ATO investigates Clive Palmer over ‘unusual’ move with a $50m tax twist

Clive Palmer faces an Australian Taxation Office investigation over a move that could have boosted his wealth by $50m.

Clive Palmer returns to his car at Paradise Point on the Gold Coast yesterday. Picture: Lyndon Mechielsen

Clive Palmer is facing an investigation by the Australian Taxation Office over an “unusual” company transformation that could have boosted his wealth with a $50 million capital gains tax benefit.

The Australian, which has been investigating the transformation that was signed off by Mr Palmer, can reveal the ATO has also been carefully probing the tycoon’s company transactions. The transactions occurred a decade ago when Mr Palmer was making his fortune in a massive iron ore deal with China, paying him and his company a total of $US415 million.

Since, Mr Palmer has accused the Chinese government-owned Citic Group of companies of corruption, which they deny. They have accused him of fraud and ­dishonesty, which he denies.

Mr Palmer and his advisers have received a list of written questions from The Australian. Asked if a key document, which he submitted to the Australian Securities & Investments Commission in March 2007, was a “misleading ­device, deliberately designed to avoid capital gains tax”, he declined to comment.

He has refused to disclose whether he has become aware of the ATO’s interest in the matter.

It comes as Mr Palmer claimed yesterday that the ABC, previously supportive of the tycoon, had been unfair by rejecting his ­requests to be interviewed live on its Four Corners program tonight. He accused the ABC of preparing to broadcast what he said were false claims that his cash-strapped Queensland Nickel Pty Ltd wrongfully provided loans to him or his companies.

At the heart of the tax matter is an official 10-page document, bearing Mr Palmer’s distinctive signature swirl and lodged with ASIC. The March 23, 2007, document, known as a “change to company details”, alerts ASIC for the first time that a company ­controlled by Mr Palmer, Korean Steel Pty Ltd, had its ownership fundamentally restructured in a demerger 16 months earlier, in November 2005.

The purported restructuring — claimed to have occurred on ­November 15, 2005 — transferred the ownership of his company, ­Korean Steel, from its ultimate holding company, Mineralogy Pty Ltd, to Mr Palmer and other ­individuals.

The major change to the ownership structure of Korean Steel, with a new issue of 9998 ordinary shares, would have important ramifications as Mr Palmer’s company was then a valuable part of a pending iron ore deal with China’s Citic Group.

Citic Group’s takeover agreement, dated November 1, 2007, saw Citic pay $US200m to Mr Palmer for all of the shares in ­Korean Steel. However, the ­demerger and transfer of Korean Steel’s shares to Mr Palmer and other individuals, which purportedly occurred on November 15, 2005, meant a capital gain of $US200m was effectively halved, with a corresponding cut to the tax payable on the huge windfall. It is not possible to determine how much tax was ultimately paid by Mr Palmer and his companies in relation to the Korean Steel transaction because of privacy rules and a lack of documentary mat­erial on the public register.

The ATO refuses to comment on individual tax cases or investigations. The Australian is not suggesting Mr Palmer has broken any laws.

However, tax experts who have examined the transactions said the March 23, 2007, document lodged with ASIC and the deals surrounding it were “highly unusual”.

They said that in a tax office ­investigation, the onus was on the taxpayer to demonstrate they had acted properly in all respects.

They said the tax office could potentially view the demerger and ownership alterations as a way to allow Mr Palmer to benefit from the 50 per cent discount of tax on a capital gain.

The benefit would come in Mr Palmer receiving the payment from Citic for the sale of Korean Steel’s shares, instead of the distribution of a dividend from its previous ultimate holding company, Mineralogy.

Mr Palmer could be asked for documents such as emails, minutes of meetings and expert advice from his accountants from November 2005 to show to the ATO that the transfor­­mational change to Korean Steel’s ownership occurred as purported in the March 23, 2007, document that he signed and lodged with ASIC. Tax experts said it would be a serious matter if the demerger and change to the ownership of the shares of ­Korean Steel Pty Ltd had not happened on November 15, 2005, as claimed in the March 23, 2007, document.

At the time the March 23, 2007, document was lodged with ASIC, Mr Palmer’s business group had become liable for a ­significant capital gains tax bill arising from its first major transaction with Citic Group the previous year.

Documents show this first major transaction was completed on July 7, 2006, when Citic Group paid $US215m to Mr Palmer’s Mineralogy to acquire all of the shares in his other company, Sino Iron Pty Ltd.

After currency conversion, it was a capital gain of $260m and attracted heavy tax, according to federal court documents filed in a dispute settled in Mr Palmer’s favour in September 2013.

Mr Palmer’s filing with ASIC of the March 2007 document, which stated a transformational ownership change had occurred 16 months earlier, also raises questions about why it was not lodged in November 2005 — when the change is claimed to have occurred.

The Australian’s searches of the corporate history of Mr ­Palmer’s Korean Steel, prior to its takeover by Citic Group, show Korean Steel lodged documents with ASIC to promptly advise of events much less significant than an ownership restructure.

For example, the corporate history of Korean Steel includes a document signed by Mr Palmer on November 18, 2005 — and lodged with ASIC the same day — advising that members of the company had resolved, by special resolution, to change the state of registration of Korean Steel from Queensland to Western Australia.

Tax experts consulted by The Australian said it was unusual that the company would advise ASIC on November 18, 2005, of a relatively minor matter, but not ­advise until late March 2007 of a major ownership restructure said to have occurred on November 15, 2005.

Mr Palmer has previously ­admitted to having signed and ­executed a different document that he falsely backdated by 11 months to provide an explanation for his siphoning of more than $12m in Chinese funds for his own use. He made the ­admission in 2014 during a ­Supreme Court civil case in which he was accused by Citic of concocting a sham transaction, dishonesty and fraud — alle­gations he has repeatedly and strenuously denied.

The key document, titled “Port Management Services Agreement’’, came from his company, but it was not created on June 1, 2013, the date next to his signature on the paperwork.

Mr Palmer admitted in his ­formal legal defence in the ­Supreme Court in Brisbane that the document was created the ­following year, in April or May of 2014.

Judge David Jackson, who heard the allegations against Mr Palmer, last May described “his apparent attempt to manufacture evidence to show that there was a written contract” and “the un­explained creation of an apparently false contract”.

Asked about “backdated and manufactured” documents after Justice Jackson’s 44-page judgment was delivered, Mr Palmer told journalists in May last year that he was allowed to “as private companies do all around Australia”.

“And they are entitled to do it under the Corporations law (sic), I think it is section 123 of the Corporations law (sic),’’ he said.

“And it allows directors and companies, private companies, not public companies, are able to pass a resolution and ratify any ­activity that has been carried out in the year, or anytime, and the law is that becomes an activity as at that time recognised by law.”