Billabong Founder Fined $50 Million By Australian Tax Office

Last week, a Federal Court ruled that Billabong founder Gordon Merchant must pay the Australian Tax Office $50M to settle outstanding taxes on the sale of a company in 2015.

According to Michael West Media, “Merchant was acting on advice from Big Four consultancy EY, who had suggested a complex scheme of inter-company borrowings, debt forgiveness and other transactions that significantly reduced the actual profits earned on the sale of Plantic Technologies, a bioplastics manufacturer. The ATO later reassessed the annual reports from the various company entities and trusts involved and issued Merchant and two of his companies an additional $43.5M tax bill, plus a $6.8M fine on top.”

And, according to The Financial Review, “Mr Merchant was following advice from EY Australia to sell a chunk of his Billabong shares to another of his companies to create a capital loss for his family trust – a practice known as wash selling – ahead of the Plantic sale.

The consulting firm also advised Mr Merchant’s companies to forgive $55 million in loans to Plantic as a condition of the sale. Doing this would boost the sale price (because a buyer would normally factor debt into a price), meaning a larger amount would be paid into the family trust.

The trust would use the loss stemming from the Billabong share sale to reduce tax, and the entities that extended the loan to Plantic would avoid having to pay a top-up tax related to income from a loan repayment. This is known as dividend stripping.”

Merchant is currently suing the consulting company EY separately. 

Merchant sold Billabong in 2015, and according to various sources online, his net worth is around $500 million AUD.