Is the ATO inept or is it corrupt in its pursuit of >$10m taxes from our ISX and ISXFEU CEO, John Karantzis?

TEXT VERSION:

Thispost has been produced in .jpg first and reproduced in text second in orderthat it is searchable.

Thelinks at the bottom of the text will directly access the documents referenced.

I dorealise that many people feel that JK’s tax issue is a personal issue, but Ibelieve that anything that affects JK affects ISX and its shareholders. For that reason, I decided to research the issue. The following is my findings. Recognise it is an opinion and read accordingly.

OnOctober 30, 2020, the ASX began an investigation into John Karantzis’s taxassessments and

made itsdeclaration in December 2020. This investigation covers the years 2015 – 2017.

Our mosttrusted AFR writers Roddan, Aston and Shapiro of the AFR, joined together on Aug 12, 2021 to create an unbiassed article titled, ATO blasts iSignthis CEOover 10m offshore tax recovery. In this article they state, “the ATO appeared unwavered as it pursues the$10.13 million claim. The outstanding amount is made up of a $5.24 millionshortfall, $4.028 million of penalties and $861,000 of interest. Of that amount$8.8 million related to the 2015 tax-year.” (Not to be picky, but unwavered is not a word –perhaps our esteemed writers meant unwavering?)

Simplyput, the ATO is claiming that JK was the sole shareholder of ISX(BVI) whenISX(BVI) sold its assets (ISX(BV) & ISX(IP)) to Otis Energy (now ISX AU)and ISX(BVI) received its value in shares, which, ATO claims, triggered ataxable CGT event.

DIAGRAMOF EVENT, ITS ENTITIES AND PARTICIPANTS

311,703,933shares @ $.03 (the price) were issued to ISX(BVI) as consideration in 2015during the reverse takeover of Otis Energy (OE). This would equal $9,351,118 in taxable income or estimated tax of ~$4.4m (if the 50% CGT rights on assets held over a year is ignored).

Toconfirm if this value is contained in the figure the ATO is claiming is JK’salone, we can check by doing the following: The ATO is claiming, according to the AFR, that in 2015, $8.8m is the total claim for 2015 alone. This is 86.9% of the total 10.13m the total ATO assessment. Applying this percent across the tax, penalties and interest this gives us ~$4.6m “missing tax”, ~$3.5m penalties and ~$.748m interest in 2015 - close enough to make the assumption that the above ~4.4m is a significant part of this ~4.6m. See tax rates for 2014-2015 year for Australian Residents ⁸ below.

So, ifJK did own all of the shares the ATO figure does appear to be in the ballpark –that is, if we ignore the fact that JK was not the sole shareholder pluswe ignore all the other issues that are in contention. In this post, I am going to ignore all the other issues, since at the end of the day, whether the other issues are deemed correct or whether they aren’t, is, in my opinion, irrelevant. The ATO’s charges, in my opinion, fall away as soon as it can be shown that JK was not the sole shareholder in 2014-2015. The arguments are a distraction from this simple fact. But, if you are interested, just for completeness, see JK’s entire redacted defence at the end of the backstory on LinkedIn at this link⁷ .

So, was JK,or was he not, the sole shareholder and absolutely entitled to the 311,703,933 sharesawarded to ISX(BVI) by ISX Ltd (Otis Energy)?

JK’sdefence document states at page 12 that on 18 July 2005, he acquired bothshares then on issue in ISX(BVI) and between 2005 and 2009 ISX(BVI) wasdormant. He subsequently sought and obtained various contributions (of money, commitment and effort) to the business development. He remained ISX(BVI)’s sole shareholder until it issued further shares on or around 30 June 2012 and 22 October 2014 when ISX(BVI) issued shares to individuals in recognition of the funds they had made available to ISX(BVI) in order to fund the subsidiaries ISX(BV) and ISX(IP) and for their effort.

On 5 September2018, ISX(BVI) resolved to make an in-specie distribution to its shareholdersof the ordinary shares ISX(BVI) held in ISX LTD in proportion to theirshareholdings (but with no shares being distributed to JK until regulatoryapproval was obtained) and to subsequently cancel their ISX(BVI) shares exceptas to one share each. Subsequently they received 187,012,013 shares in ISX LTD and had their shares in ISX (BVI) cancelled.

