{"id":8982,"date":"2023-03-03T08:23:54","date_gmt":"2023-03-02T21:23:54","guid":{"rendered":"https:\/\/insight.thomsonreuters.com.au\/legal\/?p=8982"},"modified":"2023-03-03T08:47:42","modified_gmt":"2023-03-02T21:47:42","slug":"fools-gold-gst-and-precious-metals-fraud","status":"publish","type":"post","link":"https:\/\/insight.thomsonreuters.com.au\/legal\/posts\/fools-gold-gst-and-precious-metals-fraud","title":{"rendered":"Fool’s Gold: GST and Precious Metals Fraud"},"content":{"rendered":"

It has been two years since ACN 154 520 199 Pty Ltd (in liq) v Federal Commissioner of Taxation<\/em> (2020) 282 FCR 455; [2020] FCAFC 190 (EBS & Associates) and avoidance and fraud in the precious metals industry remains a serious risk to the revenue. The AFP-led financial crime taskforce (Taskforce) currently maintains an intelligence alert<\/a> for targeting fraud in the precious metals industry.<\/h4>\n

The alert notes that law enforcement and regulatory agencies are continuing to see sophisticated arrangements that attempt to obscure transactions of recycled \u2018investment form\u2019 precious metals. In this regard the alert notes:<\/p>\n

We believe there are groups or networks of industry participants, including refiners, bullion dealers, gold kiosks, dealers and buyers within established supply chains involved in gold recycling (or carousel type) arrangements, seeking to exploit the GST rules in relation to precious metals.<\/em><\/p><\/blockquote>\n

The operation of \u201cthe GST rules in relation to precious metals\u201d is complex and exploitation may result in civil indirect tax consequences as well as criminal liability. The high-profile case of EBS & Associates was primarily concerned with potential civil liability to indirect taxes (rather than criminal liability for an indirect tax-related crime) although illegitimate behaviour was observed in relation to EBS & Associates\u2019 suppliers.<\/p>\n

EBS & Associates<\/h2>\n

EBS & Associates involved the acquisition and refining of scrap and other metal to produce precious metal for sale to dealers. EBS & Associates acquired gold that was not in investment form (scrap gold), which it converted or refined into precious metal (ie gold in investment form of at least 99.5% fineness). The gold was then sold by EBS & Associates to dealers in precious metal.<\/p>\n

The Commissioner issued an assessment disallowing GST-related input tax credits (totalling approximately $122 million). The Commissioner\u2019s position was that the relevant supplies of precious metals by EBS & Associates to the dealers were not taxable supplies for A New Tax System (Goods and Services Tax Act 1999<\/em> (Cth) (GST Legislation) and therefore were input taxed supplies<\/em>. Accordingly, EBS & Associates was denied an entitlement to the relevant input tax credits in relation to its acquisitions <\/em>of scrap gold. In the alternative the Commissioner sought to rely on anti-avoidance provisions.<\/p>\n

EBS & Associates objected to the assessments. The objections were disallowed. EBS & Associates then applied to the Tribunal for review of the objection decisions. The Tribunal affirmed the decisions under review. EBS & Associates then appealed to the Federal Court. Ultimately, the Federal Court held that supplies of gold to the dealers constituted the \u201cfirst supply of that precious metal after its refining by … the supplier\u201d according to the GST legislation. They were, therefore, GST-free supplies and not input taxed supplies under the GST Legislation.<\/p>\n

Precious Metals Fraud<\/h2>\n

Although EBS & Associates was not a criminal case, it was observed therein that a number of the suppliers to EBS & Associates were illegitimately retaining amounts collected as GST that they should have been remitting to the Commissioner. It also transpired that a number of the suppliers of scrap gold were:<\/p>\n

    \n
  1. purchasing gold in precious metal form (directly or indirectly) from the dealers to which EBS & Associates sold gold in precious metal form;<\/li>\n
  2. defacing or damaging the gold so that it was no longer in investment form; and<\/li>\n
  3. selling the gold (now, scrap gold, but still of 99.99% fineness) to EBS & Associates.<\/li>\n<\/ol>\n

    It is this kind of behaviour \u2013 ie \u201cgold recycling\u201d or \u201ccarousel type arrangements\u201d \u2013 that is the subject of the Taskforce\u2019s intelligence alert. According to the Financial Review<\/a><\/em>, leaked ATO documents prepared for the newly elected government in May 2019 stated that:<\/p>\n

    The ATO is seeking recovery of GST that has been avoided in schemes related to the adulteration of gold bullion (there are in excess of $1.15 billion in assessments for primary tax and penalties in relation to these schemes).<\/p><\/blockquote>\n

    Although the above statement appears to relate to pre-EBS & Associates calculations, the illegitimate behaviour observed in that case by EBS & Associates\u2019 suppliers hints at precious metals fraud nevertheless posing a serious risk to the revenue.<\/p>\n

    The Taskforce regards schemes that exploit GST rules using artificial arrangements to be fraud. Although this may be an oversimplification in terms of regulatory outcomes following an investigation, it does mean that the Taskforce is likely to use criminal coercive powers available to it, such as search warrants (as was the case in EBS & Associates), to facilitate investigations. The Taskforce also utilises data matching and analytics in its fight against these indirect tax crimes.<\/p>\n

    Precious metals fraud is one of a number of indirect tax fraud typologies. Generally, GST-related fraud<\/a> involves one or all of the following:<\/p>\n