FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Songa Offshore Pte Ltd [2013] FCA 839 Citation: Deputy Commissioner of Taxation v Songa Offshore Pte Ltd [2013] FCA 839 Parties: DEPUTY COMMISSIONER OF TAXATION v SONGA OFFSHORE PTE LTD File number: VID 492 of 2013 Judge: GORDON J Date of judgment: 19 August 2013 Catchwords: TAXATION – income tax – recovery action – application for summary judgment pursuant to r 26.01 of the Federal Court Rules 2011 (Cth) – certified copies of assessments and evidentiary certificate – summary judgment awarded – Pt IVC objections lodged – application for stay of execution of judgment – stay application refused Legislation: Federal Court of Australia Act 1976 (Cth) Federal Court Rules 2011 (Cth) Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Taxation Administration Act 1953 (Cth) Cases cited: Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 Deputy Commissioner of Taxation v Southgate Investments Funds Limited [2010] FCA 1298 Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 8) [2013] FCA 494 Deputy Commissioner of Taxation v Tilley Property Management Services Pty Limited [2011] FCA 678 Imobilari Pty Ltd v Opes Prime Stockbroking Ltd (2008) 252 ALR 41 Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 LNC Industries Limited v B.M.W. (Australia) Limited (1983) 151 CLR 575 at 581 O'Connor v SP Bray Ltd (1936) 36 SR (NSW) 248 Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 Southgate Investment Funds Limited v Deputy Commissioner of Taxation (2013) 211 FCR 274 Trade World Enterprise Pty Ltd v Deputy Commissioner of Taxation [2006] VSCA 191 Date of hearing: 16 August 2013 Date of last submissions: 16 August 2013 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 52 Counsel for the Applicant: Ms S Foda Solicitor for the Applicant: ATO Legal Services Branch Counsel for the Respondent: Mr S Linden Solicitor for the Respondent: Deloitte Lawyers Pty Ltd IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 492 of 2013 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Applicant AND: SONGA OFFSHORE PTE LTD Respondent JUDGE: GORDON J DATE OF ORDER: 19 AUGUST 2013 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. Pursuant to r 26.01 of the Federal Court Rules 2011 (Cth), there be judgment against the Respondent for: (a) $33,743,035.04 in respect of income tax and additional charges for late payment; and (b) $4,821,943.74 in respect of Shortfall Interest Charge and additional charges for late payment. 2. The Respondent's Interlocutory Application filed 9 August 2013 is dismissed. 3. The Respondent pay the Applicant's costs of the Interlocutory Applications dated 26 July 2013 and 9 August 2013, such costs to be taxed in default of agreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth). IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 492 of 2013 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Applicant AND: SONGA OFFSHORE PTE LTD Respondent JUDGE: GORDON J DATE: 19 AUGUST 2013 PLACE: MELBOURNE REASONS FOR JUDGMENT introduction 1 On 12 June 2013, the applicant (the Commissioner) instituted proceedings against the respondent, Songa Offshore Pte Ltd (Songa) for, inter alia, the recovery of unpaid income tax and penalties for the year ended 31 December 2009. By an interlocutory application filed on 26 July 2013, the Commissioner seeks summary judgment pursuant to r 26.01 of the Federal Court Rules 2011 (Cth) (the Rules). The Commissioner seeks judgment against Songa for: 1. the amount claimed in respect of income tax and additional charges for late payment in the sum of $33,155,912.43: [2]-[9] of the Amended Statement of Claim filed on 11 July 2013 (the Amended Statement of Claim); 2. the amount claimed in respect of shortfall interest charge (SIC) and additional charges for late payment in the sum of $4,738,042.80: [19]-[24] of the Amended Statement of Claim; and 3. further general interest charge (GIC) in respect of the above amounts pursuant to s 5-15 of the Income Tax Assessment Act 1997 (Cth) (the 1997 Act) and Pt IIA of the Taxation Administration Act 1953 (Cth) (the TAA) from 12 June 2013 to judgment, collectively, the Claim. 2 The Commissioner does not seek judgment against Songa in respect of a claim for administrative penalties or additional charges for late payment in the sum of $34,273,467.85 set out at [10]-[18] of the Amended Statement of Claim (the Administrative Penalty Claim). 3 For the reasons below, there should be judgment for the Commissioner in respect of the Claim. 