SingTel loses landmark case in crackdown on ATO tax evasion
Singtel then claimed tax deductions for the nearly $ 895 million interest paid on loans between the two subsidiaries from 2010 to 2013.
But the tax commissioner’s office rejected the request as it stepped up its scrutiny of multinationals using cross-border finance or transfer pricing setups to reduce their taxable income, and the Federal Court upheld the ruling on Friday.
Referring to the âarm’s lengthâ principle, Judge Mark Moshinsky pointed out several aspects of loan agreements that differed from what independent private companies might expect to receive.
These included the fact that both parties were 100% owned by the same company and that leadership roles across organizations were shared.
He also pointed out that the arrangement gave SAI the power to demand payment of interest at any time and a provision required SAI to treat interest accrued under the agreements as unaccounted if the parent company so ordered. .
He said it was unrealistic to expect an independent company to accept a loan on such terms.
“Terms [of the loan arrangements] … exposed each party to significant business risk, âsaid the judge.
âThere doesn’t seem to be any commercial justification for these conditions. It is very difficult to see why independent companies would agree to such conditions.
The tax office recently scored a streak of victories on cross-border tax issues and warned companies last year that it would sue them for tax evasion if they intentionally reduce their taxable income by embezzling profits or charging out of pocket. transfer.
The SingTel case builds on its victories in this arena, including a deal for BHP to pay $ 529 million for a dispute over its offshore marketing centers and a long-standing case against Chevron in 2017 over a similar loan issue. .
In that case, the oil giant charged its Australian branch interest rates of 9 percent on loans from a US-based subsidiary despite the cost of funding being at least 2 percent lower.
More than $ 80 billion in loans have been restructured to avoid similar actions since the judgment.
SingTel said it was reviewing Judge Moshinsky’s judgment and would advise investors of its “next steps … in due course.” The interest rates on the SAI and STAI loan agreements were not contested by the ATO.