BVI- and Bahamas-based companies’ trustee must pay $25 mln in taxes and penalties

Norman Leighton, the owner of international trust administration business called Leighton & Leighton and based in Monaco, has been ordered by the Federal Court of Australia to pay about US$25 mln of taxes and penalties, on the proceeds of his clients’ companies, incorporated in the British Virgin Islands and Bahamas.

Mr. Leighton was a trustee for the clients’ British Virgin Islands-incorporated company Salina Investments Ltd. and Bahamas-based company Kolton Holdings, from early 1993 until their liquidation in 2006. During this period he administered and controlled the Australian share trading of these companies, and was a director of them. In 1993, he opened a custodian account with Westpac and established share-trading accounts on behalf of Salina and Kolton. Proceeds from 676 share transactions authorised by Mr Leighton were deposited into the Westpac account, then sent to an HSBC bank account in Monaco and forwarded to one of the two companies.

The Federal Court stated that Mr Leighton was only the trustee of the BVI- and Bahamas-based companies and not a beneficiary. Trustees are not liable to pay taxes on the income of their estates, except for cases when the beneficiaries are non-residents, and income is sourced in Australia. According to Justice Michelle Gordon, Mr Leighton fell within this exception when the trustee becomes personally liable to taxation.

As a result, the Court found that Mr Leighton was liable to pay tax in the amount of US$12.92 mln for income earned by Salina and Kolton in the years 2002, 2003 and 2004 (while initially the assessments were for six financial years), plus he must pay penalties which represent 75 percent of that sum. Also, additional 20 percent penalty was imposed because of Mr Leighton’s failure to respond to certain information requests from Australian Tax Office.

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