4 By an interlocutory application filed on 9 August 2013, Songa applied for, inter alia, an order that: In the event that judgment is given for the [Commissioner] in this proceeding, the execution of the judgment be stayed until after the taxation objections lodged by [Songa] have been determined or, if either (or both) of the objections is (are) disallowed and an application is filed by [Songa] to appeal or review the objection decision under Part IVC of the [TAA], until 14 days after such proceeding has been finally determined. 5 For the reasons below, Songa's application for a stay is dismissed. 6 These reasons will address the background to the proceedings, the basis upon which the Court has jurisdiction to entertain the Claim, the principles applicable to an application for summary judgment, the application of those principles to this case and, then, the principles applicable to an application for a stay and their application to this case. evidence filed in the proceedings 7 It is necessary to first set out the background to the Commissioner's application. In what follows, no findings of fact are made in relation to any substantive matter: see Imobilari Pty Ltd v Opes Prime Stockbroking Ltd (2008) 252 ALR 41 at 44. 8 In support of the application for summary judgment, the Commissioner relied upon an affidavit of Maria Victoria Llorca sworn on 26 July 2013. Ms Llorca is an Officer in the Commonwealth Public Service employed in the Debt Strategic Recovery Section of the Australian Taxation Office (the ATO). 9 According to Ms Llorca, on 6 June 2012, the Commissioner issued a notice of amended assessment for the purposes of s 177 of the Income Tax Assessment Act 1936 (Cth) (the 1936 Act) for the year ended 30 December 2009 (the Amended Assessment). A copy of the Amended Assessment was annexed to Ms Llorca's affidavit. The amount payable on the Amended Assessment was $34,702,098.55. That amount related to liability to income tax and also GIC pursuant to s 5-15 of the 1997 Act and Div 1 of Pt IIA of the TAA, which Ms Llorca deposed had been "properly calculated in accordance with the provisions of the said Acts". 10 According to Ms Llorca, as at 26 July 2013, Songa was indebted to the Commonwealth of Australia in respect of income tax liabilities and GIC in the amount of $33,552,954.55, the Amended Assessment having been served on Songa on or about 6 June 2012 in accordance with the provisions of the 1936 Act and the Income Tax Regulations 1936 (Cth). 11 Annexed to Ms Llorca's affidavit was a certificate pursuant to s 255-45 of Sch 1 to the TAA dated 26 July 2013, which stated that: 1. the notice of amended assessment for the year ended 30 December 2009 is taken to have been served on [Songa] under a taxation law; and 2. as at today's date, the amount of $33,552,954.55 is a debt due and payable by [Songa] to the Commonwealth of Australia. 12 The Amended Assessment (see [9] above) was also a notice of SIC pursuant to s 280-110 of Sch 1 to the TAA for the year ended 30 December 2009 (the SIC Notice). According to Ms Llorca, the SIC became due and payable pursuant to s 5-10 of the 1997 Act on the twenty-first day after the SIC Notice was given to Songa. 13 According to Ms Llorca, as at 26 July 2013, Songa was also indebted to the Commonwealth of Australia in respect of SIC in the amount of $4,794,780.88, the SIC Notice having been served on Songa in or about 6 June 2012 in accordance with the provisions of the TAA and the Taxation Administration Regulations 1976 (Cth). That amount included GIC pursuant to s 5-15 of the 1997 Act and Pt IIA of the TAA, which, according the Ms Llorca, had been "properly calculated in accordance with the provisions of the said Act[s]". 14 Annexed to Ms Llorca's affidavit was a certificate pursuant to s 255-45 of Sch 1 to the TAA dated 26 July 2013, which stated that: 1. the notice of shortfall interest charge for the year ended 30 June 2009 is taken to have been served on [Songa] under a taxation law; 2. as at today's date, the amount of $4,794,780.88 is a debt due and payable by [Songa] to the Commonwealth of Australia. 15 At the hearing of the application for summary judgment, the Commissioner tendered a further certificate under s 255-45 of Sch 1 of the TAA stating that: 1. the notice of amended assessment for the year ended 31 December 2009 is taken to have been served on [Songa] under a taxation law; 2. the notice of [SIC] for the year ended 31 December 2009 is taken to have been served on [Songa] under a taxation law; 3. as at today's date, the amount of $38,564,978.78 is a debt due and payable by [Songa] to the Commonwealth of Australia. 