May 1, 2012

The war is over: how Hoges and Cornell settled with the ATO

The most expensive tax investigation in Australia’s history is officially over. But Chris Seage, a tax consultant and former ATO audit manager, reports nobody is really happy with the outcome.

The most expensive tax investigation in Australia’s history is officially over. After an investigation lasting eight years, last night the solicitor for Paul Hogan and John Cornell issued a press release advising that his clients "and their related entities have reached a settlement with the Commissioner of Taxation on a 'without admission' basis". Hogan, Cornell and the ATO have agreed that the terms of the settlement are to be confidential. But as part of the settlement, the Departure Prohibition Order issued against Hogan has been revoked by the Commissioner. The settlement was reached following mediation before former High Court Judge Michael McHugh AC QC, who was brought in by both parties to break the impasse. The entertainment duo were the chief targets of the federal government’s $433 million Operation Wickenby witch-hunt for high-profile tax cheats. The ATO claimed they owed up to $150 million in unpaid taxes and penalties. The relationship turned toxic as Hogan branded ATO investigators "clowns" and likened them to the Taliban. Damaging leaks to the media by government authorities had painted the pair as tax cheats and criminals with Hogan believing he had incurred lost earnings between $10-15 million per year because no one in business would touch him with a barge pole after his name was tarnished with these accusations. This prompted Hogan to pursue a multimillion dollar compensation case against the government. In 2010 the Australian Crime Commission called a halt to the criminal investigation of Hogan and Cornell after declaring there was no evidence of a criminal nature against them. Colicitor Andrew Robinson told Crikey today it has come as a relief to his clients. "I'm not sure if they are happy. I don’t think that is the right word. Relief would be a better description," he said. "They have a life and now they can get on with it. I don’t think anyone is proud of what happened. To be pursued for eight years and labelled a criminal by the ACC was just terrible. When they dropped the criminal charges against Paul and John in 2010, I can tell you within a month of that happening we were suddenly able to have meaningful discussions with the Tax Office." The last point of meaningful discussions made by Robinson is valid as the tax civil matter never made it to court. Objections lodged by Robinson against the various assessments made by the ATO were disallowed by them and Crikey understands it was at this point negotiations on settlement started. ATO sources have told Crikey that no one is really happy with the settlement. The government never really got their man while a confidentiality clause prevents Hogan and Cornell spilling the beans on the government. "It’s a settlement both parties can live with," one source told me. "All the public sees is a press release that has been legalled but they will never find out what really happened. The stuff-ups will never see the light of day." Crikey understands the settlement reached is a substantial reduction on what the ATO was demanding and that Hogan will not have to sell any of his assets to pay the bill.  Hogan’s negotiators went in hard on the following points:
  1. That tax haven advice was supplied by the late Graham Hill, QC, who went on to become a judge of the Federal Court. He was also a mate of the tax commissioner Michael D’Ascenzo. The man that mediated the settlement Michael McHugh once described Hill as "probably the leading lawyer in Australia on taxation matters".
  2. Damaging leaks to the media by the government had compromised the Hogan/Cornell case.
  3. The multimillion dollar compensation case was real and the ATO and the government were "shit scared" of the ramifications of any potential court matter.
In all my years as a tax investigator and tax consultant, I have never seen anything like the Hogan case that became a public war. Taxpayers have a right to have their tax affairs dealt with in private and the method with which Hogan and Cornell had their personal tax affairs leaked to the media was unprecedented. While there were right and wrongs from both sides, ultimately commonsense prevailed and the matter was settled.

Free Trial

You've hit members-only content.

Sign up for a FREE 21-day trial to keep reading and get the best of Crikey straight to your inbox

By starting a free trial, you agree to accept Crikey’s terms and conditions


Leave a comment

3 thoughts on “The war is over: how Hoges and Cornell settled with the ATO

  1. Suzanne Blake

    Lawyers are the winners again

  2. Jim Wright

    In the late 1980s, the then Tax Commissioner Trevor Boucher instituted a system of bonuses or other rewards for ATO officers, based upon the money they brought in. During the downturn of the early 1990s, the ATO caused huge damage to taxpayers (especially small businesses and independent contractors). If you were days late in submitting your tax return (because clients were not paying you), the ATO would assume a return generating maximum tax and it was always a huge fight to get them to accept a return reflecting the true sequence of events. To bully you into making a quick capitulation, they would start charging interest (12% per annum compounded daily) and/or would take steps to bankrupt you, including any provisional tax in the amount claimed. The then Special Tax Advisor to the Ombudsman, Mr. Peter Haggstrom, received so many complaints that he hadn’t enough money to investigate them all, so he instituted an ‘own motion’ investigation of a few hundred typical cases with the little money he had left. Unfortunately, he left his job shortly afterwards (I wonder why?) and his report was quietly buried. A one-line comment in the ATO annual report said “we must do better” or words to that effect.
    Given this background, is it not fair to ask whether the hard line taken by the ATO is still being adopted in pursuit of personal rewards for ATO officers ? Given the substantial failure rate, one might argue that a more nuanced and gentler approach would have provided a greater return to the government exchequer. Someone should ask the ATO whether this regime is still in place. If it is, surely the amount handed over to employees ought to be a matter of public report.

  3. scottyea

    Suzanne – just like a plumber is a winner when your system fails. Law is actually hard, hard work.

Share this article with a friend

Just fill out the fields below and we'll send your friend a link to this article along with a message from you.

Your details

Your friend's details