Chapter 12

Unpaid casino tax

Introduction

1. Crown Melbourne is required to pay casino tax to the State. The amount of tax is a percentage of GGR and a percentage of CBPGR, each then adjusted for GST. There is also an uplift (called super tax) if the GGR or CBPGR exceeds a certain amount.
2. GGR is defined to mean:

   the total of all sums, including cheques and other negotiable instruments whether collected or not, received in any period by the Company from the conduct or playing of games within the Temporary Casino or the Melbourne Casino (as the case may be) less the total of all sums paid out as winnings during that period in respect of such conduct or playing of games but excluding any Commission Based Players’ Gaming Revenue.¹

3. CBPGR has an equivalent meaning but is confined to revenue received from Commission Based Players. These are players who participate in premium player arrangements or junkets.²
4. Stripped down to their essential elements, both GGR and CBPGR are the difference between ‘sums … received … from playing games’ and ‘sums paid out as winnings’. The underpayment of casino tax has engaged each element.
5. To understand the issues raised, it is necessary to explain some background matters regarding Crown Melbourne’s operations, including its loyalty program.

The loyalty program

6. Members of Crown’s loyalty program, Crown Rewards, receive various benefits and privileges.
7. Members accrue Crown Rewards points based on the amount they gamble at Crown Melbourne and how much they spend at Crown Melbourne participating hotels, and retail and food and beverage outlets, such as restaurants and clubs.³
8. Crown Rewards points can be exchanged for goods or services from many outlets at the Melbourne Casino Complex. The outlets include those operated by Crown Melbourne as well as those operated by third party retailers.⁴ The retailers include high-end stores such as Bvlgari, Hugo Boss, Omega and Rolex, as well as restaurants such as Nobu and Rockpool Bar & Grill.⁵ If a member elects to use their points at one of the outlets, Crown Melbourne pays the supplier the cost of the goods or services.⁶ Points can also be exchanged for car parking, meals and hotel accommodation.⁷
9. Separately, benefits are also awarded to members simply based on their type of membership. For example, platinum tier members will, by virtue of that membership, be entitled to free car parking, hotel accommodation or discounted meals.⁸ On occasion, Crown staff will provide those benefits to selected members as a sign of goodwill.⁹

Crown’s promotional activities

10. Crown Melbourne also offers benefits to its members as part of its promotional activities. The benefits include:
    • category 1: Pokie Credit Rewards (Welcome Back/Free Credits Program)
    • category 2: Mail Outs (Bonus pokie offers)
    • category 3: Pokie credits (Matchplay)
    • category 4: Random Riches (Carded Lucky Rewards)
    • category 5: Jackpot Payments
    • category 6: Consolation
    • category 7: Pokie Credit Tickets
    • category 8: Bonus Jackpots (dining, hotel accommodation and parking).¹⁰
11. Most benefits (apart from some in category 5 and all of categories 3, 6 and 8) are provided in the form of pokie credits that can be used to gamble on an EGM.¹¹
12. There is an important distinction between the types of member benefits that are provided. The benefits in categories 1, 2, 4 and 7 are provided in the form of pokie credits to be used to gamble on an EGM.¹² They cannot be converted to cash and are non-transferable.¹³
13. Category 3 is different. Matchplay are Crown Rewards points that a patron has converted to pokie credits to gamble on an EGM.¹⁴
14. Category 5 benefits (Jackpot Payments) are also different. A jackpot is defined in the Casino Control Act, in substance, as the ‘winnings … payable’ from money that accumulates as contributions are made to a special prize pool.¹⁵ The benefits in category 5 are time-based jackpots. That is, members can win prizes distributed at random by playing on participating EGMs during scheduled promotional times. The prizes include pokie credits, cash, food and beverage vouchers (redeemable at participating Crown Melbourne restaurants) and third party gift cards (for example, for use at David Jones, Coles or BP service stations).¹⁶
15. Category 6 benefits (Consolation) allow a member to double the amount they would otherwise win on an EGM.¹⁷
16. An important feature of each of the benefits in categories 1 to 7 is that (except for fixed prize category 5 promotions such as cash or gift cards), in its calculation of GGR and CBPGR, Crown Melbourne has accounted for the benefits when redeemed as a sum received and has deducted the value of the benefits as a sum paid out as winnings. By this method, the benefits had no effect on the calculation of the casino tax.¹⁸
17. It is worth emphasising that although categories 1 to 7 were often referred to by Crown Melbourne as ‘Bonus Jackpots’, none (apart from possibly categories 5 and 6) were jackpots in accordance with the statutory definition or with ordinary parlance.

The category 8 promotion

18. Turning to category 8 Bonus Jackpots (dining, hotel accommodation and parking), the manner in which Crown Melbourne treated this category for the purpose of calculating GGR and CBPGR was different to how it treated the other categories.
19. From at least 2000, one of Crown Melbourne’s promotions was its gaming loyalty food program.¹⁹ The program allowed a member to earn points based on gambling turnover. The member could purchase a meal or obtain a discount on a meal at participating Crown restaurants based on points accrued on EGMs and table games.²⁰
20. In late 2011, Crown Melbourne investigated whether it could treat the cost of its loyalty food program as a sum paid out as winnings for the purposes of GGR.
21. The concept was set out in a presentation titled ‘Gaming Machines Food Program Initiative’, prepared in October 2011. The following are extracts from the presentation:

    Change Gaming Machines Food Program to be controlled by the Linked Jackpot Equipment to reduce costs and increase profit/margin.

    ‘If anyone in this country doesn’t try to minimise their tax they want their heads read’ (Kerry Packer 1991—House of Representatives Select Committee).

    …

    Proposal

    • Transfer the Issuance control of the Gaming Machine Food Program from Syco to Dacom
    • Classify the Gaming Machines Food Program to be a Bonus/Jackpot as per Welcome Back (earn X receive Y)
    • Allow the Gaming Machine Food Program Costs to be a Gaming Machine Tax Deduction

    Reduce

    • Gaming Machines Total Revenue
    • Reduce Marketing Costs
    • Reduce Tax

    Increase:

    • Gaming Machines Profit
    • Gaming Machines Margin

    …

    Legal/Compliance Approval

    VCGR/Treasury Questions on Tax Deductible Item

    • Focus on Bonusing and Jackpots.²¹

22. Two points should be noted about the proposal. First, it intended to treat the category 8 benefits differently to the category 1 to 7 benefits. The category 8 benefits, when used, were not to be treated as sums received for the purposes of calculating GGR. If they were, then there would be no tax advantage. Second, although it was to be styled as a ‘jackpot’, the program did not have any of the characteristics of a jackpot.²² Treating the Gaming Machines Food Program as a jackpot would mask its true character.
23. On 6 March 2012, Crown Melbourne decided to go ahead with the proposal.²³ There was, however, concern that the regulator might query the addition of the benefits to the sums paid out as winnings. This was for good reason. No aspect of the food program initiative was a sum paid out for a win by the member. So, Crown Melbourne decided to conceal what was about to take place.
24. On 22 March 2012, Mr Edwin Aquino, Revenue Audit Manager, sent a memorandum to Mr Peter Herring, now the Group General Manager, Product, Strategy and Innovation. The memorandum stated:

    I refer to your proposed reclassification of Gaming Machines Food program to be part of the Bonus Jackpot and allow the promotional cost to be a Gaming Machine Tax deduction.

    …

    Factoring in the refurbishment, economic environment, impacts from negative publicity and the increase in Gaming Machines Gaming Tax by 1.72% in 1 July 2012, we are of the opinion that the proposed change will not be noticed by the VCGLR.

