been received by the Recipient, Recipient has seven (7) days to pay the consultant’s invoice in full. In the event payment is late and warrants no extension by the consultant then interest will be calculated daily at a rate of 9%.

Provision of information and lodgement of the application for registration

665    Mr Choo met Mr Perez early in 2015 at Scaffold’s offices. Mr Perez gave Mr Choo his business card, which identified him as a registered tax agent and a registered R&D consultant. Mr Choo deposed that, on the strength of these qualifications, he did not question Mr Perez’s advice. During this meeting:

(a)    Mr Choo explained Scaffold’s business activities, including that it created drawings for the erection of scaffolding, provided scaffolding and associated manpower to construction businesses, and that each job and drawing was different from the last;

(b)    Mr Perez explained the R&D process and how he could help Scaffold;

(c)    Mr Choo explained that Scaffold did not keep contemporaneous records on R&D such as diaries or records of testing;

(d)    Mr Perez was interested in whether Scaffold had any tax losses, because he said the R&D claim was a tax incentive and not a “cash rebate”; and

(e)    Mr Perez asked to be provided with financial documents for Scaffold.

666    On 15 January 2015, Mr Choo sent Mr Perez an email to which the following documents were attached:

(a)    a list of the names of, and wage or salary payments to, the employees of Scaffold for the year ending 30 June 2014;

(b)    Scaffold’s balance sheet at 30 June 2014; and

(c)    Scaffold’s profit and loss statement for the year ending 30 June 2014.

667    On 16 January 2015, Mr Perez sent Mr Choo an email which said:

Please ask your Engineers to answer the questioner [sic] for the largest two projects

And please review attached cases

668    Two documents were attached.

(a)    One was a two page document containing questions (the “questionnaire” to which Mr Perez was referring). This was a generic document used by Mr Perez; the questions contained in it did not connect with Scaffold’s particular business.

(b)    The other was headed “Challenges in the construction and installation” and discussed what purported to be two “case studies” (one the construction of a suspension bridge, the other the design of “overburden heaps” at a mine) in which core and supporting R&D activities were identified.

669    Mr Choo deposes that, around this time, Mr Perez arranged to meet with operational staff of Scaffold to discuss technical aspects of the company’s business. He did not recall Mr Perez attending any building sites to see the scaffolding that the company supplied. On 30 January 2015, Mr Choo sent Mr Perez (at his request) a further document which contained a breakdown of each employee’s pay on a month-to-month basis.

670    On 27 February 2015, Mr Perez sent Mr Choo an email attaching what he described as the “tech specs related to your project” for Scaffold to correct and approve. Mr Choo edited the document for spelling and grammar. He understood Mr Perez not to be inviting changes beyond correcting spelling, grammar and technical jargon.

671    On 10 March 2015, Mr Choo sent Mr Perez an email asking “Are you going to forward me the grant this week before you submit?” Shortly afterwards he received an email from Mr Perez which said in part:

Your application is now ready for Submission, please find it attached for your review, it was been corrected with your version 2 of adding to specs

When you are ready please give me the go ahead so I can progress with application

672    Attached was an extract of form of application for registration including the declaration and contacts section of the form. Against the question “Did the R&D Entity rely on advice from a Tax Agent or R&D Consultant to complete this application?”, the answer “No” had been selected. Mr Choo considered this response to be false. He spoke to Mr Perez and told him there was “no way” Scaffold would agree to lodging the application if it did not say “Yes” in response to this question and disclose Mr Perez as the R&D consultant. Mr Perez asserted that this information was “just hidden”. Mr Choo insisted that the question be answered “Yes”, that Mr Perez’s contact details be on the form, and that he be sent the updated application form before it was lodged.

673    On 13 March 2015, Mr Perez sent Mr Choo and Mr Adshead an email which said:

As per our conversation, please find attached some sample for a technical audit just to get an idea

Also please find bellow the contact details of some people who can confirmed that I have passed every Audit

674    Attached to this email were some further guideline documents published by AusIndustry. By sending Scaffold this material and the contact details of some people who were evidently put forward as referees, Mr Perez appears to have been attempting to reassure Scaffold as to his bona fides and competence. Mr Choo forwarded this email to George Elkington (a director of Scaffold) under cover of a message of his own which said, in part:

I have told Jose that he will be the applicant and we need 10 business days before he can press the button.

...

Today MA [presumably Mr Adshead] and I spoke with him and hence the below email from him.

