ATO hits back in Crown Resorts junkets row

Crown Resorts is facing another chapter in a legal battle with the Australian Taxation Office over $100m in GST from dealings with junkets.

Late last week the ATO lodged an appeal against a decision of the Federal Court that sided with Crown on whether commissions and rebates paid to junkets should fall under normal GST rules or special rules for gambling revenue.

Crown Resorts is facing another chapter in a legal battle with the Australian Taxation Office over $100m in GST from dealings with junkets.

Late last week the ATO lodged an appeal against a decision of the Federal Court that sided with Crown on whether commissions and rebates paid to junkets should fall under normal GST rules or special rules for gambling revenue.

Junkets refer to gambling promoters who organise tours for international high rollers to Crown casinos in Australia.

The legal stoush started in 2018 when Crown Resorts contested the GST rulings made by the ATO for its Melbourne and Perth casinos over several years.

In September Justice Jennifer Davies ruled in favour of Crown, but the ATO now says her judgment should be put aside.

The ATO said Justice Davies erred in her judgment that the relationships between junkets and casinos were “one integrated and indivisible transaction” and that the “commissions and rebates” should be considered a separate contract unrelated to gambling.

The issue turned on the interpretation of how the revenue stream between Crown and junkets — external companies that provide trips for international high rollers to casinos in exchange for commissions and rebates from wins and losses — should be constructed.

Crown said its use of junket operators should be taxed under a section of GST legislation that applies a tax to the margin of the operator of gambling services to avoid the complexity of calculating the GST liability for every bet wagered minus what is paid out.

But the ATO contended that as Crown paid commissions and rebates to junkets, which were in turn used for promotional activities, the transactions could not be considered a typical gambling activity and fell under normal GST rules.

Court documents from 2018 show that Crown paid at least $1bn in commissions and rebates to junkets operating in Crown Perth and Crown Melbourne between 2007 and 2015.

In September Justice Davies ruled that the GST constructions made by the ATO were “excessive” and that rebates and commissions paid by the casino to junkets should not be considered separate from typical gambling transactions.

If Crown wins the appeal any financial benefit will be negated by extra gambling taxes it will have to pay to the Victorian and West Australian governments.

Crown has suspended all dealings with junkets until at least June 30 next year after allegations it recklessly dealt with junket operators linked to organised crime surfacing in a NSW Independent Liquor and Gaming Authority inquiry.