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Record Penalty Imposed for Promotion of Schemes Involving R&D Tax Incentive

The Federal Court has imposed a record penalty of $22.68M on Mr Paul Enzo Bogiatto and his associated companies for a contravention of promoter penalty involving tax exploitation schemes relating to the R&D Tax Incentive between 2012 and 2015.

Mr Bogiatto had previously been deregistered as a tax agent and member of Chartered Accountants Australia in relation to the matters.

Various media outlets and Chartered Accountants disciplinary hearings surrounding the matter reported that:

• Mr Bogiatto would reach out to clients and advise them that they had a strong case for obtaining R&D Tax Incentives, before going on to make R&D claims that “were grossly exaggerated or wholly unavailable,” as described by the Federal Court;
• When questioned by clients over how he calculated his claim figures, Mr Bogiatto was said to have defended his methodology as his intellectual property and asserted that he was the expert on the claim;
• When a client’s claims were the subject of compliance proceedings, The ATO had requested client’s information and records in relation to the work undertaken by Mr Bogiatto. In a complaint to Chartered Accountants, a client had cited that numerous attempts made to provide copies of calculations, working papers and other records for the R&D Tax Incentive claims prepared and lodged went unanswered;
• Chartered Accountants experienced a prolonged history of being unable to contact Mr Bogiatto using the email and physical addresses provided by him. He also did not attend the hearing of the Disciplinary Tribunal to discuss the matters;
• Mr Bogiatto failed to appear at various court hearings and had attempted to leave Australia in September 2019.

The R&D Tax Incentive has been a focus of the TPB and ATO over recent years, with several published matters involving concern over R&D Tax Advisory services in addition to the Bogiatto Case (including the Amede and Birdseye matters).

The substanial penalites levelled act as a significant deterrence to advisors seeking to misuse the benefits available under the R&D Tax Incentive. The case also serves as a reminder for companies and their tax agents to:

• Procure R&D Tax Advisory services from a reputable advisor;
• Ensure that the advisor is fully transparent in respect of:
  • The basis for R&D expenditure calculations;
  • Working papers and details of key positions, such as any apportionment methods where relevant;
  • The relevant guidance published by AusIndustry and ATO that was applied as a basis for the claim.

Swanson Reed supports any measures that maintain the integrity of the R&D Tax Incentive and the profession.