675    A short time later, Mr Perez sent Mr Choo a further email attaching “corrected application form using my R&D Tax Agent license number”.

676    In cross-examination, Mr Choo did not accept that Mr Perez had told him “you will get no money and you will get a massive audit” if Mr Perez’s name was on the application. That suggestion was linked to a view advanced by Mr Perez during the proceedings that his clients would not be treated fairly if his name appeared on their applications. His explanations under cross-examination for attempting to give a deceptive answer to AusIndustry (something which, it will have been noted, he actually did in the course of several of the schemes considered in these reasons) were difficult to follow. However, while this (attempted) deception may be relevant to questions of penalty and to Mr Perez’s own credibility, it does not bear directly on whether he was the promoter of a tax exploitation scheme.

677    Further emails were exchanged between Mr Perez and staff at Scaffold between 13 March and 3 April 2015, concerning refinements of the drafting of the application for registration. In the course of these communications, on 25 March 2015 Michael Paine (who assisted the Executive Chairman of Scaffold) asked Mr Perez for some detail on a figure of $1,788,673 included in the draft application. Mr Perez replied later the same day attaching a spreadsheet (the first Scaffold spreadsheet) that consisted of four tables. His covering email said “Reference figures only, not final yet”. The tables in the spreadsheet were as follows.

(a)    A table headed “Payroll” listed Scaffold’s employees, the duration of their employment, their positions and total wages. Each employee was allocated an “R&D %” ranging between zero and 65 percent which, applied to their total wages, produced an “R&D Amount”. Thirty-five percent was allocated to Mr Choo (who was the Chief Financial Officer); and people whose positions were listed as “Driver” “Accounts” and “Yard” were allocated five or 10 percent. The total of the “R&D Amounts” was $274,617.10 which, divided into the total of wages and allowances, produced a figure of 23 percent.

(b)    A table headed “Overheads” listed expenses in 49 line items with an “R&D %” allocated to each. One hundred percent was allocated to “R&D consultant”, which was an amount of $140,000. Every other item was allocated 23 percent (ie, the percentage derived from the “Payroll” table). The total of the resulting “R&D Amounts” was $1,374,878.66.

(c)    A table headed “Stock used” listed other expenses in 11 line items (the distinction between these and the “overheads” in the previous table is not clear). An “R&D %” of 23 percent was allocated to each line item in this table, producing a total “R&D Amount” of $139,177.81.

(d)    A table headed “Control” brought together the totals from the other tables to produce an overall total of $1,788,673.57.

678    Mr Choo gave some evidence about the origins of the figures in the first Scaffold spreadsheet. The figures in the first three tables, other than those for “R&D %” and “R&D Amount”, were extracted from documents that he had provided to Mr Perez. The “R&D %” and “R&D Amount” figures did not come from him and were, so far as he knew, created by Mr Perez. In the light of the practice followed in the other schemes and the fact that these documents came from Mr Perez, I am comfortably satisfied that it was he who inserted the “R%D %” figures (and either Mr Perez himself or a formula embedded in the spreadsheet then calculated the “R&D amounts”). Mr Perez’s denials of this were unconvincing.

679    On 3 April 2015, the application for registration of R&D activities in respect of Scaffold was lodged with AusIndustry. The application describes a project entitled “SCL research and new technology efficiencies”, starting on 1 July 2013 and ending on 30 September 2015, with a total expenditure of $4,200,000 of which $1,996,486 comprised “core R&D activities”. The project was described as follows under the heading “Objectives”.

One of the challenges was to develop a system which provided safe access to facades and many locations around the building structure which encapsulates the scaffolds with a weatherproof system, increase productivity.

Encapsulation- The product used to provide the weatherproof environment is a reinforced, polymer sheeting system. When applied to the scaffold, the substrate exposes the weak points of the system to environmental loading effects as scaffold is designed for vertical rather than horizontal loading, creating challenges. To ensure these problems do not affect the integrity and safety of the scaffold, our engineering team used design methods that required test rigs off site. These rigs were tested to near destruction while being monitored by our Engineers to ensure weak/stress points were observed and noted, and eliminating the risk of failure. Engineering test reports, computations and design certifications are required to support these outcomes. As safety is the number one priority to Scaffold Logistics and our customer, we ensured that all the relevant engineering test reports, computations and design certification were provided with this product.

