In a long-running Wickenby matter, the Federal Court has granted the Commissioner’s interlocutory application to send a “letter of request” to the judicial authorities of Israel to take evidence from several managers of an Israeli bank in his attempt to set aside the decision of the Full Federal Court in Rawson Finances Pty Ltd v FCT [2013] FCAFC 26 on the grounds that it was obtained by fraud.
The matters involved investigations into several related family companies that the Commissioner claimed entered “back-to-back” offshore loan schemes, which resulted in the evasion or avoidance of Australian tax, by way of “advances” being made to the companies from the Israeli bank, which, in turn, were treated as business loans on which interest deductions could be claimed. The Commissioner, on the other hand, treated the advances from the bank, in the 1997 income year, as assessable income and denied the interest deductions claimed.
The 2013 Rawson decision of the Full Federal Court, that the Commissioner wishes to have set aside, found that it was open on the evidence to infer that the advances were loans. Following the decision, the Commissioner pursued several actions to seek to have the decision set aside.
In the current proceedings, the Court found it was appropriate to grant the Commissioner’s application, because of the potential relevance of the managers’ evidence, the inability of at least one manager to come to Australia to give evidence, and because the current proceedings remained, essentially, uncontested by the taxpayer.
(FCT v Rawson Finances Pty Ltd (No 4) [2016] FCA 1436, Federal Court, Perry J, 30 November 2016.)
[LTN 236, 6/12/17]
FJM Note
The Rawson cases relate to the Binetter family, where information about their international Israeli ‘back to back’ loan arrangements (see Australian Financial Review article reproduced in Tax Articles). This prompted the Commissioner to fund the liquidators of the Australian companies to successfully sue the directors of these companies for breach of directors duties – making them personally liable for the tax avoided (see related Tax Month article). Now, it seems, the Commissioner wishes to set aside the 2013 Full Court decision as well.
The Israeli officers of the Israeli bank were ‘unwilling or unable’ to come to Australia to give evidence in this case, prompting the Commissioner to apply to the Federal Court for orders, under s7 & s8 of the Foreign Evidence Act 1994, request Israeli judicial authorities to examine these officers, in the terms that the Commissioner requested, and was granted by Perry J in this action. The terms of the questions to be asked, in the examination, are set out in the judgement in this interlocutory decision.
Section 7 of the Foreign Evidence Act 1994 is in the following terms:
Orders for taking evidence abroad
(1) In any proceeding before a superior court, the court may, if it appears in the interests of justice to do so, on the application of a party to the proceeding, make an order, relating to a person outside Australia:
(a) for examination of the person on oath or affirmation at any place outside Australia before a judge of the court, an officer of the court or such other person as the court may appoint; or
(b) for issue of a commission for examination of the person on oath or affirmation at any place outside Australia; or
(c) for issue of a letter of request to the judicial authorities of a foreign country to take the evidence of the person or cause it to be taken.
(2) In deciding whether it is in the interests of justice to make such an order, the matters to which the court is to have regard include the following:
(a) whether the person is willing or able to come to Australia to give evidence in the proceeding;
(b) whether the person will be able to give evidence material to any issue to
(c) whether, having regard to the interests of the parties to the proceeding, justice will be better served by granting or refusing the order.
The granting of the order and the terms of the examination of these officers were, in part, justified on an exception to the rule in s76 of the Evidence Act 1995, making ‘opinion evidence’ generally inadmissible to prove the existence of the fact, the subject to the opinion. However, there is an exception to this rule, for expert evidence: in section 79 of that Act. This was relevant for one of the persons to be examined overseas.