16 Having regard to the foregoing matters, the Commissioner claims to have established that Songa is indebted to the Commonwealth of Australia in the amount of $38,564,978.78 as at 15 August 2013. Accordingly, the Commissioner seeks judgment against Songa for the sum of $38,564,978.78. 17 Ms Llorca's affidavit also indicated her belief that Songa had no defence to the Commissioner's claim. 18 In submissions filed on the question of whether summary judgment should be entered, Songa referred to the affidavit of James Zdenko Fabijancic sworn on 9 August 2013. Annexed to that affidavit was a copy of the notice of objection dated 23 July 2012 and lodged by Songa against the Amended Assessment. The objection stated that the Amended Assessment and a determination under s 177F(2A)(a) of the 1936 Act were invalid, of no effect and should be cancelled, set aside or withdrawn or, if valid, stated that the Amended Assessment was excessive and should be set aside or altered by the allowance of a deduction of $101,355,415 or some lesser amount. The grounds of Songa's objection were as follows: 1. On 12 May 2009, [Songa], a resident of Singapore, entered into two bareboat charter agreements with Songa Offshore SE ("SOSE"), a resident of Cyprus, in relation to two mobile offshore drilling units; 2. On 12 May 2009, [Songa] entered into a bareboat charter agreement with Songa Offshore Drilling Limited ("SODL") for the sub-lease of the mobile offshore drilling units in Australia. 3. Pursuant to an agreement dated 11 May 2009, [Songa] also provided marketing, technical, operational and commercial management services with respect to Songa group's Asia Pacific operations. 4. In the year ended 31 December 2009: (a) [Songa] incurred and paid to SOSE the amount of $101,355,415 pursuant to bareboat charter agreements entered into between SOSE and [Songa] (the "Lease Payments"); (b) [Songa] derived the amount of $105,069,960 pursuant to the bareboat charter agreements entered into between SODL and [Songa]. 5. The Lease Payments were deductible to [Songa] under subsection 8-1(1) of the [1997 Act] on the basis that they were incurred in gaining or producing [Songa's] assessable income or were necessarily incurred in carrying on a business for the purpose of gaining or producing [Songa's] assessable income and were not excluded by the operation of subsection 8-1 (2) of that Act. 6. [Songa] was not required to withhold tax from the Lease Payments under Subdivision 12-F of Schedule 1 of the TAA because no withholding tax was payable in respect of those Lease Payments. 7. Section 26-25 of the [1997 Act] did not apply to preclude [Songa] from being able to deduct the Lease Payments because Subdivision 12-F of Schedule 1 of the TAA did not require [Songa] to withhold an amount from the Lease Payments. 8. Part IVA of the 1936 Act does not apply to enable the Commissioner to make a determination that the whole or any part of the Lease Payments were subject to withholding tax under s 128B of the [1936 Act]. 9. Without limiting the foregoing: a. a scheme for the purposes of Part IVA does not exist; b. further and alternatively, if such a scheme does exist (which is denied) section 177CA does not apply because it is not reasonable to expect that SOSE would have, or could reasonably be expected to have been liable to pay withholding tax on the amount of the Lease Payments if the purported scheme had not been entered into or carried out. Accordingly, SOSE did not obtain a tax benefit in connection with the scheme; c. alternatively, having regard to the matters referred to in paragraph 177D(b) of the 1936 Act, it could not be concluded that SOSE, or any of the persons who entered into or carried out any scheme, or any part of such scheme, did so for the dominant purpose of enabling SOSE to obtain a tax benefit or tax benefits in connection with the scheme or of enabling SOSE and another taxpayer or taxpayers each to obtain a tax benefit or tax benefits in connection with the scheme for the purposes of section 177D of the 1936 Act; d. further and alternatively, the Commissioner was not entitled to determine under s 177F that SOSE is subject to withholding tax under s 128B on the whole or part of the amount of the Lease Payments; e. further and alternatively, the Commissioner could not give effect to the Determination by issuing the Amended Assessment to [Songa] denying [Songa] a deduction for the Lease Payments. 10. No other provision of the 1936 Act or the 1997 Act applies to deny to [Songa] an allowable deduction for the whole or any part of the Lease Payments. 