The system is an innovative process to the construction industry due to it's weather proofing ability, significantly increasing productivity and the quality of the works. Builders are all facing delays to their programs due to weather, effecting man hours.

680    Mr Choo’s understanding (which I have no reason to doubt) was that Mr Perez prepared the text of the application based on his discussions with Scaffold personnel. Mr Choo was listed as the contact person and as the person declaring that the contents of the application were true. The question whether the R&D entity had relied on advice was answered “Yes” and Mr Perez’s name and tax agent number were given.

681    On 9 April 2015, Mr Choo received a “Notice of Registration for R&D Tax Incentive” for the 2014 income year from the Department of Industry, Innovation and Science.

Preparation of the R&D claim for lodgement with the ATO

682    On 19 April 2015, Mr Choo received an email from Mr Perez which said, in part:

Your company is been approved for max amount $898,418

Calculations are attached lets review them …

…

Attached are necessary docs for the lodgement

683    Four documents were attached to this email. They included copies of Scaffold’s application for registration and the notice of registration. The other documents were:

(a)    a spreadsheet setting out R&D calculations (the second Scaffold spreadsheet); and

(b)    an R&D tax incentive schedule.

684    The second Scaffold spreadsheet was very similar to the first Scaffold spreadsheet discussed above. It consisted of the following tables.

(a)    A table headed “Payroll” contained identical information to the equivalent table in the first Scaffold spreadsheet, except that the “R&D %” for one employee (“DEB”, whose position was “Sales”) had been increased from zero to 100 percent. This increased the total of the “R&D Amounts” to $309,232.10 which, divided into the total of wages and allowances, produced a new figure of 25 percent.

(b)    A table headed “Overheads” was the same as the equivalent table in the first Scaffold spreadsheet, except that the “R&D %” allocated to items other than “R&D consultant” was now 25 percent. The total of the resulting “R&D Amounts” was $1,530,532.93.

(c)    A table headed “Stock used” was also the same as the equivalent table in the first Scaffold spreadsheet, except that the “R&D %” allocated to each line item was now 25 percent, producing a total “R&D Amount” of $156,720.93.

(d)    A table headed “Control” brought together the totals from the other tables to produce an overall total of $1,996,485.96.

685    The R&D tax incentive schedule was the standard ATO form with Scaffold’s details inserted. It was populated with figures consistent with the second Scaffold spreadsheet, giving total notional R&D deductions of $1,996,485 and a refundable R&D tax offset of $898,418.25.

686    Mr Choo deposed that the figures for wages and expenses in the Scaffold spreadsheet appeared to be extracted from Scaffold’s financial documents (which had been provided to Mr Perez) but the percentages and R&D amounts were inserted by Mr Perez.

(a)    As to the “Payroll” table, Mr Choo himself did not spend any time on activities or tasks that related to R&D. Nor, to his knowledge, did some other employees. None of Scaffold’s contemporaneous records recorded any information about time spent by employees on specific activities or tasks, let alone R&D activities. Mr Choo deposed that, in discussions, Mr Perez said that he had assigned a “notional” percentage to each person (“notional” being a word he often used) and said “from my experience, anyone can claim 45 percent”.

(b)    As to the “Overheads” and “Stock Used” tables, there were again no records of Scaffold to support any particular allocation of expenses to R&D activities. Many of the expenses were incurred in the ordinary running of Scaffold’s business. The expense of $140,000 described as “R&D Consultant” was not reported in Scaffold’s profit and loss statement. Mr Perez had not been engaged until December 2014 (well after the end of the relevant income year) and, at the time the spreadsheet was produced, had neither issued an invoice to Scaffold nor been paid.

687    Mr Choo considered that “notional” must be an expression often used by consultants such as Mr Perez and did not question Mr Perez’s methodology. He did query by way of an email the inclusion of a $140,000 expense for “R&D Consultant”. Mr Perez responded:

We need to put 20% on top of what you are going to get, in other words accrue my fees

So the government give you the money

You should get around that 800k refund 20% plus gst must be accrued or you can double claim it in few months time, with your claim for 2015

688    Mr Choo also recalled a conversation on this topic with Mr Perez which he described in part as follows.

[Mr Perez] responded saying that the consultancy fee needed to be shown separately in the income tax return, it was okay for the R&D expenses to show the consultancy fee, and that Scaffold Logistics would get the R&D money from the tax return to pay him . He also told me that he had been in the profession doing R&D for many years and said “Don't worry” and “It is okay”.

