Crown sues ATO for $100m junket refund
AUSTRALIAN BUSINESS REVIEW October 14, 2018 Ben Butler
Gambling GST is calculated on revenue.
James Packer’s Crown Resorts group has launched legal action seeking a $100m refund from the tax office for GST on payments to junket operators over the past decade.
The Federal Court claims also expose the vast sums Crown has spent to bring largely Chinese high-rollers to its Melbourne and Perth casinos, revealing the group has paid at least $1bn in commissions to junket operators between 2007 and 2015.
Crown is not expected to gain any material benefit if it wins the cases, but victory could result in a financial windfall for the government of Victoria, where Crown’s flagship Melbourne casino is located, due to a tax equalisation deal between the states and the commonwealth.
If it wins and gets a refund, Crown is expected to have to pay the Victorian and West Australian governments extra state gambling taxes, wiping out any benefit to the company.
The cases are on top of an existing income tax stoush already before the courts in which the ATO is seeking $396m from Crown over its aborted purchase of US casino operator Cannery in 2007 using a controversial “double dip” structure that enabled it to claim interest costs both here and in the US.Crown Resorts shares last traded at $13.04
In the new lawsuits, Crown Melbourne is seeking about $94m in refunds for GST paid between July 2010 and June 2015, while Burswood Nominees, the Crown subsidiary that runs the Perth casino, is seeking the return of $9.3m it paid between October 2007 and July 2012.
Crown lodged the lawsuits last week after the ATO knocked back its request for refunds in August and September.
The amount of GST payable is usually calculated by adding 10 per cent of the price of a product, but this is not feasible with gambling.
Instead, GST on gambling services is based on the revenue earned from the activity, which is worked out by subtracting the amount paid out to punters from the total amount bet.
Crown claims commissions paid to junket operators should count as an amount paid out to punters, and be deducted from its gambling revenue when working out GST.
The ATO recognises commissions as a deduction from gambling revenue when it is paid directly to “whale” gamblers as a rebate, but has refused to accept Crown’s decade worth of amended tax returns.
It is believed the ATO’s position is that payments to junket operators should not count because they are made to a third party and are for the service of operating the junket.
Crown’s lawsuits shed fresh light on the vast scale of the sometimes controversial junket industry, revealing the company routinely paid operators between $10m and $20m a month — or more — to bring whale gamblers to its Melbourne flagship while the high-roller operation was in full swing.
For example, in November 2014 the amount of GST in dispute by Crown Melbourne was $5.89m, implying a total amount paid to junket operators of about $60m.
However, because Crown Melbourne’s claim only runs to July 2015, the figures stop short of revealing the impact of the arrest for “gambling crimes” of 19 Crown staff in China the following October.
Following the arrests Crown reined in its aggressive pursuit of Chinese whale customers, halving revenue from the VIP gaming sector.
It also sold off its share in Melco Crown, a joint venture with Hong Kong’s Ho family that operates casinos in Chinese special administrative region and former Portuguese colony Macau.
Crown Melbourne’s business with the junket sector appears to have surged in 2014 and 2015, as mainland Chinese authorities started to crack down on money flowing out to Macau.
From February 2014 the amount paid each month to junket operators regularly exceeded $15m a month, Crown’s legal filings indicate.
The documents show that February to April 2015 were particularly busy, with payments to junket operators topping $40m in each of the three months.
While much of the junket sector operates in the shadows, the impact of China’s crackdown is reflected in the annual reports of one of the few operators to file accounts, Hong Kong-listed Amax International Holdings.
Its executive chairman is Ng Man Sun, a veteran of a longstanding violent war for control of Macau’s junket scene with Triad figure Wan Kuok-koi, aka “Broken Tooth Koi”.