It is said that private equity players are so ruthless they would sell their own grandmothers. The question is, would they sell our grandmothers too? The Senate Inquiry into financial practices in Aged Care kicks off again in Melbourne next week. When private equity operator Allity was asked by the Senate to disclose its corporate structure, it delivered a spaghetti mud-map so byzantine it would turn a Macbanker green with envy; a chart with no less than 23 entities, amazingly not one of them domiciled in the azure waters of the Caribbean Sea.
But wait, there’s more. This chart did not include another 29 entities below the entities it did disclose, those being the operating entities in Australia. And for good measure, we can reveal another four entities above said spaghetti mud-map, one of which was indeed domiciled in the tax haven of Jersey.
So, when the people from Allity referred to a related entity in the UK, they were correct. This entity was indeed technically in the UK, insofar as the self-governing Bailiwick of Jersey is in the English Channel just off the coast of Normandy. The point is that this structure is a feat of financial engineering, a structure so complex, and deliberately so, that nobody except a couple of pointy-headed people at Archer Capital who control Allity could comprehend it.
There is no aspersion in this preamble over the quality of care at Allity’s nursing homes. This merely goes to system risk, financial structures and disclosure, and taxpayer risk too, given the juiced up 15 per cent interest rate on a loan from one Allity entity to another. They might have claimed this rate of 15 per cent was due to counterparty risk except that the counterparty was themselves.
If anything comes of the Aged Care Inquiry it should be better transparency and disclosure from those corporate operators who are the stewards of Australia’s elderly, especially at a time when – as rumour has it – the infamous private equiteers from KKR are sniffing around one of the sector’s largest operators, Regis.
Story on what to expect in the upcoming inquiry by Jason Ward of the Tax Justice Network.
ALLITY, the for-profit aged care provider owned by private equity firm Archer Capital, continues to conceal the facts around its tax practices. Allity and other aged care companies, consultants and lobbyists, have continued to say, “Nothing to see here….”
The aged care company argued before a Senate inquiry that its 15 per cent interest rate loan from shareholders was “market rate”. The Federal Court, in a landmark decision ruled three times, unanimously, that Chevron’s offshore related party loan of 9 per cent was not at “arm’s length”.
Allity’s interest rate ruse, while smaller in scale, was more galling than Chevron’s, which is no small feat. To make matters worse Allity has done its dirty deeds with hundreds of millions of taxpayer dollars provided to it to care for some of Australia’s most vulnerable residents, not to stash away for shareholders in a tax haven.
Allity was asked by the Senate to provide details of its ownership structure. In a response to questions on notice, Allity took the “opportunity to correct an inadvertent error in Mr Armstrong’s evidence” concerning the shareholders of the investment. While three of the entities are trusts in Australia, the “fourth entity, Archer Capital Offshore 5, LP is, however, an English registered limited partnership … and is not required to lodge Australian tax returns.”
What Allity did not tell, detailed in the Tax Justice Network’s response to questions on notice, is that this offshore limited partnership is actually located in Jersey, a notorious tax haven. Funny they did not mention that. Allity also failed to mention the fact that one of the Australian trusts is 100 per cent owned by the Australian Government’s Future Fund.
But never fear, the new “simplified” ownership structure which they did provide makes everything crystal clear.
Editor’s note: we endeavoured to load this chart onto the page, with its 23 entities but the computer nearly blew up and, in any case, it would have added little to public understanding and was therefor only of interest to those who were attracted to geometry.
The second hearing of the second inquiry into tax dodging by for-profit aged care companies is scheduled for next week, September 4, so stay tuned for more explanations of why there is nothing to see here.
We don’t yet know who will be called. Will it be Bupa or Lend Lease? Both have yet to answer questions on how their aged care and retirement village businesses, respectively, have seemingly been used to create tax shelters for two of Australia’s largest corporations. Will it be Opal, half owned by AMP, also through trust structures?
What we do know is that whatever companies are called, like Allity and other industry representatives and consultants who continue to profit from public funds, they will argue that there is “nothing to see here” and that they are already well regulated.
That is precisely what the banks, AMP among them, argued before the Royal Commission began. While the ATO has been lifting its game, ASIC has clearly dropped the ball as an effective regulator. As for the regulation of the public funding of aged care and ensuring quality care is provided for Australia’s elderly, public accountability is clearly missing on that front as well.
Interestingly, while the Liberal Party bloodletting was in full swing, cross-bench MP Rebekha Sharkie, introduced a bill to require disclosure of staffing ratios in aged care. The Tax Justice Network response to questions on notice clearly shows that for-profit companies continue to rort the funding system for aged care and that information on funding and staffing ratios in US nursing homes are far more transparent than in Australia. That is disturbing, an area of US health care that might be better than in Australia.
While there is growing support with the Labor Party and the cross bench for mandating staffing ratios in aged care, Sharkie’s proposal for greater disclosure is a strong step in the right direction.
Aged care companies, in receipt of billions in public funding, need to be held publicly accountable for both the quality of care and financial arrangements, including tax payments.
Let’s hope the Senate inquiry results in strong and meaningful recommendations to reform this vital and growing sector.
It is time to let the sun shine in.
Jersey is not part of the UK. The UK comprises England, Scotland and Wales. Great Britain comprises: the United Kingdom and Northern Ireland. The Channel Islands belong to the Queen, her capacity as Duke of Normandy (1066 and all that, William the Conquerer and all that). It’s the only part of “France” that is still ruled by the English monarch. NB this explains why the Channel Islands are not subject to UK taxes (put simply, they’re not part of the the UK or Great Britain).
LendLease time to fess up