689    On 22 June 2015. Mr Choo sent Mr Perez an email (attaching the R&D tax incentive schedule prepared by Mr Perez and a draft of Scaffold’s 2014 income tax return) which said in part:

My tax agent needs to submit the tax return online.

Do I need to give them anything else besides your RD tax schedule?

690    Mr Perez responded that evening:

No good the tax return is not completed, ask for your accountant that key in

The following info

R&D tax schedule

And accumulated loses schedule

691    On 24 June 2015, Mr Choo sent Mr Perez an updated draft income tax return that included a claim for a refundable R&D tax offset of $898,418.25 (consistent with the documents prepared by Mr Perez). His covering email asked Mr Perez to call him and continued:

In order to finalise the return my tax agent would require sufficient supporting documentation from you being the R & D Consultant to confirm the details for the schedule to be included on the tax return to be lodged

692    Mr Perez’s reply, dated 28 June 2015, read:

All ok George, please go ahead and lodge it

693    These exchanges are obviously inconsistent with any suggestion that Mr Perez’s role was limited to what he called “Part A” (an expression he often used and which I took to refer to the application for registration) or to educating the client or providing a methodology which the client and its accountants could use to formulate an R&D claim. Here, Mr Perez was directing the inclusion of specific numbers in Scaffold’s tax return and the lodgement of that return. He was also giving the confirmation, sought by Scaffold’s tax agent, that the return including those specific numbers could properly be lodged.

694    On 8 July 2015, Scaffold’s external accountants (Wellingtons Accountants (Wellingtons)) lodged Scaffold’s income tax return for the 2014 income year. It was accompanied by an R&D schedule that included figures consistent with those provided by Mr Perez. Mr Choo deposed that Wellingtons did not give Scaffold any advice on the R&D tax incentive; he relied on Mr Perez’s experience and expertise for this purpose.

Review by the ATO

695    On 15 July 2015, Scaffold received a letter from the ATO advising that its tax return had been selected for further review and any refund was being retained. During the ATO’s review Mr Perez advised Mr Choo and Mr Adshead about responding to the ATO, prepared draft responses and on some occasions responded directly to the ATO. Examples of Mr Perez’s contributions are as follows.

696    On 22 September 2015, Mr Perez sent an email to Mr Choo in the following terms.

George, just write in the way that you need your entitlement by law and in the case that they do not it, the ato will be legal responsible for damages to your company

By law they can not hold it any more, they may send you an agreement, lets move on with it and claim the next one as well once the funds are released

697    His email included what appears to be text for a letter to the ATO, which included statements such as:

(a)    “… we are facing serious consequences, we can not pay suppliers, legal demands, etc all because the extreme slow process from the ATO”; and

(b)    “[w]e are running many R&D projects, this is creating a significant loses [sic] to us and serious cash flow issues”.

698    On 5 November 2015, Mr Choo forwarded to Mr Perez an email from the ATO to Wellingtons. The email asked for answers to some questions and information to substantiate Scaffold’s R&D claim. In his reply (dated 12 November 2015), Mr Perez inserted what purported to be answers to each of the ATO’s questions into the text of the ATO’s email. (These answers, it may be noted, were at a very high level of generality, whereas the ATO was seeking explanations of individual transactions.) One of the proposed responses was as follows (to a question seeking clarification on whether the amount of “salary expenditure” reported in the R&D schedule related to salaries of Scaffold’s employees):

We have sent to ATO, group certificate with people information already, all information that we do have about our employees is already reported, if you need further information please do not hesitate to contact us

And kept a R&D Dairy

699    The reference to an “R&D Dairy” (presumably a diary purportedly recording R&D activities) was, according to Mr Choo’s evidence (which I accept) not true. Scaffold had not kept any contemporaneous records of particular amounts of time spent by its employees on R&D activities. As noted above, Mr Choo had said as much to Mr Perez during their initial discussions and Mr Perez had propounded “R&D %” figures for all of Scaffold’s employees without access to (and without asking for) any such document.

700    Mr Perez also attached three documents to his 12 November 2015 reply, none of which was explained in the body of the email. These were:

(a)    a “revised” version of the second Scaffold spreadsheet (which, however, arrived at the same total “R&D Amount” on each page as the earlier version);

(b)    a document entitled “Sample Dairy 2009 2010”, which purported to record hours spent by individual employees on R&D activities on a monthly basis (including very brief descriptions of those activities); and

(c)    an Excel document purporting to be an invoice from Grow Fast to Scaffold for the amount of $154,000 (including GST) issued on 30 June 2013.