    We would recommend the Gaming department prepares a roll forward style explanation in the event that the VCGLR questions the budgeted gaming tax once our budgets are eventually submitted. We are happy to assist in this process.²⁴

25. Ms Debra Tegoni, Crown’s then in-house counsel, considered the permissibility of treating the food program as a sum paid out as winnings. She recorded her views in a memorandum dated 28 March 2012.²⁵
26. Ms Tegoni’s memorandum did not definitively say the cost of the food program could be treated as winnings. All Ms Tegoni did was to set out potential arguments for and against that view. She said:

    As there is no definition of ‘bonus jackpots’ one can argue that these types of rewards are a ‘bonus’—an unexpected reward in the ordinary meaning of that word and in any event is correctly described as a ‘winning’ to justify a deduction from Gross Gaming Revenue …

    An alternative argument on this point may be that the reward or bonus is not a ‘sum paid out as winnings’ … to be properly calculated as a deduction. The bonus/reward or prize … does not arise in respect of the playing of games …

    [W]e would also rely on a course [of] conduct that such deductions have been allowed in the past ... [t]his is not a strong argument for us …²⁶

27. Ms Tegoni said that proceeding with the deductions ‘is aligned with what we have done in the past and so puts us in no worse a situation, other than if any dispute were to arise, the potential for claw back quantum obviously increases’.²⁷
28. In a section of her memorandum headed ‘Opinion and Risks’, Ms Tegoni wrote that the doubts she raised about the permissibility of the deduction would be:

    … of course only relevant if the change [were] picked up; hence Finance and Revenue Audit’s view on how likely it is that the change will be obvious and assessing this risk in making this decision is critical.

    Provided extending the reclassification of the gaming machine’s [sic] food program does not alert anyone’s interest and so a review in tax payable, the risk appears fairly low and if required a reasonable argument can be put to justify our position. The risk may increase as and when more deductions are included over time …²⁸

29. The idea was to conceal the new deduction from the regulator. Crown Melbourne initially proposed to implement the deductions gradually, over a period of time. This was a risk management strategy to conceal the deductions from the regulator.²⁹
30. Crown submits that the ‘unchallenged evidence is that the staged rollout occurred for “technical” reasons’.³⁰ That is not correct according to Mr Herring’s evidence:

    Q: The March 2012 Gaming Food Program Initiative proposed that the roll out of dining awards … be staged … Was that proposal designed to ensure, or expected to have the effect that, the regulator did not become, or would not become, aware of the deductions? …

    A: … the initial staged roll-out discussion was technical, staged to ensure the systems operated as designed but I do recall a request via Mr [Richard] Longhurst wanting to see a staged roll-out in the presentation as a risk management strategy which I presume was relating to the regulator becoming aware but I cannot be sure (emphasis added).³¹

31. The cost to Crown Melbourne of implementing the deductions in stages was estimated to be $950,000 in additional casino tax.³² The implementation timetable was subsequently accelerated.³³
32. In April 2013, Crown Melbourne decided to add the benefits that members received for hotels and parking to the food program deductions.³⁴ This included benefits to which a member was already entitled because of their membership status (for example, a black tier member was entitled to free parking, regardless of the outcome of any gambling event). The effect of this further change would be that a proportion of the deductions were in respect of benefits not based on gambling turnover.³⁵ The same is likely to be true of the dining rewards deducted as part of the food program.³⁶
33. The extension of the deductions and the risk of detection were recorded in another note by Ms Tegoni. She wrote:

    Basically they are saying that parts of the Crown Signature Club Program, which have been a cost of doing business for the program will be allocated as a deduction where it can be linked with play.

    Essentially it is an internal adjustment whereby where [sic] the reward, wining [sic] in terms of deduction under the Casino Management Agreement (can be linked to play) than [sic] a transfer price deduction will be deducted. If there is no link to play eg silver members who are entitled to general free car parking, Crown will in its discretion continue to offer, as a benefit of membership, car parking. We may be forced to defend this at some point with the Regulator but it is agreed that it is the issue of ‘winnings’ like the other deductions that will potentially be an issue and also this with an additional element of us providing a member benefit and deducting it when it is linked to play, which on one view is appropriate.

    This also applies to the hotel benefits.³⁷

34. The evidence indicates that car parking was treated as a sum paid out as a winning in late 2013 and that hotel deductions were treated that way from 2014.³⁸
35. The most likely inference is no one at Crown Melbourne who knew of the deductions believed that the category 8 deductions were legitimate. They nonetheless proceeded with the changes because they believed the chance of the deductions being discovered was limited, and sufficiently limited to warrant Crown Melbourne running the risk of detection.
36. The evidence given by both Mr Mark Mackay, Executive General Manager of EGMs, and Ms Michelle Fielding, Group Executive General Manager and a qualified lawyer,³⁹ supports this inference.⁴⁰ The labelling of category 8 benefits as jackpots was confined to discussions regarding GGR. In no other context were the benefits of meals, accommodation and parking referred to as jackpots. The benefits were described as jackpots in a GGR context to mask their true character.

External legal advice in 2014

37. In December 2014, Crown Melbourne sought advice from senior and junior counsel on whether its premium player commissions were winnings for the purposes of calculating GGR.⁴¹ The premium player commission was an amount paid to a player calculated as a percentage of the player’s turnover in the casino or as a percentage of the player’s losses at the casino. In addition, a complimentary allowance covering accommodation, food, drinks and airfares, also calculated on the player’s turnover, was provided.⁴²
38. Counsel said that the complimentary allowances were not ‘winnings’. Their reasons are worth setting out:

    Such allowances do not bear the character of a ‘sum paid out as winnings’ but are in the nature of gifts or gratuities, albeit Crown calculates the value of the gift or gratuity based on a player’s turnover. Allowances may only be applied to accommodation, food and beverage and airfare costs, and may not be redeemed for cash. We accept that a ‘winning’ may be a non-monetary prize, but we do not see that a gift whose size is calculated by reference to turnover or losses is capable of being a ‘prize’. Complimentary Allowances are not awarded to the winner of a game.⁴³

39. The conclusion about the complimentary allowances is plainly correct. The reasons for that conclusion also make clear, and it would have been clear to Crown Melbourne, that the category 8 benefits (dining, hotel accommodation and parking) were not winnings to be taken into account for the purposes of calculating GGR.
40. Notwithstanding the advice received from senior counsel, Crown Melbourne continued to treat the value of category 8 bonuses as sums paid out as winnings.

VCGLR’s inquiries in 2017 and 2018

41. In mid-2017, the VCGLR looked at the Bonus Jackpot issue.
42. On 29 June 2017, there was a meeting between representatives of Crown Melbourne and the VCGLR. At that meeting, Ms Tracy Shen of the VCGLR raised the impact of the different jackpot types on the EGM revenue calculation. She requested ‘a breakdown of Bonus Jackpot[s] for one day’. Mr Matthew Asher, Strategy and Innovation Manager, Gaming Machines, said he would provide that information.⁴⁴
43. The VCGLR subsequently met with Mr Asher to discuss the issue.⁴⁵
44. On 31 May 2018, Mr Jason Cremona of the VCGLR emailed Ms Fielding and asked a number of questions about the Bonus Jackpots. These included a request for confirmation that the Bonus Jackpots treated as winnings were specific to amounts earned or awarded on an EGM. He also sought details of each type of Bonus Jackpot.⁴⁶
45. Mr Cremona’s enquiry provoked a flurry of activity at Crown Melbourne. It involved directors of Crown Melbourne, Mr Ken Barton and Mr Barry Felstead; and senior executives Mr Xavier Walsh, Crown Melbourne’s COO, and Mr Alan McGregor, Crown Resorts’ CFO. Mr Herring, in-house counsel Mr Joshua Preston, and Ms Fielding, then Crown Resorts’ Group General Manager, Regulatory and Compliance, were also involved.⁴⁷
46. The result of this activity was agreement as to the form of response to be given to the VCGLR.⁴⁸ The response was sent by Ms Fielding on 5 June 2018. It provided the following information:

