Secret proposal to set up stealth office in Sydney or Melbourne was named ‘Project Painkiller’

This article is more than 2 years old

This article is more than 2 years old

Lawyers at the firm at the centre of the Paradise Papers hatched a secret plan to set up an office in Australia but avoid paying tax in the country, leaked documents reveal.

Appleby staff named their 2009 Australian expansion plan “Project Painkiller”, a reference to the signature cocktail of the British Virgin Islands, a Caribbean tax haven.



The firm would create a “stealth” office in Sydney or Melbourne, and initially use a single lawyer to drum up Australian business with the “clear objective” of growing the operation over time.

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The plan sought to capitalise on the region’s increasing interest in the tax havens of Mauritius and Seychelles, which would grow “in tandem with the epochal rise of India, China and other emerging markets”.

It also aimed to avoid taxes in Australia, a leaked project proposal shows.



Appleby would set up a “special purpose” company in the British Virgin Islands which would invoice Appleby for all of the work conducted by its sole Australian lawyer.



“During the first 12 months of the Sydney office being in operation, [the lawyer] would continue to provide BVI legal advice for clients as an associate, and would be billed out through the BVI office to avoid any tax consequences in Australia for Appleby,” the project proposal said.

All the professional, marketing and business development costs incurred in Australia would be billed to the British Virgin Islands company.



“Preliminary tax advice … confirms that this arrangement would ensure that Appleby would not attract any direct tax consequences in Australia, as [the lawyer] would be considered an independent contractor for the purposes of Australian law,” the project proposal said.



“The only tax consequences would apply personally to [the lawyer], who would be required to pay personal income tax on any fees paid by Appleby to [the lawyer’s] BVI company.”

The Paradise Papers indicate the Australian expansion did not go ahead, although Appleby has declined to comment directly on Project Painkiller.

The expansion was being pushed by two staff in its British Virgin Islands office. Leaked emails show the pair were cautious about taking the plan to superiors prematurely.

“[Name removed], remember this is top secret just now,” one wrote. “If cover is blown before ready to launch it will likely destroy chances for success of your great idea.”

The pair joked about including pictures of native Australian wildlife in the proposal they had submitted to senior Appleby management. “Maybe a koala holding an apple should have gone on page three ... Or perhaps more appropriately a giant apple eating a koala? :),” one wrote.

Appleby was approached for comment, both by the Guardian and by one of its media partners, the Australian Financial Review. It told the Australian Financial Review it would not comment on Project Painkiller without seeing the relevant documents.

The firm, which specialises in offshore corporate law, has been at the heart of the Paradise Papers, one of the biggest leaks in history. It has previously denied any wrongdoing by itself or its clients. In a general response provided to the International Consortium of Investigative Journalists, Appleby said: “We take any allegation of wrongdoing, implicit or otherwise, extremely seriously.

“Appleby operates in highly regulated jurisdictions and like all professional organisations in our regions, we are subject to frequent regulatory checks and we are committed to achieving the high standards set by our regulators.”

“Appleby has thoroughly and vigorously investigated the allegations and we are satisfied that there is no evidence of any wrongdoing, either on the part of ourselves or our clients.”



The leaked proposal said the expansion would cost only $110,000 a year and would have “no tax or regulatory consequences in Australia for Appleby”.



A presence in Australia would help Appleby grow its contacts in Australia and across south-east Asia, the proposal said. Its offshore competitors were yet to establish an office in Australia, which was said to present Appleby with a unique opportunity.

“Appleby could generate a great deal of positive publicity and goodwill by going into Australia first – particularly given that Mauritius and Seychelles structures will be involved in many of the international transactions in Asia which Australian law firms and financial institutions will be involved in,” the proposal said.

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The firm already had 343 contacts in Australia, the report said, 60% of whom were concentrated in Sydney.

But the greatest potential for growth in its contact list was in Melbourne. “It is not unrealistic to propose increasing the number of contacts for the firm to 1,000 within three years of opening an office in Australia.”

An Australian office would also help Appleby grow in New Zealand. Its competitors, the report said, were already using New Zealand’s foreign trust regime to gain tax benefits.