701    Mr Choo understood from the inclusion of the “Sample Dairy” that Mr Perez wanted him to prepare a similar document. Scaffold did not have records with this level of detail and Mr Choo was not comfortable making it up. He prepared a breakdown of the hours worked by each employee in each month and inserted a “job description for R&D activities” that was given to him by Mr Perez. The document that Mr Choo prepared did not attempt to allocate specific times to particular activities. It listed the hours worked by each employee and applied a “notional R&D percentage” to those hours so as to calculate “Total Hours Spent on R&D Activities”. Under cross-examination he confirmed that this was Mr Perez’s idea and created on his instructions. I accept this evidence and reject Mr Perez’s evidence to the contrary.

702    On 1 December 2015, Mr Perez sent Mr Choo an email headed “Audit Strategy” in which he advocated pressing the ATO to release Scaffold’s tax refund. His email said in part:

The funds can be released and they can later audit whatever they want, however it is important to push them, in other ways the whole thing will take forever

The normally will ask you to sign a letter acknowledging that some fund have to be reimbursed later depending on the finding, it is fine.

(Emphasis in original.)

703    On 18 December 2015, the ATO advised Scaffold that it would be undertaking a “risk review”. The letter conveyed that it was open to Scaffold, while the review was in progress, to make a “voluntary disclosure” of any errors or omissions that it had made (in which case any penalties would be reduced).

704    On 1 March 2016, Mr Elkington sent an email to Mr Perez (copied to Joshua Lucas of the ATO) which said, in part:

Our claim and in particular some segments require supporting information to bring it to conclusion.

As our accredited representative you are the best qualified to provide this detail.

Joshua has agreed to discuss this directly with yourself in order to expedite the process.

705    Mr Perez emailed Mr Lucas directly on 3 March 2016 (copied to Mr Elkington and Mr Choo) providing what purported to be answers to some questions raised by the ATO. On 10 March 2016 he sent another email to Mr Lucas seeking an update and asking “[d]o you want me to assist in any other way?”. On 14 April 2016, Mr Perez sent a long email to Mr Choo suggesting responses to queries from Mr Lucas. Mr Choo responded to these queries in an email to Mr Lucas on 15 April 2016.

706    On 25 May 2016 the ATO advised of its preliminary view on Scaffold’s R&D claim. The ATO’s paper outlined a number of concerns, including that some of the expenditure claimed as R&D expenditure by Scaffold did not relate to activities detailed in its R&D registration, some of the expenditure did not involve any risk (and would have been undertaken anyway for normal operational reasons) and tests did not comply with statutory requirements or standards. Mr Perez wrote a long response on 12 July 2016, which Mr Choo forwarded to Mr Lucas the next day.

707    The review was escalated to an audit on 1 August 2016. During the course of the audit, there was a meeting between Scaffold’s representatives, including Mr Choo, and ATO officers at Scaffold’s offices.

708    On 12 October 2016, Mr Choo advised the ATO that Scaffold had appointed another R&D consultant to assist it. On 2 November 2016, Mr Choo sent to the ATO an email attaching a letter prepared by Scaffold’s new consultants which said that they had recalculated the R&D claim using a method consistent with the legislation. The total notional R&D deductions were now $113,055 and the refundable tax offset was $50,875.

709    The ATO audit continued into 2017, with a further position paper issued on 10 February 2017. The ATO’s position, in summary, was that it was within the power of Innovation Australia to decide whether the activities for which Scaffold claimed the tax incentive were core R&D activities but that “[y]ou failed to demonstrate the nexus between your registered R&D activities and the expenditure for which you claimed notional deductions”. The ATO considered that an administrative penalty should be applied. Mr Choo made representations seeking a reversal of the position on administrative penalty, referring to advice received from Mr Perez.

710    On 3 April 2017, a notice of amended assessment was issued to Scaffold in respect of the 2014 income year. Scaffold’s refundable tax offsets were reduced from $898,418.25 to zero. This gave rise to a shortfall amount of $898,418.25. The shortfall interest charge was reduced to zero because of Scaffold’s particular circumstances.

Consideration

711    Scaffold did not make any payment to Mr Perez. Its obligation to pay under the Scaffold Agreement was expressed to be conditional on Scaffold receiving a “grant”.

