Illustration: michaelmucci.com

It was just a hunch. Could it possibly be that Australia’s top merchant bank was not paying tax?

Surely UBS Australia, the company that raked in more money from our capital markets than any other, was a lifter not a leaner.

This was not some back-street, Gold Coast boiler room, you know, churning two-bit clients through two-bit floats. No, this outfit churned big super funds through $2 billion floats.

Was it really worth spending $100 searching the ASIC database just to find out if it paid its taxes? As it turned out, it was.

According to the latest financial statements for UBS Holdings Pty Ltd, the Swiss banksters received a $17 million rebate from the Australian Tax Office last year. Yes, money back; that’s flair for you. Just like News Corp.

Before you descend into couch rage, it is only fair to point out they did pay a spot of tax in the years prior, including $42.5 million in 2012, which was certainly enough to cover pot-hole repair on the mean streets of Woollahra.

The official line from the company, following sheer horror at the insinuation that they pay even one basis point less than they ought, is that UBS pays the statutory 30 per cent corporate tax rate.

But 30 per cent of what? Net or gross? The tax-paying public may never know, because the most glamorous bits of this bank – the mergers and acquisitions and equity capital markets departments – don’t seem to file accounts.

This is where UBS probably makes the bulk of its profits, advising on big floats and takeovers. Yet the holding company accounts don’t include M&A and ECM. We are told the legal entity for these bits of the business is called “UBS AG Australia Branch” (the accounts of which are apparently with the Australian Prudential Regulation Authority).

“As a domestic branch UBS pays tax in Australia,” said a spokesperson. “The accounts for this entity are not public and we would therefore not disclose.”

There you have it. We have to take them on trust.

On a cursory look at the accounts of the parent bank in Switzerland, however, you are unlikely to see even mention of the word Australia. The closest you may come is Asia Pacific, which tipped in 16 per cent of UBS AG’s 27.7 billion Swiss francs ($33 billion) in operating income last year. Pre-tax profit was CHF3.3 billion and an income tax benefit of CHF110 was recorded. Again, tax back.

UBS Holdings – the half a company with accounts you can request from ASIC – show that a “management fee” of $176 million was paid. We were told this fee went to the mysterious “UBS AG Australia branch”. The year before the fee was $187 million.

The other large payment to come out, according to last year’s accounts, was the $176 million dividend to the parent in Zurich (last year $24 million, so they may not have got around to funding hospitals and schools in Australia but they surely did their bit for the bankers of Zurich).

That said, the holdings company has parted with $250 million in tax since 2008, which is prima facie a reasonable number, but also reasonably meaningless when at least half the company’s profits are hidden. Fee income in the holding company was $347 million last year and interest income $123 million – that covers wealth management and stock-broking. We can only surmise that fees from M&A and ECM – in the hidden accounts – are far higher than this.

So the entity we can see probably houses the bulk of the UBS costs while the entity we can’t see houses the bulk of the profits.


There is a broader theme at play here. It concerns the relentless shift by multinationals away from running their foreign subsidiaries as traditional “bodies corporate” and towards using them as mere branches.

UBS, with its local board of directors of just two and its profitable businesses hidden in the regional accounts, is a case in point.

As are the oil majors. While the Australian Taxation Office should be applauded for taking on oil giant Chevron in the Federal Court for profit shifting – via a raft of inter-company loans and payments – it perhaps should be challenging its legal structure.

It could claim the Australian subsidiaries of Chevron are no more than fronts for Chevron Inc because Chevron Inc is orchestrating an arrangement (costly loans) that is detrimental to the local companies as stand-alone entities. Chevron Inc clearly won’t allow the nominated directors of local companies to go to the market for funds and it can easily be argued that Chevron Inc people are, in effect, shadow directors who are beholden to act in the best interests of the foreign parent.

Unfortunately, thanks to the CLERP amendments to Corporations Law, Chevron directors may not need to act in the best interest of the local entity, although they still have a duty to act honestly.

It will be a good thing if local directors have to disclose whether their governance arrangements are in conflict with Australia’s corporations laws. In a legal sense it now seems to be the case – and not just with Chevron but with Shell Australia and a host of multinationals – that the local subsidiaries are really acting as agents for the parent.

The other thing that will cut down tax avoidance instantaneously is for regulators to insist that all large companies file full “general purpose” financial statements, disclosing all related party transactions. Yes, even those slick banksters high in their Chifley Square eyrie.