    1. Pokie Credit Rewards (Welcome Back/Free Credits Program)
       • Based on Pokie Points earned on a Gaming Machine during a patron’s last visit, will determine the patron’s reward value
       • Senior Pokie Credit Reward receive a bonus $3 at specific levels
    2. Mail Outs
       • These are Bonus Pokie Credit Offers sent via mail to Crown Reward Members for varying amounts
    3. Pokie Credits (Matchplay)
       • These are Pokie Credits received by exchanging Crown Rewards points for Pokie Credits at any gaming machine
    4. Random Riches (Carded Lucky Rewards)
       • Rewards based on earning Pokie Points on a gaming machine for specific groups of Crown Rewards Members

    Miscellaneous

    5. Jackpot Payments
       • Pokie Credit payments as Pokie Credits from Lucky Time Jackpots
    6. Consolation
       • Consolation payments e.g. issued from Lucky Time Jackpots or Lucky Numbers
    7. Pokie Credit Tickets
       • Promotional Pokie Credit Game Tickets issued to players for redemption at Gaming Machines
    8. Bonus Jackpots
       • Based on Pokie Points earned on Gaming Machines
         • Carpark 25 Pokie Points in a day
         • Valet Parking for Black and Platinum Crown Rewards—1,000 Pokie Points
         • Hotel Night Benefits Crown Rewards Rewards [sic] Black—1,000 Pokie Points
         • Hotel Night Benefits Crown Rewards Rewards [sic] Platinum—1000 Pokie Points
         • Dining Rewards, the amount issued is based on Pokie Points earned on Gaming Machines during a visit example:
           • Receive $7.50 Dining Reward by earning 150 points on gaming machines in a day.⁴⁹

47. Ms Fielding also addressed the specific questions raised by Mr Cremona. The answers are in italics:

    Just to clarify my understanding of the discussion, I noted the following dot points. Can you please advise if I am correct in my interpretation:

    • Bonus Jackpots deducted from Gaming Revenue are specific to amounts earned or awarded on a gaming machine. No amounts earned outside of the gaming machine, such as hotel rewards (if applicable) can be redeemed on a gaming machine and/or deducted from Gaming Revenue; That is correct, but for exceptions noted at points 2, 3 & 7 above;

    …

    • Bonus jackpots are only accumulated and deducted from gaming tax AFTER being redeemed/used and NOT when earned. All bonusing is only deducted at the time of redemption.
    • A patron cannot redeem ‘loyalty points earned’ for credits on a gaming machine. This is incorrect—note point 3 above. Bonuses must be earned or provided with a specific condition to earn the bonus, ie; returning to Crown to earn X bonus credits. That is correct;

    A couple of action points too:

    • Peter said that bonus prize/points are not ‘linked to signature club’. Can you get him to expand on this? Neither Pete or I recall this—however, to clarify, they generally are related.
    • Can I also get an explanation of each of the ‘Bonus Jackpots’ outlined on the Bonus Jackpot Analysis Report. These include Free credits Program, Mail Outs, Matchplay, ‘Jackpot Payments’, Random Riches Promotion, Consolation BJ and each of the bonuses under the ‘Bonus Jackpots’ banner. Essentially with the explanation I am looking for information regarding a brief description of the bonus, how prize earned, how prize redeemed, etc. See listing above ...⁵⁰

48. There was one important matter that Ms Fielding did not disclose to Mr Cremona. She did not explain that many members were entitled to category 8 benefits because of their loyalty program membership status (black, platinum, gold and silver) and not because of an EGM gambling event. It is unclear who was aware of this at the time,⁵¹ though Mr Herring appears to have known about it.⁵²
49. It is not clear whether the failure to disclose the true nature of the category 8 benefits was inadvertent. This was not investigated during the Commission’s hearings so no findings can be made. Nonetheless, what is clear is that Mr Cremona was not told all the relevant facts.
50. In any event, Crown accepts that it should have been more open in the disclosure it made to the VCGLR in 2018.⁵³

External advice in 2018 and 2019

51. Despite the exchange of correspondence, Crown Melbourne was concerned that the VCGLR was ‘digging around’ about the category 8 benefits.⁵⁴ Mr Preston and others were concerned because Crown Melbourne ‘weren’t on solid ground’.⁵⁵ This could be described as a mild understatement.
52. So, on 17 October 2018, Mr Preston sought advice from Mr Glen Ward, a partner of MinterEllison, regarding the permissibility of Crown Melbourne’s practice in relation to the deductions.⁵⁶
53. Mr Preston informed Mr Ward that the deductions had been made for several years.⁵⁷ Mr Ward was not informed that some members were already entitled to certain of the benefits based on their membership status.
54. A solicitor assisting Mr Ward recorded the instructions obtained from Mr Preston, Mr Herring and Ms Fielding. Her note reads:

    • Health check re food + hotel + carpark program

    …

    • bonus jackpots not broken down into types of jackpots

    …

    • belief that VCGLR would know that credit rewards are being deducted

    …

    • Item 8 does not meet def of bonus jackpot b/c not using ICT

    …

    • evidence over time where we can show [the VCGLR had] clear visibility.⁵

55. Mr Ward provided a draft advice to Mr Preston on 25 October 2018.⁵⁹ The following paragraphs are important:

    …

    21. The VCGLR:
        1. was not advised of this change in the treatment of Gaming Machine Food program costs;
        2. has not approved the Gaming Machine Food Program as a ‘Bonus Jackpot’.
    22. Documents issued at the time of the introduction of these changes to the Gaming Machine Food Program speak of, among other things, the benefit to the bottom line of including these Bonus Jackpots, and the likelihood of the VCGLR detecting this change in treatment.

    …

    26. On a strict interpretation of Gross Gaming Revenue, to constitute a deductible, the amounts must be ‘won’ by the punter or otherwise paid out as winnings. On its terms, this definition would not seem to capture credits earned simply by repeat play, which is what the Gaming Food Program involves.
    27. The concept of loyalty credits accruing based on level of play does not logically fit within the concept of a jackpot, either as that term is commonly understood, or as it is defined in the [Casino Control Act] (which is a very narrow, technical definition).
    28. On the other hand, paragraph 1.03 of the [internal control statement] (sanctioned by the VCGLR) provides a helpful statement of intention … It provides that ‘Crown will include as winnings to its patrons any prize paid out to its patrons on the level of play and in accordance with the rules of the game’. This appears to recognise that turnover based incentives, such as the Gaming Machine Food Program may be able to be treated as ‘winnings’ for the purposes of Gross Gaming Revenue.
    29. According to the Technical Criteria, all Bonus Jackpots need to be approved. The changes to the Gaming Machine Program were not so approved.⁶⁰

56. Crown Melbourne says Mr Ward’s draft advice did not make clear that the deductions were improper.⁶¹ If that is a fair reading of the draft advice, the reader would have at least understood there was a serious risk that the deductions were not permitted.
57. Following receipt of the draft advice, Ms Fielding and Mr Herring made some amendments to it (by providing extra information) and returned it to Mr Ward to see whether he would change his mind.⁶² The amendments were largely rejected.⁶³
58. Mr Preston forwarded the draft advice to Mr Walsh.⁶⁴ It was also provided to Mr Mackay and other senior executives. Mr Mackay, who reviewed the advice,⁶⁵ said he thought that the directors also knew of the advice.⁶⁶
59. On 9 July 2019, Ms Fielding sought further advice from Mr Ward. She asked whether a new draft Technical Requirements Document proposed by the VCGLR changed Mr Ward’s advice on Crown’s tax treatment of its Bonus Jackpots.⁶⁷
60. Mr Ward provided a second advice. That advice accurately identified that ‘the question of whether deductions made in respect of the Gaming Machine Bonus Jackpot Program meet the statutory definition of sums “paid out as winnings” is a question of statutory construction, and not to be resolved by reference to other documents’.⁶⁸
61. Despite this, the second advice can be read as suggesting that if the Technical Requirements Document was altered to reflect the way the Bonus Jackpot promotion program operated, that change may provide some basis for a contention that the Bonus Jackpot could be treated as a winning.
62. The document Technical Requirements for Gaming Machines in the Melbourne Casino, dated 10 July 1996, sets out the technical requirements and the criteria against which approval will be given for EGMs to be used for gambling in the Melbourne Casino.⁶⁹ The technical requirements cover matters such as machine access, monitoring and software integrity. The technical requirements have nothing at all to do with the calculation of GGR under the Management Agreement.
63. Mr Ward must have appreciated that even if the new draft Technical Requirements Document endorsed or reflected the operation of the Bonus Jackpot program, this would have no impact on the GGR definition. In fact, Mr Ward had already made that point explicit. His suggestion to the contrary makes no sense.
64. Mr Ward’s final advice also contained the following paragraph:

    We understand in this respect that the VCGLR has made certain enquiries during the course of 2018 in relation to Crown Melbourne’s treatment of Bonus Jackpots, but to date the VCGLR has not raised any specific issue about the composition of Bonus Jackpots or the treatment of Gaming Machine Bonus Jackpot Program costs as a deductible. Helpfully, under the New [Technical Requirements Document], there is less scope for the VCGLR to raise issues with Crown’s treatment of the Gaming Machine Bonus Jackpot Program.⁷⁰

65. It is difficult to understand the last sentence. As Mr Ward had earlier explained, the meaning of GGR could not be affected by some other document, such as a new draft Technical Requirements Document. It is likely that Mr Ward was attempting to convey the possibility that once the VCGLR dealt with the technical requirements issue, it may not return to the manner in which GGR was calculated.
66. Mr Ward sent his final advice to Ms Fielding on 18 November 2019.⁷¹ She passed it on to Mr Walsh and Mr Herring.⁷² According to Mr Mackay, the directors and Mr McGregor were informed of the advice, and may have been given a copy.⁷³
67. Despite Mr Ward’s advice, the costs of the category 8 promotions continued to be treated as sums paid out as winnings.

The GST dispute

68. In 2020, there was a dispute between Crown Melbourne and the Commissioner of Taxation regarding how GST should be calculated in relation to the commissions and rebates Crown paid to junket operators.⁷⁴
69. The dispute was litigated in the Federal Court and was resolved at first instance in Crown Melbourne’s favour on 10 September 2020.⁷⁵
70. A week later Mr Chris Reilly, General Manager of Tourism at Crown Resorts, emailed a number of people at Crown Melbourne, including Mr Walsh, Mr Herring, Ms Fielding, Mr Barton and Mr Felstead, asking for ‘a chat … to go through some outstanding and historical tax and regulatory matters …’.⁷⁶
71. This caused Mr Herring, on 21 September 2020, to raise the Bonus Jackpot deductions with Ms Fielding. He emailed her that, in his view, Crown Melbourne had been ‘very specific and clear on all deductions’ with the VCGLR. ⁷⁷
72. The next day, Mr Walsh invited a number of senior executives, including Mr Barton, Mr McGregor, Mr Preston, Mr Felstead, Ms Fielding and Mr Herring, to attend a meeting regarding ‘GST judgment—DFT—Next Steps’.⁷⁸ A file note of the meeting records:

    Bonus Jackpots 2012—$4 million

    …

    $40 million

    …

    Is it deductable—what are the components

    Has it been approved …

    1994—no one looked at it

    90% ok going forward.⁷⁹

73. Mr Walsh gave evidence about the meeting. He said that ‘everybody at the meeting understood that there was a residual risk’ as to the deductions by the end of that meeting.⁸⁰ Mr Walsh also said Mr Barton ‘had a view that perhaps [Crown had] taken too narrow a view to what was winnings’,⁸¹ and that Mr Barton was looking to ‘wrap up all the historical tax matters … in a single agreement’ with the State.⁸²
74. Ms Fielding gave evidence that, prior to February 2021, Mr Walsh told her he intended to escalate the tax treatment of Bonus Jackpots to the Crown Melbourne board and ensure the regulator was clear about the issue.⁸³ It does not appear he raised the issue with the board, and he certainly did not raise it with the regulator.
75. The category 8 benefits continued to be treated as sums paid out as winnings.
76. Crown Melbourne contends that this was the fault of Mr Barton and Mr Felstead, both of whom are no longer employed by a Crown company.⁸⁴ Mr Walsh makes the same point.⁸⁵ The contention, however, ignores the fact that other senior executives were involved, to a far greater degree than Mr Barton and Mr Felstead. Some still hold important positions within the organisation.

Meeting between Mr Walsh and Ms Coonan

77. On 22 February 2021, the Victorian Government announced that there would be a royal commission to inquire into the suitability of Crown Melbourne to continue to hold its casino licence.
78. A meeting between Mr Walsh and Ms Helen Coonan, then Chairman of Crown Resorts, was scheduled for the next day. Mr Walsh prepared an agenda for the meeting. Relevantly, it read:

    6. Compliance

    Legacy issue⁸⁶

79. Mr Walsh gave the following evidence about the meeting. He said he raised with Ms Coonan what he described as a ‘legacy issue’, being the ‘tax issue’.⁸⁷ Apparently, he did not go into any detail with Ms Coonan regarding the nature of the ‘legacy issue’. He said Ms Coonan told him to ‘pull the information together’ because she was ‘concerned regarding the matter to, you know, establish a position’.⁸⁸ Mr Walsh was to ‘pull the information together’ and give it to the lawyers for advice and disclosure.⁸⁹ Mr Walsh said that Ms Coonan was ‘definitely going to consider the matter’.⁹⁰
80. Confirmation of this last statement appears in a note taken by Mr Walsh. He wrote in hand on the agenda, adjacent to the words ‘legacy issue’:

    Helen [Coonan] to consider

    XW [Mr Walsh] to think about how best to communicate.⁹¹

81. Mr Walsh explained that the words ‘how best to communicate’ were a reference to how best to disclose the matter to the regulator.⁹²
82. Ms Coonan also gave evidence about the meeting. Her evidence is, in a minor respect, different to that of Mr Walsh.
83. Ms Coonan said that Mr Walsh told her that, in the ‘interests of transparency, there was a legacy matter he wanted to bring to [her] attention’; ‘[i]t related [to] the deductions or calculations of the jackpot tax’; and that ‘there was a memorandum … which … suggested … the VCGLR had not been informed and probably wouldn’t notice’. She said that Mr Walsh was worried about it as a ‘transparency issue’, but that the VCGLR had taken a ‘thorough look at it’ and it had now been approved.⁹³
84. Ms Coonan agreed that she had directed Mr Walsh to ‘pull the information together’ and give it to Crown’s lawyers.⁹⁴ However, Ms Coonan disagreed that she was to consider the issue. Her evidence was:

    Q: When he [Mr Walsh] met with Mr Mackay, Mr Mackay took a note of his instructions from Mr Walsh … and Mr Mackay’s note of what Mr Walsh told him was ‘Helen to consider.’