712    Nor did Mr Perez ever send an invoice to Scaffold. There are two purported invoices to Scaffold for $140,000 plus GST in evidence: one dated 30 June 2014 (which appears in a bundle of material sent to the ATO on 18 November 2015) and one in Excel format (referred to earlier) dated 30 June 2013. Aside from their dates, the contents of these documents are identical. However, the dates that they bear predate any contact between Mr Perez and Scaffold (and the version in Excel format, on its face, also predates the relevant income year). Both are clearly not genuine and were, I infer, created in an attempt to support the inclusion of an amount for “R&D consultant” in Scaffold’s claimed R&D expenditure: the dates that they bear predate the initial contact between Scaffold and Mr Perez. Mr Perez’s assertion (made while cross-examining Mr Choo) that he only learned of this expense during the ATO review was obviously false.

713    What follows is that Mr Perez was prepared both to include a non-existent expense of $140,000 in his purported calculation of Scaffold’s R&D expenditure – evidently to increase the size of the claim and therefore the commission that he would earn if it was successful – and, when the ATO asked for documents to substantiate the claim, to make two attempts at creating a bogus invoice to support the inclusion of that expense (even though, as Mr Choo’s evidence made clear, no such expense was included in Scaffold’s financial statements for the 2014 income year).

714    Nevertheless, to the extent that consideration is relevant to the analysis below, it is clear that Scaffold was subject to a contractual promise to pay Mr Perez a fee in the event that it obtained an R&D offset. That promise constituted valuable consideration.

Conclusions in relation to Scaffold

Tax exploitation scheme

715    The approach taken to the R&D claim advanced in Scaffold’s income tax return for the 2014 income year can readily be identified as a “scheme”, given the extremely broad meaning given to that term by s 995-1 of the ITAA97. The scheme involved the preparation and lodgement of a tax return including an R&D claim.

716    Objectively, the scheme was directed towards the obtaining for Scaffold of a tax offset pursuant to Division 355 of the ITAA97. This was clearly a “scheme benefit” as defined by s 284-150 of the TAA. The obtaining of such a benefit for Scaffold was also, clearly, subjectively intended by at least Mr Perez and Mr Choo. At the time of the relevant promoting conduct (as to which see below), therefore, it was clearly “reasonable to conclude” that one or more of the “entities” that entered into or carried out the scheme did so with the sole or dominant purpose of Scaffold getting a “scheme benefit” (TAA s 290-65(1)(a)(i)).

717    I did not understand the Commissioner to submit that the project described in Scaffold’s application for registration involved no activities capable of being understood as R&D activities within the meaning of ss 355-25 or 355-30 of the ITAA97 (although the challenges addressed by the project appear to have been in the sphere of engineering rather than the creation of genuinely new “knowledge”). I also note that the ATO in its position paper of 10 February 2017 considered that it was open to Innovation Australia to regard the project described in Scaffold’s application for registration as within the concept of R&D activity. I have therefore proceeded on the assumption that, had Scaffold had available records to establish that the expenses it claimed as R&D expenditure in its income tax return was attributable to that project, it would have been “reasonably arguable” that the “scheme benefit” that (it was reasonable to conclude) was being sought by one or more of the entities implementing the scheme was “available at law”.

718    However, that condition was not met. I accept Mr Choo’s evidence that Scaffold did not have contemporaneous records that would allow any specific proportion of any employee’s time to be attributed to R&D activity. In any event, the figures that were produced by Mr Perez and used for Scaffold’s tax return (on the basis of his assurance that it was “all ok”) did not involve any serious attempt to estimate Scaffold’s actual expenditure on R&D: it adopted percentages of employees’ time that Mr Perez himself described as “notional”; it used the average of these percentages as the sole basis for allocating a portion of administrative and other expenses to R&D (including things that were clearly part of Scaffold’s ordinary business activities such as cleaning, stationery and uniforms); and it artificially inflated the claim by adding $140,000 for purported consultant’s fees that Scaffold had never paid. The “scheme benefit” that was being sought by the implementation of the scheme was therefore not “reasonably arguable”.