11. Further, and without in any way limiting the generality of the foregoing, if the Commissioner has purported to form any opinion or to be satisfied or not to be satisfied of or as to any matter or to have exercised or not to have exercised any discretion or power under the Act as the basis of, or as justifying, the assessment (which is not admitted), then such purported formation of opinion, or satisfaction, or failure to be satisfied mot the exercise of or the failure to exercise such discretion or power, was and is arbitrary, capricious, erroneous, unreasonable and void, based upon a mistaken or inadequate understanding of the relevant facts or law, or made after taking into account matters that ought not to have been taken into account or after omitting to take into account matters that ought to have been taken into account, and should now be reviewed and corrected by the Commissioner or the Administrative Appeals Tribunal or a Court, and the assessment appropriately altered or set aside. 19 Mr Fabijancic's affidavit indicated that Songa had lodged objections to the Amended Assessment and the Commissioner's decision not to remit the administrative penalty and that the Commissioner had not yet made decisions on those objections. That remains the position. Jurisdiction 20 It is necessary at this point to say something about the basis upon which the Court may entertain the Commissioner's claim. Pursuant to s 255-5(2) of Sch 1 to the TAA, the Commissioner may sue "in a court of competent jurisdiction to recover an amount of a *tax-related liability that remains unpaid after it has become due and payable." Subsection (1) provides that an amount of a "*tax-related liability that is due and payable" is (a) "a debt due to the Commonwealth" and (b) "payable to the Commissioner". 21 Here, the amounts of income tax and administrative penalties sought by the Commissioner are "tax-related liabilities" within s 255-1 of Sch 1 to the TAA: items 37, 70 and 140 of the table in s 250-10(2) of Sch 1 to the TAA; see also Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 at [28] and [38]. The amounts became due and payable by reason of the notices of assessments made by the Commissioner: s 5-5 of the 1997 Act. The question is whether the Federal Court is a court of "competent jurisdiction". 22 Section 39B(1A)(c) of the Judiciary Act 1903 (Cth) (the Judiciary Act) provides: The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter: … (c) arising under any laws made by the Parliament, other than a matter in respect of which a criminal prosecution is instituted or any other criminal matter. 23 The Commissioner's claim in these proceedings is for the recovery of a "tax-related liability" pursuant to s 255-5 of Sch 1 to the TAA. Such a claim is within the jurisdiction of this Court by reason of s 39B(1A)(c) of the Judiciary Act as a matter arising under a law of the Commonwealth, namely the TAA: see Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 8) [2013] FCA 494 at [12]-[14]; LNC Industries Limited v B.M.W. (Australia) Limited (1983) 151 CLR 575 at 581. the Commissioner's application for summary judgment Applicable principles 24 The Commissioner seeks summary judgment against Songa pursuant to r 26.01 of the Rules. That rule relevantly provides: (1) A party may apply to the Court for an order that judgment be given against another party because: (a) the applicant has no reasonable prospect of successfully prosecuting the proceeding or part of the proceeding; or (b) the proceeding is frivolous or vexatious; or (c) no reasonable cause of action is disclosed; or (d) the proceeding is an abuse of the process of the Court; or (e) the respondent has no reasonable prospect of successfully defending the proceeding or part of the proceeding. (2) The application must be accompanied by an affidavit stating: (a) the grounds of the application; and (b) the facts and circumstances relied on to support those grounds. (3) The application and the accompanying affidavit must be served on the party against whom the order is sought at least 14 days before the hearing of the application. (4) If an order is made under subrule (1) dismissing part of the proceeding, the proceeding may be continued for that part of the proceeding not disposed of by the order. … Note See also section 31A of the Act. 25 Taking heed of the note to r 26.01, s 31A of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) is also apposite. That section relevantly provides: (1) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if: (a) the first party is prosecuting the proceeding or that part of the proceeding; and (b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding. … (3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be: (a) hopeless; or (b) bound to fail; for it to have no reasonable prospect of success. Application to this case 26 The Commissioner submitted that Songa had no reasonable prospects of successfully defending the Claim. Such a claim is to be assessed having regard to the nature of the cause of action, the identity of the parties, the pleaded facts and the evidence adduced: see Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 at [126]. 27 Critical to the Commissioner's claim are ss 175 and 177(1) of the 1936 Act. Those provisions are in the following terms: 175 Validity of assessment The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with. … 177 Evidence (1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct. … 28 The effect of those provisions is that Songa may not challenge the Amended Assessment on any ground in any proceedings other than a proceeding under Pt IVC of the TAA or an application for judicial review under s 39B of the Judiciary Act or s 75 of the Constitution: see, for example, Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 at 491-493 and the authorities referred to therein. This is neither of those two latter kinds of proceedings. 29 As a result of an increase in liability to income tax under the Amended Assessment, Songa became liable to pay SIC by operation of s 280-100 of Sch 1 to the TAA. The SIC became due and payable on 2 July 2012, being 21 days after service on Songa of the SIC Notice. From 2 July 2012 onwards, GIC has accrued on the amounts due and payable under the Amended Assessment and the SIC Notice pursuant to s 5-15 of the 1997 Act and Pt IIA of the TAA. 30 The Commissioner has produced a certificate under s 55-45 of Sch 1 to the TAA dated 16 August 2013 (see [15] above) which stands as prima facie evidence of the amount due and payable in respect of the Claim as at that date. 31 Songa admitted that the Amended Assessment and the SIC Notice were served on it. It also admits that it has not paid the income tax and SIC. In circumstances where income tax (together with the consequential SIC and GIC) remains due and payable and a debt to the Commonwealth (see s 5 of the 1997 Act and 255-5 of Sch 1 to the TAA) and where the Commissioner relies on the conclusive evidence provisions contained in ss 175 and 177(1) of the 1936 Act, the Commissioner is entitled to summary judgment in respect of those amounts: see Deputy Commissioner of Taxation v Southgate Investments Funds Limited [2010] FCA 1298 at [24]-[35]. 32 There is one matter that needs to be addressed. The substance of Songa's defence to the application for summary judgment is that the Commissioner is not entitled to recover both the Claim and the Administrative Penalty Claim. That is, that they are true alternatives. There are three complete answers to the position adopted by Songa. First, s 31A of the FCA Act expressly provides that the Court may give judgment for one party against another in relation to the whole or any part of a proceeding. That is what the Commissioner seeks here. 33 Secondly, taken at its highest, Songa's complaint about the Commissioner's application for summary judgment in respect of the Claim is that if the Commissioner ultimately pursues, and succeeds, in respect of the Administrative Penalty Claim, it would be necessary – in substance – for the amount paid by Songa in respect of the Claim (if any) to be taken into account in ascertaining the amount owed by Songa in relation to the Administrative Penalty Claim. That is no answer to the current application. That proposition is made clear by Songa's own submissions. They relevantly stated: 8. For the reasons that follow, [Songa] submits that the income tax claim and the penalty claim are true alternatives. The Court cannot be satisfied that [Songa] has no reasonable prospect of successfully defending the income tax claim when the [Commissioner] has not abandoned the penalty claim. 