The lost court case, relating to its acquisition of Optus in 2001, will see them repay around $216 million in tax exposure, interest, and penalties
On Friday, Singtel lost a major legal appeal in an Australian court, a result that could major ramifications for multinational companies attempting to financing operations across borders.
The ruling relates to Singtel’s purchase of Australian wireless operator Optus back in 2001 for around $8.6 billion. In order to finance this deal, Singtel’s Australian subsidiary, Singapore Telecom Australia Investments (STAI), issued shares and loan notes to SingTel Australia Investments (SAI), a company registered in the British Virgin Islands. By 2002, STAI was completely owned by SAI, issuing further loans and paying interest to SAI.
Fifteen years later, in 2016, the Australian Tax Commissioner (ATO) took issue with the interest rates due on these loans, arguing that STAI had unduly claimed tax deductions for interest paid on the loans between 2010–2013.
The ATO issued an amended assessment in December 2016, suggesting that STAI’s taxable income was in fact around $636 million, meaning they would owe the government around $190 million in taxes.
STAI immediately challenged this decision, with a court dismissing their objections in 2019. STAI subsequently appealed the decision, the result of which was heard on Friday.
As a result of the ruling, Singtel will owe the Australian government around $216 million in tax exposure, interest, and penalties. Roughly $190.6 million of this will be primary tax.
At the crux of this legal battle is the way in which intra-group financing takes place, since the process intrinsically offers various opportunities to manipulate company finances for the sake of tax evasion. By law, these transactions must take place at arm’s-length, with the deals operating exactly the same as if they were conducted with an external third party.
In the court’s ruling, Judge Mark Kranz Moshinsky noted that the transactions between Singtel’s two subsidiaries had failed to adhere to this principle, saying that the deals had “differed from those which might be expected to operate between independent enterprises dealing wholly independently with one another”.
The ruling indicates that multinational companies in Australia could soon face closer scrutiny for intra-group financing, with this issue having been a major focus of the ATO for many years now.
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