Vodafone Hutchison Australia Pty Ltd
Imagine getting more than $30 million in government grants in a year after paying no tax for four years, and raking in $15 billion cash. Imagine no longer, Vodafone joins Rupert Murdoch’s Foxtel and the financial engineers from Brookfield on our list of companies which get government grants *and* pay no tax.
Vodafone Hutchison Australia Pty Ltd is owned by companies in the Cayman Islands and Hong Kong. Albeit with gargantuan tax losses to offset against its profits, Vodafone is another example of a large Australian business being run for the benefit of its foreign parents rather than its body corporate.
Various Hutchison entities feature prolifically in the Panama Papers offshore leaks database, particularly in the infamous British Virgin Islands, a tax haven of worse repute than the Caymans.
Vodafone’s most recent financial statements, which can be acquired from the Australian Securities & Investments Commission (ASIC) for the princely sum of $40 – perhaps the world’s most expense public information – show sales are rising yet losses are still continuing after many years.
Foreign multinationals mostly strive to make losses in Australia as the tax rate – at 30 per cent – is higher than in other jurisdictions, particularly tax havens where it is often zero. (The Cayman Islands has a corporate tax rate of zero.) That’s as long as they can get their pre-tax profits offshore to their associates.
Vodafone sends its pre-tax profits out of the country via “service agreements”, loan guarantees, swaps and by “debt-loading”, that is, the ubiquitous practise of a foreign entity lending money to its Australian subsidiary. The interest on these loans heads offshore before tax.
The latest Vodafone accounts, for the year to December 2017, show revenue of $3.45 billion, up from $3.33 billion the year before. Costs, unsurprisingly rose too, almost all cost items – despite the maturing business – which left a loss of $178 million before tax.
At the revenue line, you will find $2.2 million in government grants in 2017, sadly down from $6.98 million in government grants the year before. However, buried in the notes to the accounts under the nebulous category of “other”, is a small-print disclosure of another $32 million in government grants.
It’s a fair bet that Vodafone won’t be paying tax for a long time in Australia. There are $4.8 billion in tax losses left which, at the 30 per cent corporate income tax rate, gives Vodafone a potential tax benefit of $1.4 billion.
In the 2016 accounts, there are $1.1 billion in related party cross-currency swaps. There are another $745 million in related party cross-currency swaps in 2017.
The group strapped on an extra $400 million in related party borrowings in 2017. Loans from shareholders stand, at last balance date, at $472 million. Among the myriad other related party transactions are $768 million in guarantee fees and a $55 million “service fee”.
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We are counting down the Top 40 Tax Dodgers. There are now four years of tax transparency data published by the Tax Office and we have used this data to work out which large companies operating in Australia have paid the least tax, or no tax.
Notable new economy players such as Google, eBay, Booking.com, Expedia are not near the top of the ATO list. That's because they don't (yet) recognise all income earned here; instead, they book Australian revenue directly to their associates offshore. They will be ranked in due course.
For other large corporations, and in particular, multinationals, the main steps in avoiding tax are made by reducing their taxable as much as they can; usually by sending it offshore in interest on loans, "service" fees or other payments to foreign associates. So, we have set a threshold. We have included only those companies which managed to wipe out 99.5 per cent or more of their taxable income over four years.
Qantas, therefore, is not on this list, although it has enormous income and has paid no income tax in Australia for many years. It misses the cut-off due to it not eliminating more than 99.5 per cent of its total income.
The airline had made large losses which were offset against profits. Many large corporations which have paid zero tax in ATO data, have legitimately made losses and have therefore built up "tax-loss shelter".
Further explanation of methodology can be found here.
Many others however, such as ExxonMobil and EnergyAustralia, are on the list as they managed to eliminate all or most of their taxable income by "debt-loading" or other means of aggressive tax avoidance.
In this, the second iteration of michaelwest.com.au corporate tax rankings, we have ranked companies purely on the Tax Office data. We will also publish a list of Australia's better corporate taxpayers, those companies who contribute most to the country in which they operate.
The Tax Office data is not a perfect guide. It does not record refunds, only tax payable and is often at odds with disclosures made for accounting purposes. In some cases, there are multiple entities with the same ultimate offshore parent reporting. One entity may pay zero tax, another may pay at the statutory 30 per cent rate (even if on low taxable income). We endeavour to be fair in our reporting to recognise these issues.
The data also recognises trusts as well as companies. For trusts, it is the members (investors) rather than the trusts who are ordinarily required to pay the tax. In many cases however it is fair to recognise trust structures for what they are, as tax is often the main reason these vehicles have been structured as trusts.
Companies are welcome to debate their rankings or to touch base to clarify or defend their tax practices. We will append or link these submissions.
Hydrox has been taken off the list as it never made a profit.