9. If the penalty claim is paid, the following will occur: (a) SOSE will be entitled to a credit for the amount of the penalty against its withholding tax liability under s 18-35(1) of Schedule 1 to the TAA; (b) [Songa] will be entitled to a deduction for the lease expenses of $101,355,415 that were disallowed under the [A]mended [A]ssessment under s 26-25(3) of the [1997 Act]; (c) The Commissioner will be obliged to amend the [A]mended [A]ssessment to effectively discharge the income tax claim. There is no time limit for such an amendment to be made by virtue of s 170(10AA), item 5 of the [1936 Act]. As Songa's submissions make clear, the income tax liability remains. Whether or not it is subsequently to be discharged is dependent on a series of steps, some of which may never occur. 34 Thirdly, if the claims are true alternatives, then Songa will have a complete defence to the Administrative Penalty Claim which it can raise by filing an Amended Defence: O'Connor v SP Bray Ltd (1936) 36 SR (NSW) 248 at 257-260. 35 None of those matters detracts from the conclusion that the Court is satisfied that Songa has no reasonable prospect of successfully defending part of the proceeding, namely the Claim. 36 For the above reasons, there should be judgment for the Commissioner in respect of the Claim. songa's application for stay of execution 37 Songa seeks a stay of the judgment pursuant to r 41.03 of the Rules. Applicable principles 38 The general principles applicable to an application for stay of enforcement of a judgment have recently been summarised by the Full Federal Court in Southgate Investment Funds Limited v Deputy Commissioner of Taxation [2013] FCAFC 10 at [77]: It is appropriate if we say something further regarding the criteria which may apply in determining whether or not execution of a judgment debt should be stayed. We agree with the observations of Hutley JA in [Deputy Commissioner of Taxation (NSW) v Mackey (1982) 45 ALR 284] at 289 that the discretion to grant a stay of the execution of a judgment debt based upon a taxation assessment involves "an open-ended discretion" and that it "is not possible to work out in advance all possible bases for the exercise of such a discretion and it would not be proper even to attempt to do so". Bearing in mind those salutary words and without wishing to be prescriptive or exhaustive, we consider that it is possible, however, to extract from the caselaw the following general principles which guide the exercise of that discretion: (a) the power to grant a stay should be exercised sparingly and the taxpayer bears the onus of persuading the Court that a stay ought to be granted in the particular circumstances; (b) great weight must be given to the clear legislative policy manifested in provisions such as ss 14ZZM and 14ZZR of the TAA which give priority to the recovery of taxation revenue notwithstanding that a taxpayer has a Pt IVC proceeding on foot. The Commissioner is placed by the legislation in a position of special advantage and is generally free to pursue recovery proceedings despite the pendency of Pt IVC proceedings; (c) the merits of pending Pt IVC proceedings may be a relevant consideration to be taken into account in the exercise of the discretion, but the court should not attempt to determine the merits unless it has sufficient material before it to do so and it should avoid speculation; (d) in cases where a judge is unable to form even a tentative view of the strength of Pt IVC proceedings, it is unlikely that the judge's discretion in refusing a stay will miscarry by reason only of the judge being unable on the material before him or her to reach a view as to the taxpayer's prospects of success in having the assessment overturned; (e) it is too narrow a view of the discretion to grant a stay of proceedings or execution merely because Pt IVC proceedings are pending, or because on review of those proceedings there appears to be an arguable case or complex questions to be determined by the AAT or the Court; (f) that is not to say, however, that the outcome of Pt IVC proceedings has to be certain in the sense that they are bound to succeed or fail. That puts the bar too high; (g) in cases where the Court considers that it is in a position to assess the merits of pending Pt IVC proceedings and that it is appropriate to do so, the weight to be attached to those merits will vary according to the relative strength of the merits. But the taxpayer needs to have more than merely an arguable case; (h) similarly, more weight would be given to the merits factor if the case is one where the Commissioner has abused his position or it is clear that the Commissioner is endeavouring to collect tax in defiance of a decision of the High Court or other superior court which is precisely in point; (i) due acknowledgment should be given to the asperity with which provisions such as ss 14ZZM and 14ZZR may operate, but in appropriate circumstances a