What a lovely thing it would be if we ordinary Australians could make loans to ourselves overseas to skive out of paying tax here. We could simply extract the money from one pocket and stick it in the other pocket, the “no tax pocket”, and save 30 per cent.
What a glorious thing it would be to “do a Vodafone” and say, “Sorry Mr Taxman but our taxable income has entirely been wiped out by our “swaps” and offshore debts and we won’t be paying tax this year”.
But wait, would that not be shortchanging schools and hospitals? Is tax not a social obligation, something we pay in exchange for health and education services, roads on which to drive, the security of our police and defence forces?
Don’t worry about that, we could rationalise it with the Kerry Packer defence: those politicians will only blow it up on their travel bills and so forth so why would we give it to them?
We might claim moreover that it only only fair that we cheat on tax because that’s business, business is tough, we must do what we can to reduce our obligations. It’s legal!
Multinational tax cheating is only legal until the Tax Office drags you into court and wins a prosecution. The difference between the ordinary person and the big company is that the former cannot afford the offshore tax structures, the Big Four advice and the cost of rolling over actions in the Federal Court.
When challenged, it would be very uppity indeed for the small business person to advise the Tax Office that it looked forward to seeing them in court and engaging their lawyers in a multimillion courtroom stoush where they might lose on a technicality after burning millions in taxpayer funds in the pursuit.
It is a double hit for Australian taxpayers as the corporation can claim its costs as deductions in the normal course of business and taxpayers fund the court system.
The dice are loaded. They are loaded against the small guy in favour of the big guy at every turn.
So it is today that we turn to Vodafone. This writer has nothing against Vodafone personally. They are friendly. Their network coverage has dramatically improved and we have subscribed to their mobile phone service so that, every time our premium Telstra broadband service goes on the blink, which is a lot, we can “hot-spot” off the phone to run the computer.
Vodafone Hutchison Australia has made $11.8 billion in total income over the past three years, posted zero taxable income and zero tax. It ranks number seven on our soon-to-be-announced list of multinational tax avoiders.
There is no doubt that Vodafore has lost money building its presence in this country and has consequently availed itself of billions in tax losses to offset against income, thereby eliminating the need to pay tax.
It is also convenient that a good proportion of Vodafone’s costs come from other Vodafone companies. This is the money going from the one pocket into the other pocket, the foreign pocket. In layman’s terms we might describe Vodafone’s financial statements as showing “more side-deals than a Saigon cock-fight”.
So how could Joe Blow “do a Vodafone” and eliminate his tax obligations?
Joe might pull a number of levers. Having established his range off foreign entities, Joe might decide to purchase things from them at a price decided by himself.
Vodafone does this. Joe could also pay for services from one of his foreign entities, accept some loans from his foreign entities, pay interest on them and then pay guarantees as well because Joe’s offshore companies insist, well Joe insists, Joe pay for some sort of guarantee. Vodafone does all these things and discloses little about them.
It doesn’t disclose with which parties these deals are struck, only that there are a number of parties. Is it CK Hutchison Holdings in the Cayman Islands, or Vodafone Oceania in the Netherlands? Hong Kong perhaps? Who knows.
The only thing we do know is that income is flowing out of Australia to other countries via these related party transactions, flipping coin from one pocket to the next.
Joe would be particularly impressed to find that Vodafone also has some swaps arrangements with its associates overseas. As of last balance date, Vodafone had $668 million in payables owed to related parties. It also showed $570 million in swaps with a Hutchison Whampoa and $570 million in swaps with its ultimate parent Vodafone Plc. These siphoned out $44 million overseas last year.
Joe would be impressed that you can shift this much money from one pocket to the other with one instrument, a swap. These were disclosed in the Vodafone accounts as cross-currency swaps. But Joe could show even more flair than Vodafone.
You can “swap” almost anything: currency, interest rates, water, energy; you can even construct a “Total Return Swap” where the party receiving the total return receives any income generated by the asset.
Joe could determine therefore that the risk of his underlying business was such that his offshore companies got all the income of the business for a very small outlay. Perfectly legal … until the taxman decided otherwise; and the taxman can’t be everywhere at all times.
The reality is that Joe and any other normal citizen running a business in this country can’t do a Vodafone. He doesn’t have the resources to set up offshore structures, he is too easy for the taxman to sue.
But he could obfuscate. This is a major tool of the tax trade. In Vodafone’s published materials on its corporate structure it is very hard to find what owns what. Things seem to have been left out.
According to a company spokesperson:
“Vodafone Hutchison Australia is a 50:50 joint venture between Vodafone Group Plc and Hutchison Telecommunications Australia Limited (HTAL). CK Hutchison (CK Hutchison Holdings and Hutchison Whampoa completed the reorganisation and combination of their businesses in 2015) is the majority shareholder of HTA”.
If you go to the financial statements however you will find Vodafone Hutchison Australia is jointly controlled by Hutchison 3G Australia Holdings Pty Limited (50 per cent), Hutchison Telecommunications (Australia) Limited (50 per cent, listed on ASX) and Vodafone Oceania Limited of The Netherlands (50 per cent). Yes, these shareholdings add up to 150 per cent.
Then there are the the other controlling shareholders, Vodafone Plc in London and CK Hutchison Holdings Limited of the Cayman Islands. We can’t see which transactions are struck with which entities.
Looking at its rivals in Australia, Singtel, owner of Optus, showed a tax expense of $772 million last year, although strangely and in an apparent failure to comply with accounting standards, did not display what tax it had actually paid in its cash-flow statement.
Telstra is one of this country’s biggest taxpayers, recording $1.775 billion in tax paid last year – which was still low in view of the $9.5 billion generated in net cash.
Vodafone’s auditor is PwC but it might not be for long. According to UK press reports, it is preparing to sack PwC after a shareholder backlash concerning a PwC conflict of interest.
PwC’s is administrator for Phones4U, a mobile phone retailer that went belly up three years ago after the major phone companies including Vodafone stopped supplying them. For its part, PwC is working on a possible lawsuit against Vodafone for its part in the downfall of the retailer.
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The michaelwest.com.au Big Tax List of Australia’s top tax avoiders is in production and will be announced soon. Vodafone Hutchison Australia ranks at number 7.
Vodafone issued a statement in response to questions over its tax affairs. This is it:
VODAFONE HUTCHISON AUSTRALIA STATEMENT
We always have and always will pay all taxes which are due under the law.
For the financial year ended 31 December 2015, our total cash contribution to government was $252 million. This includes $65 million direct tax contributions and spectrum licence payments.
Corporate tax is calculated based on profits, not revenue, and is only a small part of the tax contribution for any business. There are also numerous ways other than tax used by government to collect revenue from business activities, with significant revenue raised from telecommunications companies via spectrum auctions and spectrum licence payments.
We also make a significant contribution to the Australian economy by employing approximately 3,000 staff, and investing heavily in our network which is relied upon by approximately 5.7 million Australians.
Over the last seven years, due to a combination of high operating and capital costs, VHA has not made any profit on its activity. VHA has incurred consecutive years of losses, including for the year ended December 2015, and therefore no corporate tax was due or payable.
We have a close working relationship with the ATO which is satisfied with VHA’s tax governance processes. We’re also participating in the Board of Taxation’s voluntary Tax Transparency Code, publishing our first report for the year ended 31 December, 2016.
Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.