Paul Hogan Tax Scandal – Crocodile Dundee, Call Home!

The ATO’s tax case against actor Paul Hogan is all about residency.

You must remember this! Old fella, skin leathered a fabulous wrinkled orange, hair an ever receding yet sprightly tuff of grizzled blond, trademark ocker grin, still quite famous, and fresh, if that’s the word, from burying his much loved one hundred year old mum, enters Sydney Airport intent on flying back to his wife and kid in La La Land. And, lo, guess what, boarding’s strictly verboten, no can do, not even for the Australian of the Year 1985.

What seems to be the problem? Is it a stash of contraband crocodile skins? Or perhaps a suitcase packed with gigantic Bowie knives caked with outback mud? Or vials of a potent hallucinogenic brewed from some rare strain of blue meanies? None of the above: the reason Paul Hogan was left stranded like Dorothy in Oz, barred from leaving Sydney for two weeks in August 2010 is wrapped in the long-standing investigation by the ATO into Mr. Hogan’s taxes.

The story of Hogan’s rise from rigger on the Sydney Harbour Bridge to larrikin extraordinaire and his native country’s cultural offering number one, notwithstanding Kylie Minogue and her peerless derriere, is well known. Michael “Crocodile” Dundee, the part that made his fame global, was a spirit Hogan had been distilling for years: earthy, smart-mouthed, canny, resourceful, undeniably funny, and in the mid-80s possibly the last bright burst of Aussie bloke machismo.

Crocodile Dundee spoke to the pioneer ideal that dies hard, above all in the American mind. Released in 1986, Hogan’s first and most successful film remains the highest grossing non-American movie a quarter of a century after it hit the screens. Together with the ads Hogan made just a couple of years prior for the Australian Tourism Commission, Dundee limned for the rest of the world a certain idea of Australia as a kind of friendly, fun in the sun place where shrimp seem fated to end on the barbie. It lingers still.

Hogan was handsomely rewarded for all his good work: Aussie of the Year, membership of the Order of Australia, Golden Globe for Best Actor, not to mention a gargantuan pile of cash. Made for a paltry nine million, Crocodile Dundee would go on to gross a whopping $360 million worldwide in its first year. Hogan would further add to his coffers by way of two middling sequels, along with yet more tourism ad work. Meanwhile, he fell hard for his American co-star Linda Kozlowski and began to divide his time between Australia and the USA.

Hogan and Kozlowski married in 1990 after a brutish divorce from his first wife of 28 years. It is to that period of his life and to those long, long transpacific trips which the actor presumably took traveling from one family and continent to the other, that the ATO’s case arcs back. According to the tax assessment sent to Hogan, the Tax Office considers the actor to have been an Australian resident from 1987 to 2005 and to be therefore liable for any unpaid tax on the income earned during that time. The tab, including back taxes, penalties and interest, could swell to a devastating $150 million.

The matter is delicate. First, because during eight of those years, from 1995 to 2002 and prior to a three year return to Australia, Hogan effectively paid taxes to the IRS in the States. Second, because the definition of residency itself, as we’ll show in an upcoming column, is not so easily pinned down. Indeed, the basis of the charges against Hogan, outside of any issues regarding the potential abuse of tax shelters which we’ll address in a moment, is whether the actor was actually living in Australia or the US when he lodged his tax return. Hogan now lists the US as his permanent home.

Although the ATO investigation into Paul Hogan’s finances was initiated in 2003, it received two major boosts in the years that followed. First, in 2006, the ATO established the mysteriously named Project Wickenby, a cross agency task force involving not only the ATO itself but also the Australian Crime Commission and a number of international bodies all dedicated in the most dogged manner to, in the ATO’s priceless wording, deter, detect, and deal with issues of tax evasion through secrecy havens, money laundering, and the myriad other ways in which income or assets are concealed. Second, in 2009, radical changes were made to section 23AG of the Income Tax Assessment Act of 1936 which meant that Australian residents would now be taxed on their worldwide income, any taxes paid to a foreign entity being solely recoupable through the Foreign Income Tax Offset (FITO). Previously, they had been exempt of Australian taxation altogether; any taxes owed would have been paid to the foreign tax agency.

There may be a whiff of the Victorian about Operation Wickenby, a touch of cloak and dagger, but there is absolutely nothing fusty about its methods or the budget employed to fund it. Millions of dollars have been committed, numerous agencies at both state and Commonwealth level are involved, thousands are now targeted, and billions of dollars of uncollected tax are now at issue. Some have argued that the sheer size and scope of the project should have, by itself, been sufficient to expose tax evaders, but there’s no doubting the continued seriousness of the ATO’s intent. As of May of this year, for instance, audits have been ramped up by 24%, aimed in large part at those who did not come forward following the ending of the June 2010 tax amnesty. To date, near $560 million of moneys have been recaptured.

The operation’s multi-agency involvement explains the fact that Paul Hogan could have been under investigation by the ATO and the ACC concurrently. The Crime Commission’s inquest was dropped in ’08; the ATO’s has if anything been intensified. In fact, Hogan is so important to the tax authorities that the inquest into the actor’s finances, the costliest among Wickenby’s probes, bears its own peculiar name: Operation Youghal. Youghal is the name of a riverbank town in County Cork, Ireland; Wickenby that of hamlet in Lincolnshire, England: how the taxmen come up with those labels is a thing of wonder.

Hogan’s name was added to the list of those under investigation for tax fraud by Wickenby in 2007. Other celebrities have since joined the sorry ranks. That the famed larrikin is being made an example of is fairly obvious, as is the strategic reasoning by the ATO for doing so. Still the details of the case are fairly fascinating, and with the court ruling in April allowing Wickenby investigators to look into the actor’s confidential accounting advice, the secrecy of which Hogan’s lawyers have fought for years to retain, it would seem that the ATO’s agents have this crocodile by the tail and won’t let go.

At issue are what tax officials call sham travel movements during three years starting in 2002. Paul Hogan is suspected of receiving advice to create a false residency window whereby he would become stateless, that is without a residence, for tax purposes allowing Hogan to abstain from paying millions of dollars to either the Australian or American government. According to The Australian, one document in particular reveals that in May of 2005, the actor was counseled that if he spent a numbers of days outside the US after leaving Australia on June 19th, traveling as it were while collecting dividends, he would avoid paying taxes anywhere until the 1st of January in America. On the other hand, was Hogan to be paid before his June 19th departure, he would be faced with a substantial amount in tax on the order of a minimum of 26% of the dividend amount.

The investigation proceeds apace and we fully expect to hear more of it. In the meantime, Paul Hogan has filed suit against the Australian government. Hogan blames the ATO, which he has likened to the Taliban, for the decimation of his earning potential and the ruin of his reputation. According to the actor, his track record, second to none in the advertising world, has been damaged and ad gigs have begun to dry up. The ATO, says the celebrity, is treating him as guilty until proven innocent. In effect, to paraphrase a line given to Linda Kozlowski in Crocodile Dundee, this croc seems intent on eating him alive.

Photo via robinmcnicoll on Flickr.