    A: I understand that, but I had nothing to consider. Nothing was given to me, ever brought back to me. I known, [sic] I don’t know what Mr Walsh meant by that note.⁹⁵

85. Nothing turns on the differing recollections. The conversation between the two on this topic was not long. It is not surprising that their recollections of what was said differs in some respects. In the end, Mr Walsh’s recollection is likely to be more accurate, it being supported by his notation. This is not to suggest that Ms Coonan’s account is inaccurate. It is simply an instance of a short conversation about which recollections differ.
86. Perhaps it could be said that Ms Coonan should have followed up the issue to discover what it was about, as it related to a potential underpayment of casino tax, an obviously important matter. On the other hand, Mr Walsh described it, incorrectly as it turned out, as a ‘legacy issue’, implying that it only related to the past. Taking into account all the problems which, at that moment, Crown Resorts and Crown Melbourne were facing, it is not surprising Ms Coonan thought (even if incorrectly) she had left the matter for others to deal with.
87. The other possibility is that Mr Walsh should have squarely raised the potential underpayment of tax with Ms Coonan.⁹⁶

The spreadsheet

88. On the morning of 24 February 2021, a day after his meeting with Ms Coonan, Mr Walsh spoke to Mr Mackay about the Bonus Jackpots deductions. He instructed Mr Mackay to ‘prepare or pull together the impact of those deductions made under the loyalty program’.⁹⁷ Mr Mackay’s file note of the discussion, which described the matter as a ‘latent’ tax issue, noted that Ms Coonan was ‘reviewing [it] to revert to [Mr Walsh]’.⁹⁸
89. Following the meeting, Mr Mackay asked Mr Herring to send him ‘any detail he had on the Bonus Jackpots in regards to the breakout of each of them’.⁹⁹
90. Mr Mackay subsequently instructed Mr Jose Machado, Finance and Commercial Manager—Gaming, to prepare a spreadsheet setting out the ‘tax impact’ of the Bonus Jackpot deductions.¹⁰⁰ The ‘tax impact’ meant the amount of casino tax Crown Melbourne saved by making the deductions.¹⁰¹
91. The spreadsheet that was prepared only covered the years 2014 to 2019. It indicated that:
    • if all Bonus Jackpots (that is, categories 1 to 8) were not deductible, Crown Melbourne had underpaid casino tax by $167,829,413
    • if category 8 Bonus Jackpots were not deductible, Crown Melbourne had underpaid casino tax by $22,872,944.¹⁰²
92. The calculations were broken down into various categories (namely, category 8 Bonus Jackpots, the Welcome Back deductions and the remainder of the Bonus Jackpots). According to Mr Mackay, this categorisation reflected the different risks as to whether the amounts were deductible.¹⁰³
93. The calculations in the spreadsheet did not make any adjustment for GST. Nor did the calculations take into account super tax or penalty interest payable on any unpaid casino tax.
94. At about 11.30 am on 26 February 2021, Mr Mackay met with Mr Walsh and Mr Herring to discuss the spreadsheet.¹⁰⁴ Mr Mackay knew the spreadsheet was sensitive¹⁰⁵ and he did not email the document to Mr Walsh.¹⁰⁶
95. According to Mr Mackay, he and Mr Walsh understood the potential exposure was about $170 million, excluding super tax and penalty interest.¹⁰⁷ Mr Walsh’s evidence was that he was only concerned with the category 8 deductions.¹⁰⁸

Mr Walsh raises the casino tax issue

96. On 1 March 2021, there was a meeting attended by Mr Walsh, Ms Fielding, Ms Jan Williamson (General Manager Legal, Crown Melbourne), Mr McGregor and Ms Anne Siegers.¹⁰⁹ The unpaid casino tax issue was discussed. Mr Walsh said that most of the attendees were familiar with the issue that was raised in 2018.¹¹⁰
97. The attendees discussed whether unpaid casino tax could be offset against other taxes where there might have been overpayment; whether Crown could rely on the draft Technical Requirements Document to bolster its position; and what would be the public perception of the disclosure of the underpayment of gaming tax.¹¹¹
98. On 3 or 4 March 2021, Mr Walsh discussed the Bonus Jackpot issue with Ms Jane Halton, a director of Crown Resorts and Crown Melbourne.¹¹² According to Mr Walsh, he told Ms Halton about the legal advice that had been received in 2012 and 2018. He described those advices as ‘equivocal’.¹¹³ He also told Ms Halton that the VCGLR had a ‘very close look at it in 2018’ and that the draft Technical Requirements Document would ‘cure’ any issues going forward, but it would not resolve the issue historically.¹¹⁴
99. Ms Halton’s account of the discussion differs somewhat. Her evidence was:

    Q: [C]an you tell the Commission what [Mr Walsh] said to you on that topic on 4 March?

    A: Yes, I can. My memory is that he told me, and it is in the context of a ‘bring out your dead’ broader admonition. This wasn’t a discussion about all of the things … it was a discussion about operation of the business, et cetera, et cetera, but he said to me, ‘One thing that I’ve become aware of, it reflects badly on culture, it is an issue from two thousand’ … and I believe he said ‘12’ … ‘in respect of something that wasn’t fulsomely disclosed and there is a note, a document, that talks about not telling the VCGLR something.’

    I believe he said ‘jackpot’, he didn’t say ‘tax’, and he said that, however this matter was disclosed to the VCGLR in … subsequently in 2018. And that was about the extent of it.

    Q: I see. So did he describe it as a tax, an unpaid tax issue?

    A: No.

    Q: He just described it as something that reflects badly on culture that happened in 2012 that was not disclosed fulsomely …

    A: Correct.

    Q: … but it was fixed up in 2018?

    A: That was what I took from that conversation. Correct.

    Q: His evidence was he talked about advice that had been received in 2012 and 2018 which he described as equivocal. You don’t recall that?

    A: No, I don’t, I’m sorry.

    Q: He said that there was a presentation; you don’t recall him referring to a presentation although you recall him saying something?

    A: A document. He did say a document.

    …

    Q: And he certainly didn’t tell you that was something he’d been aware of since at least 2018, did he?

    A: No, I don’t believe so.¹¹⁵

100. Ms Halton agreed she was ‘concerned’ that Mr Walsh downplayed the tax issue, knowing Mr Walsh was ‘in the midst of it’ in 2018.¹¹⁶
101. Mr Walsh said that he met Mr Nigel Morrison and Ms Antonia Korsanos, both directors of Crown Resorts, on 9 March 2021. He said he provided to them the same information he had given to Ms Halton.¹¹⁷
102. Ms Korsanos’ evidence about the meeting is different:

     Q: Just focusing on the underpayment of gaming revenue tax, what do you remember Mr Walsh telling you in that meeting on 9 March?

     A: The discussion was focused on more a cultural issue. Mr Walsh mentioned that he’d come across a presentation from 2012 that made some references that represented the poor culture and lack of transparency in a change that was made to the tax calculation at the time. The focus was about the comment in the presentation and what … and how that would be looked upon. He did mention that there was a reference … an internal advice.

     Q: Yes.

     A: And also that the situation had been … sorry, the calculation had been audited a few years ago, about three years ago, and full transparency had been made and then also subsequently cured through a technical requirements document update. So the conversation was about the lack of transparency, the lack of engagement and openness with the VCGLR, and again representative of poor culture. Focused on the comment more than anything …

     Q: You said that he mentioned internal advice. Did he also mention external advice?

     A: No, he didn’t.

     Q: Did he tell you what that advice said or the effect of the advice?

     A: Along the lines of ‘It can be done but the VCGLR could argue against it.’ Something along those lines.

     Q: What did you take away as the concern that he was raising with you at that point? Was it the issue about non-disclosure to the VCGLR or transparency to the VCGLR?

     A: It wasn’t an issue … it was definitely a culture and lack of transparency and poor engagement with the VCGLR. It wasn’t an issue on whether there was a concern on that calculation.

     Q: So he didn’t mention it was an issue about underpayment of tax?

     A: Correct. I did not walk away from that meeting believing that there was a concern that tax had been underpaid.

     Q: You had no idea about the quantum in mind either?