719    The Scaffold scheme was therefore a “tax exploitation scheme” in the relevant sense.

Promoter

720    Mr Perez clearly encouraged “the growth of the scheme or interest in” the scheme (TAA s 290-60(1)(a)). This conclusion emerges from the entire course of his conduct with Mr Choo, and in particular from:

(a)    his email on 9 October 2014 suggesting Scaffold could obtain an $820,000 benefit, expressing enthusiasm about assisting Scaffold and attaching promotional material;

(b)    his further email on 16 December 2014 proposing a meeting;

(c)    the meeting in early 2015 when Mr Perez explained how he could assist Scaffold and asked to be provided with financial information;

(d)    the provision of case studies on 16 January 2015;

(e)    the email on 13 March 2015 seeking to reassure Mr Choo that he had “passed every [a]udit”;

(f)    provision of R&D calculations that suggested Scaffold could obtain a very substantial tax benefit, with advice to the effect that “anyone can claim 45 percent”;

(g)    seeking to assure Mr Choo that adding $140,000 to the claim on the basis of a non-existent payment was normal;

(h)    the email on 28 June 2015, responding to the accountant’s request for confirmation, saying “All ok George, please go ahead and lodge it”; and

(i)    advising Scaffold on its response to the ATO review, including urging Scaffold to press for the release of its refund and putting the position that the claim it had made was legitimate.

721    Mr Perez also received consideration in respect of the marketing or encouragement of the scheme (TAA s 290-60(1)(b)), in that he had the benefit of the contractual obligation undertaken by Scaffold to pay him a substantial percentage of any R&D tax offset that it obtained.

722    It is reasonable to conclude that these steps played a substantial role in respect of the marketing or encouragement of the scheme (TAA s 290-60(1)(c). Mr Perez was therefore a “promoter” of the scheme.

723    For these reasons Mr Perez was a “promoter” of the Scaffold scheme.

The limitation period

724    Proceedings were commenced in respect of the Scaffold scheme on 26 June 2020.

725    There is no doubt that Mr Perez was encouraging interest in the scheme on 28 June 2015, when he gave his assurance that the R&D claim based on his calculations was “all ok” and should be lodged. This places the commencement of proceedings well within the six year limitation period which (for reasons explained above) is the applicable one under s 290-55(4) of the ITAA97. While the characterisation of Mr Perez’s later conduct is perhaps more debatable, I consider that the better view is that he was still engaged in encouraging interest in the scheme up to April 2016, when he was assisting Mr Choo with responses to questions from the ATO.

726    Additionally, in common with the other schemes discussed in these reasons, the success of the Scaffold scheme depended on an absence of inquiry by the ATO into the facts purporting to underpin the R&D claim. That conclusion is borne out by what actually happened when the ATO inquired into the claim, and is obviously correct in the light of how Mr Perez had constructed the calculations that he provided. If necessary, therefore, I would hold that tax was “evaded” pursuant to the scheme to the extent that Scaffold obtained a tax benefit from it. For reasons explained above, as a matter of law Scaffold became entitled to a refund when its return was lodged, even though administrative powers of the ATO were used to withhold that refund pending a review. The scheme was therefore one “involving tax evasion” within the meaning of s 290-55(6) of the TAA. On that footing, no limitation period applied.

Result

727    I find, therefore, that Mr Perez contravened s 290-50(1) of the TAA in relation to the promotion of the Scaffold scheme.

conclusions

TAA s 290-50

728    For the reasons set out above, Mr Perez contravened s 290-50(1) of the TAA in respect of each of the taxpayer schemes. Questions as to the appropriate penalty will be dealt with in a later hearing.

TAA s 290-55

Section 290-55(1)

729    Reference has been made above to various ways in which Mr Perez sought to contend that his clients had committed fraud or had otherwise deceived him. These are potentially relevant to a submission that the exception in s 290-55(1) of the TAA applies. However, s 290-55(1) in its terms is directed only to the imposition of a civil penalty (an issue to be dealt with later) and therefore does not prevent a declaration of contravention being made.

730    In any event, no credible evidence was advanced to show that Mr Perez had acted under a “reasonable mistake of fact” (s 290-55(1)(a)) or that, to the extent that any of his conduct was due to an act or default by another party, he “took reasonable precautions and exercised due diligence to avoid the conduct” (s 290-55(1)(b)). Mr Perez’s conduct in relation each of the schemes discussed above was marked by an almost complete lack of curiosity as to the amount of time and money (if any) that his clients had actually expended on R&D activities.