court might consider that a stay is warranted in cases of extreme hardship to a taxpayer, noting however that: (i) the mere obligation to pay income tax of itself does not impose extreme hardship; and (ii) the possibility that the taxpayer may be bankrupted is generally not of itself an extreme hardship, however, different considerations may arise if, for example, it is demonstrated that the execution of a judgment debt would deprive the taxpayer of the financial resources needed to prosecute extant Pt IVC proceedings; (j) irrespective of the merits of pending Pt IVC proceedings, a stay will not usually be granted where the taxpayer is party to a contrivance to avoid liability to pay the tax; and (k) other considerations may need to be taken into account in determining whether to exercise the discretion in a particular case, such as any conduct on the part of the taxpayer or the Commissioner which impacts upon the efficient and expeditious conduct of Pt IVC proceedings. 39 The Commissioner relies upon s 14ZZM of the TAA in opposition to Songa's application for a stay. That section is in the following terms: 14ZZM Pending review not to affect implementation of taxation decisions The fact that a review is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no review were pending. 40 The effect of s 14ZZM is that the liability to pay assessed tax is not suspended pending the outcome of the review: Trade World Enterprise Pty Ltd v Deputy Commissioner of Taxation [2006] VSCA 191 at [11]. The position here, of course, is that there is no application for review because there has been no determination of Songa's objection: see Deputy Commissioner of Taxation v Tilley Property Management Services Pty Ltd [2011] FCA 678 at [18]. The fact that Songa's objections have not been determined does not alter the fact that the amount of the Claim remains due and payable and a debt to the Commonwealth (see s 5 of the 1997 Act and 255-5 of Sch 1 to the TAA) and able to be recovered by the Commissioner. Songa's grounds for a stay 41 Songa submitted that the following circumstances justified the grant of a stay: a. The Commissioner made the determination that SOSE was subject to withholding tax and issued the [A]mended [A]ssessment to [Songa] to test the limits of Part IVA; b. The Commissioner is yet to determine [Songa's] objection to the [A]mended [A]ssessment; c. [Songa] has a strong argument that s 177F(2A) of the [1936 Act] does not enable the Commissioner to deny the deduction to [Songa]; d. The [Commissioner] has failed to allow [Songa] a deduction of $5,700,812 arising from the credit of $1,710,243.60 against SOSE's withholding tax liability pursuant to section 26-25(3) of the [1997 Act]; e. The [Commissioner] has commenced separate proceedings against SOSE seeking recovery of the withholding tax liability, which if paid, would result in the discharge of the income tax claim; f. Payment of the income tax claim would impose a substantial burden on [Songa] having regard to its resources. Analysis 42 It is well established that the power to grant a stay should be exercised sparingly. 43 Songa bears the onus of persuading the Court that a stay ought to be granted in the particular circumstances. The starting point for the consideration of Songa's stay application is the priority given to the revenue against the determination of the taxpayer's appeal: Southgate Investment at [77(b)] and Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 at 139. 44 Next, the status of the dispute between the Commissioner and Songa. The objection lodged by Songa has not yet been determined. That fact alone does not assist Songa: Southgate Investment at [77(e)] and see [40] above. Moreover, Songa could have, but has not, served a notice on the Commissioner under s 14ZYA of the TAA seeking a determination of that objection. 45 What then of the relative strength of the merits of Songa's overall position. It must be recalled that a taxpayer needs to have more than a merely arguable case. Here, the Court is dealing with an application for a stay against the execution of the judgment obtained in relation to the Claim. The merits of Songa's defence to the Claim have been addressed in the context of the application for summary judgment: see [32]-[35] above. In further support of the apparent merits of Songa's claim, Songa referred to two further matters. The first is a copy of a note issued by Mr Jonathon Woodger, the Deputy Chief Tax Counsel of the Australian Taxation Office (the ATO) dated 13 April 2012. That note addressed the ATO's