     A: No […]¹¹⁸

103. Ms Korsanos said it was ‘a concern’ that Mr Walsh did not disclose to her all he knew about the unpaid casino tax issue.¹¹⁹
104. Mr Morrison did not give evidence about the meeting with Mr Walsh on 9 March 2021. Mr Morrison said he had a very brief conversation with Mr Walsh in a corridor on 19 or 22 March 2021.¹²⁰ Although he could not recall much of the detail, Mr Morrison said he was left with the impression that Mr Walsh had recently come across an issue through a document review,¹²¹ within the past few weeks.¹²² Mr Morrison did not understand that the issue concerned the underpayment of casino tax.¹²³
105. Mr Morrison expressed concern that he had not been informed of the potential underpayment of casino tax even though it was known to Ms Coonan and Mr Walsh.¹²⁴ He said that would particularly be the case if Mr Walsh had known about the issue for years.¹²⁵

The Commission’s request for information

106. On 10 March 2021, Solicitors Assisting the Commission wrote to Crown Resorts and Crown Melbourne requesting them to disclose, relevantly, conduct that would or might breach any provision of the Management Agreement Act or the Management Agreement.¹²⁶
107. On 18 March 2021,¹²⁷ Mr Walsh, Mr McGregor, Ms Williamson and Mr Robert Meade (Crown Melbourne’s in-house counsel) and Mr Herring met Crown Melbourne’s solicitors, Allens Linklaters, to discuss whether the tax treatment of Bonus Jackpots should be disclosed to the Commission. Mr Andrew Maher, a senior partner of the firm, attended the meeting.¹²⁸ He was the solicitor principally responsible for acting on behalf of the Crown companies in relation to the Commission’s inquiries.
108. The unpaid tax issue was outlined by Mr Walsh. The issue was described to Mr Maher as potentially involving $40 million and that it related to Bonus Jackpots comprising hotel accommodation, dining and car parking.¹²⁹ According to Mr Maher, his ‘primary impression’ was that the issue concerned a lack of approval from the VCGLR in the period 2012 to 2018.¹³⁰
109. A file note taken at the meeting by one of the solicitors present relevantly says:

     XW [Mr Walsh]: things I’m worried about being explored. When we calculate gaming tax—deduct amounts as winnings. Difference between collection and paying out. Over the journey add ons to that in terms of what we deduct.

     …

     Normally relate to things like—free play in gaming machines.

     However in 2012, the company realised we could deliver through our systems the ability to award customers things like hotel rooms, carparks or meals.

     Idea is—you play so much—you get free meal. We have the ability to do that through the system approved.

     Internal legal advice as to whether we needed approval or not, and also whether constitutes winnings paid out. No definition on winnings paid out in the act. Universally in the world—get winnings gets paid out. Food, hotels and carparks potentially different though.

     In a business preso and the legal advice with senior execs in 2012, eg ken barton, rowan Craigie, greg Hawkins, word to the effect—given economic movements, vcglr won’t notice. Gives impression we won’t inform vcglr. That we wouldn’t tell them—in the slide deck and also internal legal advice [initially].

     2012—took the deduction, went into the reports.

     Late 2017—[Andrew] wilkie announcements. Post that reported [to] the board, [Barry] Felstead asked what is there. Someone said bonus jackpots—a little unsure—what’s this about? Then asked for [MinterEllison’s] advice. Glen ward said should have got it approved—but overriding question is whether winings [sic] anyway.

     And no clear definition on that.

     But he said think you’re on unstable ground since didn’t get it approved.

     …

     [XW:] The issue that made it difficult—needed approval and didn’t seek it. Approved by system change but questionable. And technical requirements doc—it allows for what we’re doing now, that wa samnedd [sic] and approved by the [VCGLR] in 2020, and covers what we are doing now. We advised them in 2018. But as to 2012—crown’s gone out of its way to cheat tax—what do you think? Awkward conversation.

     …

     XW: $40 mil issue. Around $4 mil per year. Gives the impression didn’t raise as we didn’t want a response. In email and slide deck.

     …

     XW: an email—talks about increase in gaming machine tax says proposed change not noticed by [VCGLR]. Then preso in business plan says something similar. Legal advice says doesn’t alert anyone’s interest, hence risk is low.

     …

     XW: started with the team at crown—around local and domestic customers, started in earnest last year, why didn’t you do it 5 years ago.

     Environment was, unless really aware something wrong, thinking was play on.¹³¹

110. It is important to mention what Mr Maher was not told, as it helps to explain what subsequently transpired. He was not told:
     • that Crown Melbourne had received advice suggesting there was a serious risk that the deductions were not allowable¹³²
     • that some deductions had been made in respect of benefits to which members were entitled because of their membership status (a matter that appears to have been known to at least Mr Herring, who was at the meeting)¹³³
     • that the potential liability for unpaid casino tax was far in excess of $40 million, which is the case however the evidence is viewed.
111. Crown submits Mr Walsh was only ever concerned about the category 8 deductions.¹³⁴ Even if that is correct, the amount of $40 million was a material understatement, because it excluded super tax and penalty interest.¹³⁵
112. By contrast, Mr Mackay said the spreadsheet he prepared for Mr Walsh separated category 8, category 1 and the other categories based on legal risks.¹³⁶ This suggests that, internally, Crown Melbourne may have viewed the risk associated with the deductibility of the categories differently. This conclusion is supported by the fact that Mr Mackay included those categories in the spreadsheet he provided to, and discussed with, Mr Walsh. In the circumstances, the $40 million Mr Walsh spoke of was a patently inadequate estimate. It must, however, be acknowledged that according to the evidence, Crown Melbourne’s primary concern was the category 8 deductions.
113. One possible explanation is that Mr Walsh was only concerned about the category 8 deductions and was not alert to any other issue. Whether this is a satisfactory explanation is not clear. From the spreadsheet Mr Mackay gave him, Mr Walsh must have appreciated there were potentially other casino tax problems. Perhaps he did not appreciate the extent of those problems.
114. In any event, Mr Maher gave evidence that, had he been told Crown Melbourne had advice that ‘there was a possibility’ the category 8 deductions were not allowable, he would have advised Crown Melbourne to make disclosure to the Commission.¹³⁷
115. The details of the discussion suggest that the Crown Melbourne representatives downplayed the significance of the underpayment of casino tax. If they had taken it as seriously as the circumstances required, they would have provided more information to Mr Maher and the other solicitors.
116. That said, towards the conclusion of the meeting Mr Maher asked to be given the relevant documents so he could consider whether the matter need be disclosed.¹³⁸ The documents were provided the following day. They included a draft of Mr Ward’s 2018 advice and Mr Ward’s advice of 18 November 2019, and some relevant presentations.¹³⁹ Had those documents been reviewed, Allens Linklaters would have advised Crown to disclose the matter to the Commission. According to Allens Linklaters and Crown, however, ‘Allens inadvertently overlooked the need to review the documents in [the] folder closely’.¹⁴⁰
117. This is in part explicable on the basis that Mr Maher did not appreciate the importance of the issue. That Mr Maher did not appreciate the importance of the issue is confirmed by subsequent events.
118. To comply with the Commission’s request for details of actual or potential breaches of relevant legislation and agreements, Allens Linklaters prepared a number of schedules containing the requested information. Schedules were provided to the Commission on 24 March 2021,¹⁴¹ and a further schedule was provided on 21 April 2021.¹⁴² In none of these schedules was the Bonus Jackpot issue mentioned.¹⁴³
119. The issue was not mentioned even though the schedules expressly referred to other casino tax transgressions. For example, the 24 March 2021 breach schedule contained the following entry:

     On 20 November 2015, the VCGLR issued Crown with a letter requesting the payment of penalty interest in accordance with s 116(1) of the Casino Control Act.

     Crown’s August 2015 Gross Gaming Revenue (GGR) Report had incorrectly overstated jackpot winnings, resulting in $41,842.79 underpayment of gaming tax for the period. The $41,842.79 was added to the following month’s GGR calculation (September 2015).

