There will be much “restructuring” going on right now at the big end of town. Under the government’s corporate tax avoidance bill, which passed into law last Thursday, 281 private companies are expected to make public their revenue, and the amount of tax they pay, later this month – those with more than $200 million in revenue.
Labor and the Greens had originally been pushing for a disclosure threshold of $100 million but, in a controversial deal between the Greens and the treasurer, the threshold was set at $200 million on condition the government agree to another transparency measure compelling multinational companies to provide General Purpose financial reports.
So it is that Australia’s super-rich will have already been on the blower to their tax lawyers asking them to work out a way of getting below the $200 million disclosure level. The obvious ruse is to hive off bits of the business into smaller entities whose revenues are less than $200 million.
A tax lawyer told Fairfax Media such restructuring would be unlikely to contravene the GAAP (general anti avoidance provision – part 4A) as Part 4A – which holds that the dominant purpose of a transaction be commercial rather than tax-driven – attacks manoeuvres (including restructures) to obtain tax benefits but not information benefits.
A tax benefit is a reduction in assessable income or an increase in allowable deductions. A restructure to avoid the information laws is accordingly not caught by Part 4A.
So it is open season for restructuring. It is even possible that nobody may be captured by the new legislation and forced to reveal the amount of tax they pay, or don’t pay. Further, many of the 281 have large foreign shareholders and may enjoy the exemption, Class order [CO 98/0099], which allows large proprietary companies with foreign company shareholders (but not controlled by a foreign company) to be ‘grandfathered’.
Some 1500 companies are on the “grandfathered” list and have not filed company accounts since the early 1990s. So when you poke about in the database of the Australian Securities & Investments Commission (ASIC) you will not find any financial information about Australia’s largest private companies, those of the Packers, Myers, Pratts or Triguboffs. The best you can do is to find company “extracts”, which sometimes lead to an entity offshore.
Take Inghams, the chicken empire of the Ingham family. Ingham Enterprises is on the grandfathered list. Searches show its ultimate holding company is Ingham Holdings 1 Pty Ltd. Its top shareholders include an entity in Singapore and the low-tax state of Delaware in the US. Another on the grandfathered list, the Kahlbetzer empire, leads to Monaco and Buenos Aires.
Inghams was recently found to be the top political donor on the list. Around one in six of the exempted companies are significant political donors and many of the wealthy family empires have a number of entities on the list so in “group” terms the donations to political parties are effectively more concentrated.
Another typical structure you will find in these company extracts is the names of the family shareholders but “non-beneficial shareholders”, which is a dead end as it is impossible to follow the money trail offshore from there.
The moral of this story is that, if you are big enough, they won’t touch you. While the transparency measure is a step in the right direction, it may not deliver much apart from hefty fees for tax lawyers.
Project Wickenby, the task-force led by the Tax Office to pursue wealthy tax avoiders, conducted 4503 audits, raised $2.3 billion and delivered 46 convictions. But these were not the big fish.
Its most celebrated target was Paul Hogan, who struck a confidential settlement with the ATO two years ago without a charge being laid.
Wickenby has its critics. The probe cost more than $500 million and much of the proceeds are yet to come in, but there is no doubt that going after Hoges was a good move in PR terms.
While the publicity of Wickenby will have had a deterrent effect, the sting also reflects the tendency for Australian government agencies to pursue people who are rich but not too rich, rich but not too powerful, high profile but not too well connected.
The pursuit of Rene Rivkin is another example. Chasing the likes of Rivkin and Hoges reaps the headlines but it doesn’t create too many ripples at the big end of town.
As Wickenby was winding down, the Tax Office ramped up another project to bring in revenue, its amnesty inviting wealthy Australians to bring their money and untaxed assets back onshore in return for a guarantee they would not be prosecuted.
Some 1750 people declared $240 million in income and $1.7 billion in assets, and at the end of last year another 800 were expected to make voluntary disclosures.
Switzerland proved to be the most popular destination for undeclared wealth (585 individual disclosures were made about money and assets hidden there), followed by the UK (299 disclosures), Israel (231 disclosures),Singapore (123 disclosures), Hong Kong (115 disclosures) and Liechtenstein (43 disclosures).
Thanks to the amnesty, many of Australia’s wealthiest took the opportunity to bring their wealth back onshore with impunity.