interpretation of a particular provision of Pt IVA in the context of bareboat charter arrangements. Mr Woodger concluded the note by stating that: The question is subtle, technical and certainly not free from doubt in my view. … … at this stage, and consistently with the general view of the GAAR Panel, on balance I think the ATO ought to maintain the view that section 177CA applies on these facts. It is fairly important point that would be worth testing; we know that section 177CA was meant to be a "comprehensive" response to the problem of withholding tax avoidance; the arguments against us, while legally respectable, seem essentially technical and not firmly based on policy principles; and we have at least a reasonable prospect of succeeding in my view. 46 What then were the "arguments against [the ATO]?" They were addressed in a Memorandum of Advice provided by John de Wijn QC and Lisa Hespe to the "Songa Offshore Group" dated 8 February 2012. The advice and analysis was confined to what were described as "two threshold issues". Those issues were: 1. assuming that the scheme identified by the Commissioner satisfies the definition of scheme in s 177A(1) of Pt IVA of the [1936 Act] and that the "counterfactual" relied upon by the Commissioner is correct, has the Commissioner correctly identified a tax benefit in connection with a scheme under s 177CA;? 2. If yes to (1) and assuming that a court would otherwise find that the scheme was entered into for the dominant purpose of enabling the taxpayer to obtain a tax benefit, is the Commissioner entitled to deny [Songa] a deduction under s 26-25 of the [1997 Act] for the royalties it paid to SOSE and impose a penalty on [Songa] pursuant to s 16-30 in Sch 1 to the TAA for failing to withhold or remit royalty withholding tax? In substance, the answers to the questions were "No" and "No". 47 Both these documents dealt with the merits of a number of matters – the Claim, the Administrative Penalty Claim and other claims made by the ATO against other taxpayers. The documents were prepared approximately 18 months ago. The advice was provided on a certain basis. In the case of Mr Woodger, the information he then had. In the case of counsel for the Songa Group, on the basis of certain assumptions. Since then, Songa has lodged its objection (see [19] above) and, as late as 1 July 2013, the Songa Group has provided further information to the ATO. Further, Counsel for Songa submitted that the counterfactual now relied upon by the ATO has changed. In all the circumstances, it cannot be said that Songa has more than a merely arguable case in relation to the Claim. Put simply the Court is not in a position to assess the merits of the various claims and, moreover, it is inappropriate to do so given the stage that the dispute has reached. 48 The fact that there are separate proceedings commenced by the Commissioner against SOSE seeking recovery of the withholding tax liability, which if paid, would result in the discharge of the income tax claim does not assist Songa. The amount has not been paid. If it had been paid, or arrangements made in relation to payment of that amount, the position may well have been different. 49 It must be recalled that there is no suggestion that the Commissioner has abused his position or is endeavouring to collect tax in defiance of a decision of the High Court or other superior court which is precisely in point. 50 Finally, Songa submitted that payment of the Claim would impose a substantial burden on it having regard to its resources. The first element may be accepted. $38,564,978.78 is a substantial amount of money. However, Songa has not sought to adduce any up to date financial evidence to demonstrate its financial position or why it is said that payment of the Claim now would impose a substantial burden on it having regard to its resources. 51 As the Commissioner submitted, the evidence before the Court would not appear to support the contention that payment of the Claim would impose a substantial burden on Songa having regard to its resources. It is a member of the Songa Offshore Group, a multi-national enterprise. In the period 1 January 2009 to 31 December 2009, the Group had Australian taxable income of $225 million. Further, in the year ended 31 December 2011, Songa paid dividends in excess of $47 million. In the absence of up to date evidence, that aspect may be put to one side. 52 For those reasons, Songa's application for a stay is dismissed. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate: Dated: 19 August 2013