     The penalty interest calculated for the period the tax was unpaid (one month) was $326.72. Crown chose not to dispute the letter and submitted a cheque to the VCGLR for the amount of $326.72.¹⁴⁴

120. This entry did not prompt Allens Linklaters or Crown Melbourne staff (who examined the schedule carefully) to disclose the Bonus Jackpot issue.¹⁴⁵
121. The issue only came to light when Mr Mackay’s spreadsheet setting out the quantum of unpaid casino tax was noticed by one of counsel assisting this Commission. The spreadsheet had been produced to the Commission along with tens of thousands of other documents and was not produced in response to any notices to produce that related to requests for information on breaches or potential breaches.
122. Crown Melbourne’s failure to flag the Bonus Jackpot issue before it was raised at Commission hearings was closely investigated.
123. The Commission accepts that the failure to inform it of the Bonus Jackpot issue was inadvertent. It was overlooked by Allens Linklaters when the schedules were being prepared. It was overlooked by Crown Melbourne staff when they reviewed the schedules before they were produced to the Commission.
124. Whether or not Mr Walsh downplayed the matter, he did raise it with Allens Linklaters. He provided Allens Linklaters with the relevant documents. He followed up the matter internally to ensure that disclosure was made.¹⁴⁶

The cat is out of the bag

125. Mr Mackay was called to give evidence on 7 June 2021. He had previously caused the spreadsheet to be prepared and, as well, had made some changes to it.¹⁴⁷ Mr Mackay had been asked to prepare a statement on a number of issues unconnected with unpaid casino tax. However, it was during his oral evidence that the unpaid casino tax issue became public.
126. On the same day, there was a meeting of the directors of Crown Resorts. During the meeting, or shortly thereafter, a media article about the unpaid casino tax was drawn to the directors’ attention.¹⁴⁸
127. The directors were asked to explain what happened when they heard the news. Ms Halton said that she was shocked by what was reported in the article.¹⁴⁹ Ms Korsanos and Mr Morrison said much the same thing.¹⁵⁰ Mr Morrison said that everyone at the meeting was shocked by the magnitude of the potential underpayment.¹⁵¹
128. On the evidence, it could be suggested that Ms Coonan’s position was somewhat troubling. She had been told of the potential underpayment by Mr Walsh on 23 February 2021. Yet she made no mention of this at the meeting.¹⁵² On the contrary, according to Mr Morrison, Ms Coonan seemed as shocked about the news as were the others.¹⁵³
129. However, the other directors were in the same position. Each had been told about the ‘legacy issue’, although Mr Morrison may have been given fewer details than the others. None thought the matter of sufficient significance that action had to be taken.
130. Once again, the explanation may be that the manner in which Mr Walsh disclosed the ‘legacy issue’ did not cause any alarm. That is, for whatever reason, the issue was downplayed.
131. There was another meeting on 7 June 2021 that raises a most troubling matter. The meeting was between Mr Meade, Ms Williamson and Mr Reilly. They discussed the disclosure that had occurred that day during the Commission hearings.
132. According to Ms Williamson, who gave evidence before the Commission, Mr Reilly recounted a meeting he had with Mr Felstead and Mr Preston. During that meeting, Mr Felstead referred to the failure to disclose to the VCGLR the Bonus Jackpot issue. According to Mr Reilly, Mr Felstead suggested that given the lapse of seven years, the documents relating to the issue should be destroyed. Mr Preston said that this should not occur.¹⁵⁴
133. Mr Meade made a file note of the meeting with Mr Reilly and Ms Williamson. The relevant portion of his file note reads:

     Chris called to discuss the matters covered in hearings today.

     Recounted a meeting w/ Barry Felstead & Josh Preston in 2018.

     Josh had identified that there was a presentation which raised concerns about disclosure of the tax matter to VCGLR, from 7 years prior.

     Barry had suggested that, @ 7 years, the docs be destroyed.

     Josh refused.

     Chris advised, if asked, pay the tax.

     Jan advised we had the presentation. Chris grateful for confirmation[.]¹⁵⁵

134. The possibility that documents might be destroyed to cover up an underpayment of tax is most disturbing. That said, it is not possible to determine whether Mr Felstead did suggest that incriminating documents be destroyed. First, Mr Felstead has filed a statement in which he denies the allegation.156 Second, Mr Reilly was not called to give evidence. So, the truth may never be known.

The quantum of the underpayment

135. Once the underpayment of casino tax became public, Crown Resorts and the Crown Resorts’ directors sought independent tax advice from senior counsel in Sydney and senior and junior counsel in Melbourne.
136. Having received that advice, Crown now accepts that it has underpaid casino taxes.¹⁵⁷

Categories 5 and 8

137. Crown Melbourne acknowledged that the category 8 Bonus Jackpot deductions, and some of the category 5 deductions, should not have been made.¹⁵⁸ It agreed that Crown Melbourne’s casino tax obligations for the years 2013 to 2021 had to be reassessed, with an adjustment to be made for GST, and the proper amount paid. In due course, an amount in excess of $60 million (inclusive of interest) was paid.¹⁵⁹
138. Crown Melbourne has ceased treating the costs of the category 8 promotion as deductions and has determined that it will no longer run aspects of the category 5 promotion.¹⁶⁰

Category 6

139. Regarding category 6, the Consolation category, no issue is raised. The prize to which the category refers is a sum paid out as winnings. But because Crown Melbourne treated category 6 amounts as sums received (which they may not have been) and as sums paid out as winnings (which they appear to be), Crown Melbourne may have overpaid tax in relation to this category (although the amount would be less than $1.14 million,¹⁶¹ and any refund may be subject to limitations issues).

