Sacked tax specialist accuses Lendlease of avoiding tax and inflating profit

A tax specialist claims Lendlease leant on his firm to sack him after he raised concerns the property giant was distorting its financial statements and attempting a ‘tax dodge’.

In documents filed with the Federal Court, Anthony Watson said he had attempted to raise concerns about a number of related issues during his time working on Lendlease matters. Picture: Getty Images

A former senior Greenwoods & Freehills tax specialist claims Lendlease leant on the firm to sack him after he raised concerns the property giant was distorting its financial statements and attempting an improper “tax dodge”.

Anthony Watson, a partner at GHSF and a member of the firm’s management committee until 2007, also claims in the court filings that the company’s aggressive approach to taxation meant the “financial statements prepared and published by Lendlease were materially incorrect”.

In documents filed with the Federal Court, Mr Watson said he had attempted to raise concerns about a number of related issues during his time working on Lendlease matters, including the $192m takeover of the Primelife retirement group, the Jem project in Singapore and the development of the Sydney International Convention precinct.

On one occasion, Mr Watson alleges he raised the issue of the tax arrangements relating to the purchase of Primelife, previously Babcock & Brown Communities, with Lendlease’s head of tax Paul Hooper in a meeting in early 2013 and was told he should “drop the topic” and “get on board”.

If he continued to “rock the boat”, Mr Hooper said Lendlease would withdraw instructions from him, he alleges.

Mr Watson said he had formed the view that the tax treatment applied to the Primelife business “was enhancing (Lendlease’s) profit by recognising tax deductions from its retirement business whilst not raising a deferred tax liability for the increased tax which would arise on the sale of the retirement villages”.

Former Herbert Smith Freehills partner Anthony Watson.

Lendlease in November disclosed it was being audited by the Australian Taxation Office.

Mr Watson previously publicly accused the company of obtaining a benefit worth some $300m by double-counting tax benefits relating to the retirement living business.

But a Lendlease spokeswoman said the business was “confident our tax treatment is consistent with the law and the ATO’s tax ruling on the taxation of the retirement living industry”.

The company has previously said that it had undertaken a full review of its tax and accounting positions using independent advisers and was satisfied Mr Watson’s claims were “without merit”. “We’re committed to paying the correct amount of tax in every country in which we operate,” it said in May 2021.

Separately, Mr Watson alleges that he reviewed board papers and taxation papers relating to the Jem development – a large mall in Singapore – and realised the company had put in place a mechanism to avoid paying tax.

“The treatment of profit as a capital gain, as opposed to revenue, was contrary to taxation law and had the consequence of overstating Lendlease’s profits in its accounts,” the filing reads.

“The financial reports prepared and published (or to be published) by Lendlease were materially incorrect.”

Mr Watson made these disclosures to Freehills partner Geoff McClellan and Tony Frost, the managing director of GHSF, in August 2013. “Mr Frost encouraged Mr Watson to ‘look the other way’ in order to preserve the business relationship between Mr Watson and Mr Hooper,” the document states. Mr Watson alleges he wrote to Mr Hooper, attaching a note prepared by then Lendlease managing director Steve McCann, “indicating … the treatment of the profits as capital gains was to … avoid tax and to falsely inflate profit”.

Mr Watson alleges he refused to sign the Lendlease tax return relating to the Jem development, after which the company provided the firm with a letter “exonerating GHSF from blame in the event that the character of the gain was challenged”. Mr Hooper later allegedly told Mr Watson to “shut up and leave (the Jem development issue) alone”.

In another instance, Mr Watson was asked to provide advice on the development of the Sydney International Convention, Exhibition and Entertainment precinct.

He formed the view that the tax arrangements in that instance were “improper as it represented an artificial mechanism designed to obtain a taxation benefit”. “The implementation of this … would artificially increase Lendlease’s profits and the financial reports of Lendlease would be materially incorrect,” according to Mr Watson’s Federal Court filings.

In March 2014, Mr Watson “told Lendlease of his concerns that the proposal … was an improper ‘tax dodge’,” it states.

Mr Watson, who said he had dealt with senior Lendlease figures over many years, including former chairmen Dick Dusseldorp and David Crawford, is suing GHSF for $13m.

In April 2016, Mr Watson was told that GHSF – a specialist tax adviser which is related to Herbert Smith Freehills but remains a separate legal entity – would move to remove him as a director and terminate his employment.

The firm found it was “not in the best interest of the company” that he remained. However, Mr Watson alleges he was terminated due to the threats from Lendlease amounting to “conduct that was intended to cause and did cause detriment”.

Mr Watson alleges GHSF ­failed in its duty to “not act capriciously, arbitrarily, irrationally or unreasonably”.