There is amuch documentation that shows that JK was not the sole shareholder, nor was heabsolutely entitled to the shares issued by ISX Ltd (Otis Energy) to ISX(BVI)on the reverse takeover. Some of this documentation is listed here:

1. The 2014 Prospectus ¹ – Page38 & 39, directors holdings. This document states, “Mr. Karantzis is a director and shareholder of the Vendor and Mr. Hart and Mr. Minehane are shareholders of the Vendor”

2. Appendix 4E and Financial Report 30June 2015²- On page 19, Additional disclosures relating to keymanagement personnel there are 4 asterisks (*****) next to the names of Mr. TimHart ****, Mr. Nickolas John Karantzis ****, and Mr. Scott Minehane ****. **** states – “During the financial year iSignthis Ltd (formerly Otis Energy Limited) (the “acquiree” completed the acquisition of iSignthis (B.V. and ISX IP Ltd (together known as “iSignthis) (“acquirer”). The acquiree issued a total of 311,703,033 fully paid ordinary shares to the acquirer in as consideration for the transaction These members of the Key Management Personnel hold an interest in the acquirer”.

3. Appendix 4E and Financial Report 30June 2016³ – On page 14, Additional disclosures relating to keymanagement personnel there is 1 asterisk(*) next to the names of Mr. Tim Hart*, Mr. Nickolas John Karantzis *, Mr. Scott Minehane *, and Mr. ToddRichards*. At * it states - “During the financial year iSignthis Ltd (the “acquiree”) completed the acquisition of iSignthis B.V. and ISX IP Ltd (together known as “iSignthis) (“acquirer”). The acquiree issued a total of 311,703,033 fully paid ordinary shares to the acquirer in as consideration for the transaction These members of the Key Management Personnel hold an interest in the acquirer”.

4. Director’s Report, 30 June 2017⁴– On page 19 – same as in 4 above.

5. AnnualReport to shareholders 2018⁵ -

a. Page 9 of the Director’s Report - Itis noted that Mr. Hart holds an interest in the major shareholder of thecompany iSignthis Ltd (BVI)

b. Page 10 of the Director’s Report –It is noted that Mr. Karantzis holds an interest in the major shareholder ofthe company iSignthis Ltd (BI)

c. Page 10 of the Director’s Report –It is noted that Mr. Minehane holds an interest in the major shareholder of thecompany iSignthis Ltd (BVI).

6. Updateon suspension due to share price volatility⁶ – This lists the 8“Angel Investors” who were granted rights by iSignthis Ltd (BVI)

In summary, I am well and truly appalled. I believe even the village idiot can see, based on the information above, that John Karantzis (JK) does not owe $10m to the ATO. So, I ask as I come full circle: What is the reason for these charges? Is it just incompetence? Was the ATO directed to do this in order to put additional pressure on JK? Is it because the ranks are closing around ISX now that ISX is close to actually having its case heard against ASX? Does ASIC know that it really doesn’t have a hope in hell to win its case against ISX in the courts? Is it because Frydenberg has committed everyone to protect the Australian Financial system so that it can recover from the pandemic since ASX is at the centre of Australian financial system? In my opinion, they went a bit soft on ASX as a response to the application error – when Longo was asked why ASIC did not pursue court action against the ASX, Longo said it was a serious matter but he wanted an outcome that “addresses the issues”.

But lastly, might this have come from the topbecause it can be claimed, if ever it is “found out” that it was done for the“greater good” – i.e. to preserve the financial system in a time of financial stress due to COVID - OR, is it just an effort to protect the financial system in order to ensure the libs are re-elected? Whatever it is, truth will eventually out.

We have somany accusations and allegations of corruption against this government in thepast few years – from alleged pork barreling, alleged “secretly” deleting ASICcorruption findings from an “independent review”, Longo stating he didn’t findit necessary to read the non-redacted version of the independent review, theairport land purchase where the government used taxpayer money to pay 29.8m tobillionaire brothers Perich and only 11 months later, the land was valued atjust $3.1m. Is it any wonder I have lost faith in our government and its agencies?

We NEED anintegrity commission and we need it now.

Links:

¹https://www.asx.com.au/asxpdf/20141222/pdf/42vnrb5xpbzf7s.pdf

²https://www.asx.com.au/asxpdf/20150825/pdf/430rxq36zvjxsj.pdf

³https://www.asx.com.au/asxpdf/20160823/pdf/439j6hb0rrffpb.pdf

⁴ https://www.asx.com.au/asxpdf/20170830/pdf/43lwkcmqfvl0lx.pdf

⁵https://www.asx.com.au/asxpdf/20180924/pdf/43ylcy85k7qyvp.pdf

⁶https://www.asx.com.au/asxpdf/20191007/pdf/4498grvm46vg81.pdf

⁷ https://www.linkedin.com/feed/update/urn:li:ugcPost:6850628803778121728/

⁸ https://atotaxrates.info/individual-tax-rates-resident/ato-tax-rates-2015/