The story continues – ATO accuses Virgin Blue of destroying documents

Following on yesterdays TM report relating to The Weekend Australian story by Elizabeth Coleman reporting that Virgin Blue executives had attempted to avoid paying GST of $70m, The Australian has continued is revelations, revealing that Virgin Blue company secretary Scott Swift and chief executive Brett Godfrey have strongly denied that they had destroyed the documents about the arrangement reached with the US International Lease Finance Corporation.

The Australian reports that the ATO has alleged that Mr Swift sent emails concerned with the scheme, allegedly created to avoid paying $70million in GST, to Switzerland, to British entrepreneur Richard Branson’s Virgin Group and tax office documents seen by The Australian allege Mr Swift then destroyed the paper trail, while acting on advice from accounting and law firm Ernst & Young in early 2003.

However, a Virgin Blue spokeswoman told The Australian that the documents were archived to a back-up system, and were not deleted as claimed by the ATO.

They told The Australian, “Virgin Blue rejects outright the suggestion of untoward activity”.  “We provided full and complete co-operation to the ATO and provided all documents requested and any inference to the contrary is outrageous”.  “No documents were deleted from the airline’s system and every single email was provided on request,” the spokeswoman said.

She added, “Virgin Blue had documents related to the Virgin Group-ILFC transaction on our system and as the rightful owner of these was Virgin Group, the documents were duly packaged as requested and forwarded to Virgin Group:”. They were not deleted nor removed from our system, they were archived from our day-to-day system to our backup system and provided to the ATO when they were requested.”

It appears from The Australian that Virgin Blue was targeted by the ATO after Mr Godfrey persuaded the US International Lease Finance Corporation to join the scheme, through which Mr Godfrey stood to gain $US1.5 million ($2 million) and Virgin Group would gain $17.5 million from the deal. The payments were suspended.   It also appears that the ATO told Virgin Blue in late 2002 it intended to conduct an audit.

The Australian reports that the GST scheme was devised by Ernst & Young, centred on 11 Boeing aircraft leased by ILFC to Virgin Blue in 2000 for its first fleet of airliners.   Apparently embraced by Mr Godfrey, the plan involved creating a new company, ILFC Australia and registering onshore a foreign company, Interlease Aircraft Transfer Corporation.

Both companies were wholly owned by ILFC and under a restructure that lasted 15 months, the planes were sold to IATC and then immediately sold again to ILFC Australia, with the Virgin Blue leases ultimately transferred to ILFC Australia.  ILFC Australia and IATC then claimed the GST credits worth $70 million each.

In response to questions from The Weekend Australian, which revealed the affair on Saturday, Mr Godfrey said the restructure was for “commercial” reasons.

The Australian reports that the ATO ignored a denial last year from Ernst & Young lawyers acting for ILFC Australia that the documents were destroyed and repeated its claims in its final compliance report.

The plot thickens!

Report by The Mole