Crown alleged to have kept loyalty program cash off the books

In an explosive day of testimony at the Victorian royal commission into Crown Resorts, it has been revealed that Crown may have short changed the state government up to $200 million in unpaid taxes, through its loyalty program.

The Australian Financial Review reports that the royal commission heard the casino giant has since 2014 classified parts of its pokies loyalty program such as accommodation, free parking and food, as losses.

The perks it dolls out to punters from its poker machine loyalty program have hence reduced its tax bill.

The James Packer-backed group prepared a spreadsheet calculating “potential underpayments in gambling tax” on February 26, just four days after the royal commission into Crown’s suitability to run its flagship Melbourne casino was announced.

But counsel assisting the inquiry, Geoffrey Kozminsky, told the inquiry Crown failed to flag the possible breach despite the commission specifically requesting the casino giant point to any possible violations of Victoria’s Casino Management Agreement Act, which includes Crown’s tax obligations to the state.

Mr Kozminsky said there was no excuse for the failure when cross examining Crown’s executive general manager of gaming machines, Mark Mackay.

“There’s no excuse or explanation for that failure…especially given you’ve accepted that it’s likely that your request to prepare the statement had been just after the royal commission was announced?” asked Mr Kozminsky.

Mr Mackay agreed.

Potential tax payment breach questioned at royal commission

Crown’s failure to alert the commission of a possible breach will be highly scrutinised by former federal court judge, commissioner Ray Finkelstein QC, as he considers Crown’s commitment to reform following years of combative relationship with regulators and government.

Mr Mackay explained that Crown Melbourne chief executive officer Xavier Walsh had asked him to prepare the document, which shows how Crown pocketed $167 million between 2014 and 2019.

The spreadsheet showed Crown deducted the costs of running its poker machines loyalty program, including items such as valet parking, accommodation and hospitality from the tax on its poker machine profits.

“There would be no real reason for Crown to be working out tax savings from free car parking in 2014, other than a concern about the issue coming to light during the course of the commission is it?” Mr Kozminsky said.

“Not that I can think of,” Mr Mackay said.

He “completely” agreed with Mr Kozminsky when asked: “It was obvious to both you and Mr Walsh that if these amounts were not deductible, that the company’s potential exposure…was more than $167 million?”

Crown could owe Victorian regulator as much as $200m

Mr Mackay conceded in cross examination by Commissioner Finkelstein that the amount of tax owing could be as much as $200 million if the spreadsheet was updated to include 2021 profits.

Mr Kozminsky said Crown Melbourne was expected to pay its state gambling tax on “gross gambling revenue”.

That is the turnover churned through its 2682 poker machines minus its losses, which is what it pays patrons in winnings.

“You agree with me that loyalty program benefits are not winnings?” asked Mr Kozminsky.

“The definition of winnings is where the ambiguity is,” Mr Mackay said, conceding “they are not from a gaming machine event”.

Commissioner Finkelstein asked if Crown wanted to hide the classification of “winnings” from the Victorian regulator.

“The answer is yes,” Mr Mackay responded.

Mr Mackay told the inquiry he did not raise the potential underpayment with the board, nor Crown’s executive chairman, Helen Coonan, nor the chief compliance officer, Steve Blackburn.

But he did discuss it with general manager for strategy Peter Herring and compliance manager Michelle Fielding, though he was hazy on the timing.

“I can’t appreciate how it can slip your mind so easily. And it’s not an ancient conversation, it’s a conversation that happened in recent times,” Commissioner Finkelstein said.

But Mr Mackay said: “I can’t recall whether it was linked to the royal commission request for documentation or whether it was for another purpose.”