Category 3

140. The Commission is of the opinion that there has been a significant underpayment of casino tax in relation to category 3 (Matchplay). There are two lines of reasoning that support this view.
141. The first line is based on the proposition that the pokie points should be treated as a ‘sum received’ for the purposes of GGR. To understand the reasoning, it is helpful first to consider the decision in London Clubs Management Ltd v Revenue and Customs Commissioners (a decision of the United Kingdom Supreme Court, the final court of appeal).¹⁶²
142. The case concerned the proper calculation of gaming duty. Under the relevant legislation, gaming duty was payable as a percentage of the ‘gross gaming yield’ of a casino. The ‘gross gaming yield’ was the aggregate of ‘gaming receipts’ and ‘banker’s profits’ (the casino being the banker). ‘Banker’s profits’ from gaming were the difference between ‘the value, in money or moneys worth, of the stakes staked with the banker’ and ‘the value of prizes provided by the banker’.¹⁶³
143. The casino provided non-negotiable chips to selected gamblers as a promotional tool. The chips were provided free of charge. They could not be used to buy goods or services. They could not be exchanged for cash. They could only be used to place bets. The casino also provided free bet vouchers to selected gamblers as a promotional tool. They could be used in the same way as non-negotiable chips.¹⁶⁴
144. The question the Supreme Court had to resolve was whether, in calculating ‘banker’s profits’, the non-negotiable chips and free bet vouchers were to be brought to account. The Supreme Court said ‘No’ to this question.¹⁶⁵
145. The reason was that a non-negotiable chip or free bet voucher does not represent money to which the gambler is entitled. This is because, unlike cash chips, a non-negotiable chip or free bet voucher cannot be cashed in or exchanged for goods or services. The Supreme Court explained that a non-negotiable chip or free bet voucher has no real-world value to the casino.¹⁶⁶
146. The non-negotiable chips and free bet vouchers considered in London Clubs are different to the Matchplay benefits. Matchplay benefits have real value—the Crown Rewards points can be exchanged for goods or services.¹⁶⁷ In addition, the benefits (points), once earned, are a liability of Crown Melbourne.¹⁶⁸ Properly characterised, they are a contingent liability. As with any liability, a contingent liability can be valued. In the case of Matchplay, the value will be either (a) the face value of the pokie credits; or (b) a discount from the face value based on the likelihood of the contingency occurring.
147. If a member applies the points to acquire goods or services, the contingency is satisfied. Then Crown Melbourne will incur a cost, namely the amount that must be paid to the supplier of the goods or services. Conversely, if the member elects to exchange the points for pokie credits, the contingent liability is immediately discharged. In that event, Crown Melbourne receives an immediate benefit. The value of the benefit is equal to the face value of the pokie credits or their discounted value.
148. Two questions then arise. First, can the discharge of a contingent liability be a ‘sum received’? Assuming the answer to this question is ‘Yes’, the second question is whether the ‘sum received’ is received ‘from the conduct or playing of games’.
149. On the first question, the reference to a sum received in the definition of GGR includes the receipt of money or moneys worth.¹⁶⁹ There are many instances where a reference to a ‘sum’ of money is taken to include money or moneys worth. It would be an odd result if the same approach is not adopted for the purposes of GGR. Take the following example. Assume a patron acquires $1,000 worth of chips in exchange for a $1,000 watch. Is the acceptance of the watch a ‘sum received’ in exchange for the chips? Obviously, the answer is ‘Yes’. Otherwise, the operation of the definition of GGR could easily be frustrated.
150. The same position holds if the member elects to convert Crown Rewards points to pokie credits. Crown Melbourne receives value, the discharge of its contingent liability (equivalent to the watch). In exchange, the member receives pokie credits (equivalent to the chips).
151. Crown Melbourne raises three issues to avoid this result.¹⁷⁰
152. First, it says that a ‘sum received’ must be a sum of money. It is enough to say that this is a contention unlikely to be upheld.
153. Second, it says that Crown Melbourne did not receive any ‘real sum’ from the exchange.¹⁷¹ The argument seems to be that the exchange of points for pokie credits involves the satisfaction of contractual obligations, but not the receipt of anything of value.¹⁷² This contention ignores the value to Crown Melbourne of being discharged from its contingent liability. In the real world, the release of an extant liability has real value. For the Melbourne Casino, the release has an easily ascertained value.
154. Third, Crown Melbourne contends that if the exchange did produce a ‘sum received’, that sum was not received from the conduct of playing of games.¹⁷³ It is difficult to understand this submission. The only way pokie credits can be used is for play on an EGM. Acquiring pokie credits is the same as acquiring chips with which to gamble. The money received by Crown Melbourne for the chips is ‘from the conduct … of games’. The same must be true of the value of the release received by Crown Melbourne for the pokie credits.
155. Last, there is a faint suggestion that there may be double counting because the GGR definition refers to money received from the ‘conduct or playing’ of games.¹⁷⁴ There is nothing in the point. A sum may be received from the conduct or, alternatively, the playing of games, but not both.
156. On this analysis, Crown Melbourne is liable to pay tax on all sums received from Matchplay.
157. The second line of reasoning differs from the first. It is premised on the correctness of Crown Melbourne’s contention that there is no ‘sum received’ from Matchplay. In that event, winnings paid out from bets where no sum is received cannot be deducted from GGR.
158. To understand why this is so, it is helpful to begin with an issue that arose in 2017.
159. Crown Melbourne conducted poker tournaments at the Melbourne Casino. It charged entry fees to players to participate in the tournaments. The State was of the view that the entry fees were a ‘sum received’ within the definition of GGR. Crown Melbourne disagreed.¹⁷⁵
160. In support of its contention, Crown Melbourne relied upon a submission by MinterEllison. In that submission, MinterEllison referred to what it described as ‘[t]he proper construction of “Gross Gaming Revenue”’.¹⁷⁶
161. According to that construction, MinterEllison said:
     • It is evident that the definition of ‘Gross Gaming Revenue’ sets up a relationship of interdependency between (a) ‘sums … received … from the conduct of playing games’; and (b) ‘sums paid out as winnings … in respect of such conduct or playing of games’.
     • The function of the word ‘such’, in the expression ‘sums paid out [as winnings] in respect of such conduct or playing of games’, is to direct attention back to the conduct or playing of games from which the sums are received.
     • The relationship is between ‘sums … received’ and ‘sums paid out’.
     • Thus, ‘sums received’ from the playing of games must refer to the sums that enter the pools of funds from which winnings are paid out.¹⁷⁷
162. On this construction, in respect of sums paid out from ‘free’ Matchplay bets, there is an obvious lack of interdependency because (a) there is no sum received; yet there are (b) sums paid out.
163. Applying the MinterEllison analysis (which may be correct), winnings from a bet where there is no sum received are not deductable from the GGR calculation. The result is that winnings paid out from ‘free’ Matchplay bets are not deductable. The consequence is that Crown has underpaid casino tax, but in a different amount than if the first line of reasoning is applied.¹⁷⁸

Categories 1, 2, 4 and 7

164. The benefits in categories 1, 2, 4 and 7 are provided in the form of pokie credits, with each credit having a specific value when used in an EGM. Apart from their use to play a game in an EGM, the credits have no value to the member.
165. The VCGLR has obtained an opinion from Melbourne senior counsel on a similar issue. Counsel said that ‘free play vouchers are issued by Crown to recipients at no cost to the recipients; the face value of the voucher, however, plainly represents an expense to Crown’. According to senior counsel, the vouchers, ‘when converted into a chip and thereafter gambled at the casino plainly represent a “sum received by the casino”. For this purpose it does not matter that the chip was sourced from a [voucher], that is an irrelevant fact’.¹⁷⁹ There may be significance in the fact that the opinion refers to a situation where a free play voucher may be ‘exchanged by the patrons for chips for playing at a gaming table … or may be exchanged for cash’ (as opposed to a pokie credit, which is not cashable and non-transferrable).¹⁸⁰
166. It is not proposed to address the correctness of this view. It is sufficient to say that, if there is no sum received, the second line of reasoning (developed by Crown Melbourne’s lawyers) would mean that Crown Melbourne has underpaid its casino tax by a considerable amount.

The consequences of non-payment

167. Although some of the underpaid casino tax has been paid, there is a significant question as to whether more tax is due.
168. That dispute can be resolved in one of two ways. First, the failure to pay casino tax following the service of a notice demanding payment will constitute a breach of a condition of Crown Melbourne’s casino licence.¹⁸¹ In that event, the regulator can serve a notice under section 20(2) of the Casino Control Act affording Crown Melbourne the opportunity to show cause why disciplinary action (the cancellation, suspension or variation of the casino licence, the imposition of a fine or a letter of censure) should not be taken.
169. Second, the State could also sue for any unpaid casino tax together with penalty interest. There is no other financial consequence if casino tax is not paid, even if it is intentionally not paid.
170. This is an unusual situation. Most taxing statutes impose penalties for the non-payment of tax, in addition to charging interest on any amount not paid.
171. The Casino Control Act, for example, imposes penalties for the wilful evasion of the payment of any tax or levy payable under the Act.¹⁸² It is an offence to furnish a false or misleading return or report to the regulator in respect of any tax or levy payable under the Act.¹⁸³ In each case, the penalty is 100 penalty units.
172. The penalty provisions do not apply to the evasion of tax, furnishing a false return or making a false or misleading statement to the regulator in respect of casino tax payable under the Management Agreement. This is because casino tax payable under the Management Agreement cannot be described ‘as a tax payable under the [Casino Control] Act’, which it must be for the offence and penalty provisions to apply.
173. This is a significant omission and one that may not have been intended. The omission can be rectified.
174. The Taxation Administration Act 1997 (Vic) was enacted to make general provision for the administration and enforcement of taxation laws in Victoria.¹⁸⁴
175. The Taxation Administration Act has extensive provisions dealing with the collection of tax, and provisions for record keeping to enable a person’s tax liability to be properly assessed.¹⁸⁵ The Taxation Administration Act also creates a number of offences, including for giving false or misleading information to tax officers, deliberately omitting information to a tax officer and tax evasion. The penalties are significant.¹⁸⁶
176. An important feature of the Taxation Administration Act is that it imposes penalty tax in the event of a tax default.¹⁸⁷ The failure to pay tax in whole or in part is a tax default.¹⁸⁸ Penalty tax is payable in addition to interest and any unpaid tax. The amount of penalty tax may be up to 75 per cent of the amount of tax unpaid.¹⁸⁹
177. If a taxpayer takes steps to prevent or hinder the Commissioner of State Revenue becoming aware of the nature and extent of the taxpayer’s default, penalty tax can be increased by a further 20 per cent.¹⁹⁰
178. The Taxation Administration Act does not apply to casino tax. It does, however, apply to gaming tax payable under part 6A of chapter 4 of the Gambling Regulation Act.