THE AUSTRALIAN Tax Office’s move against private equity outfit TPG over an alleged tax avoidance scheme using a company based in the Cayman Islands to minimise tax has implications for the Federal Government’s $61 billion Future Fund.
Five Cayman Islands subsidiaries were revealed in the Future Fund’s latest annual report, tabled in Federal Parliament late last month, the Herald Sun reports.
The fund and a raft of Australian corporates continue to use companies registered in countries on the ATO’s tax haven hit-list despite public warnings from the ATO and a worldwide crackdown on the use of tax havens in response to the global financial crisis.
On Wednesday the ATO slapped a $678 million tax bill on two TPG companies in Luxembourg and the Cayman Islands and took court action in an attempt to freeze the $1.5 billion the private equity group earned from the float of department store Myer.
Caught up in the freeze was about $135 million belonging to the Myer family, which will tomorrow launch a legal bid to recover damages and compensation from the ATO.
The freeze was lifted after a day, but the family aims to recover costs including interest, legal expenses and the cost of arranging temporary finance facilities.
An ATO booklet on tax havens, last updated in June, contains a specific warning about the use of tax havens in private equity deals such as TPG’s November 2 float of Myer.
“The use of tax havens in some large private equity deals may require monitoring of the payments made to general partners of the equity investing vehicles to determine, among other things, whether some part of the profit is properly attributable to Australian enterprises,” the ATO said.
It also gave a general warning about the use by big business of related companies in 28 tax havens with “secretive tax or financial systems” including the Cayman Islands, where the Future Fund set up five subsidiaries last financial year.
“The Fund seeks to maximise after tax returns and, where it is legitimate to use a structure which protects the claim to sovereign immunity, this path has been taken,” the fund said in its 2008-2009 annual report.
It said it was committed to “full transparency and information exchange for tax purposes and compliance with all relevant laws”.
“Importantly, the Fund does not invest in schemes and arrangements that use secrecy laws to conceal assets and income that are subject to tax.”
Other Australian companies using tax haven structures include Astro Japan Property Trust, formerly Babcock & Brown Japan Property Trust.
The listed trust, which is now independent of failed investment bank Babcock & Brown, holds its Japanese properties in a complex structure that uses five companies registered in the Cayman Islands.
Voting stock of four of the five companies is held by an unnamed Cayman Islands charitable trust, Astro’s latest annual report shows.
The arrangements are “designed to assist in achieving bankruptcy remoteness” for Japanese companies within the Astro group, the report says.
Australia’s banks and insurers also have presences in tax havens, with the NAB, the Commonwealth Bank and the ANZ maintaining branches in the Cayman Islands, while insurance giant IAG has three subsidiaries in Gibraltar and one in Mauritius.