Section 290-55(3)

731    Mr Perez referred at various points to “Guidelines” published by the ATO, apparently in support of a contention that his approach to formulating R&D claims was proper. His evidence included extracts from the “Guide to the R&D Tax Concession” in various editions published between 2008 and 2010. The methodology that he commonly applied – identifying salary expenditure on R&D as a percentage of the taxpayer’s total salaries and applying that percentage to costs of administration – appears to have been based on an apportionment methodology set out in a worked example included in the Guidelines. However, not only did that example require that staff “prove” the time they had spent on R&D (something that was not attempted in any of the schemes in the present case, other than by attempting to create “R&D diaries” in retrospect), but the Guidelines themselves were directed at an earlier legislative scheme (the R&D tax concession scheme under the now repealed ss 73B to 73Z of the ITAA36). That legislation was repealed and replaced by Division 355 of the ITAA97, with effect in relation to income years commencing on or after 1 July 2011, by the Tax Laws Amendment (Research and Development) Act 2011 (Cth). Even if Mr Perez’s method had been compliant with the Guidelines, it would not assist him in demonstrating that the various taxpayer schemes involved viable claims under Division 355.

732    Nor would compliance with the Guidelines assist in bringing s 290-55(3) into play. Assuming that the Guidelines constituted a “publication approved in writing by the Commissioner” (s 290-55(3)(b)(ii)) the statements contained therein concerned the administration of a legislative scheme that was no longer in force at the times relevant in this case. They do not purport to deal with the application of Division 355 of the ITAA97.

Limitation periods (s 290-55(4), (6))

733    For the reasons set out above in relation to the particular schemes, the Commissioner’s application is not statute barred to any extent under s 290-55(4).

Section 290-55(7)

734    Some of Mr Perez’s contentions may have been intended to invoke s 290-55(7), which prevents the Court from imposing a penalty in relation to an entity’s conduct where:

(a)    either:

(i)    the conduct results in another entity being the promoter of a tax exploitation scheme; or

(ii)    the conduct results in a scheme being implemented in a way that is materially different from that described in a product ruling; and

(b)    the entity satisfies the Court that it did not know, and could not reasonably be expected to have known, that its conduct would have that result.

735    This provision also applies only in respect of the imposition of a penalty and is not relevant at this stage. To the extent that it may be relevant, it is only the result referred to in (a)(i) of the previous paragraph (another entity being the promoter of a tax exploitation scheme) that is potentially applicable in this case. However, in each of the schemes that was promoted by either Ms Cleaves (Fresco Gourmet and Icon Integration) or Mr Santos (Cherry Beans, Concept Roasting and Peaberrys), Mr Perez was himself closely involved in the promotion of the scheme and personally directed the critical steps in its implementation. He was in as good a position as anyone to know:

(a)    the nature of the project in respect of which registration had been sought and obtained from AusIndustry;

(b)    the quantum of the R&D claim that was being advanced and how it had been calculated;

(c)    that the claim had been formulated (by him) without any regard to whether it was capable of being substantiated; and

(d)    that, therefore, his conduct caused Ms Cleaves or Mr Santos, as the case may be, to be the promoter of a tax exploitation scheme.

Disposition

736    Declarations will therefore be made in the terms sought by the relevant prayers in the Amended Originating Application.

737    Mr Perez filed a number of interlocutory applications in the proceedings. Three of these had not been completely dealt with before the trial.

(a)    An application filed on 21 May 2021, which sought summary dismissal of the proceedings, was adjourned on 2 March 2022 to be dealt with at the time of making final orders. In the light of the conclusions to which I have come, it must be dismissed.

(b)    An application filed on 2 February 2023 sought leave for Mr Perez to appear at the hearing by video link and various other orders for the provision of information by the ATO. This was listed for hearing on 11 April 2024 but was adjourned for the parties to consider some issues and file further submissions. On 24 September 2024 orders were made granting leave to issue certain subpoenas. The Commissioner ultimately agreed to Mr Perez appearing remotely, although no formal order appears to have been made on this aspect of the application. This application will be formally dismissed to the extent that the prayers therein have not been consented to or made the subject of orders.

(c)    An application filed on 15 June 2023 sought the provision of certain “evidence” to Mr Perez. Mr Perez effectively withdrew this application during a hearing on 11 April 2024, leading the Commissioner to seek costs.

738    The matter will be listed for case management in order to fix a timetable for preparation for a hearing on the remaining issues (which concern the imposition of pecuniary penalties and costs).

Associate:

Dated:    28 May 2026