Australia’s top 10 tax dodgers: Vodafone Hutchison

Michael West
Mar 12, 2019, updated Mar 14, 2019

Telco giant Vodafone Hutchison is the fourth largest tax dodger in Australia.

The New Daily and Michael West count down the 10 biggest corporate tax dodgers in Australia. Return on Friday when we reveal the nation’s 4th-biggest tax avoider.

Imagine getting more than $30 million in government grants in a year after paying no tax over five years – and taking in $15 billion cash.

That’s what Vodafone has achieved, joining Rupert Murdoch’s Foxtel and the financial engineers from Brookfield on our list of companies that get government grants and pay no tax.

Vodafone Hutchison Australia Pty Ltd is owned by companies registered in the Cayman Islands and Hong Kong and, albeit with gargantuan tax losses to offset against its profits, is another example of a large Australian business being run for the benefit of its foreign parents rather than its body corporate in this country.

Various Hutchison entities feature prolifically in the Panama Papers offshore leaks database, particularly in the infamous British Virgin Islands – a tax haven of worse repute than the Caymans.

Vodafone’s most recent financial statements, which can be acquired from the Australian Securities and Investments Commission (ASIC) show rising sales, yet continuing losses.

Multinationals mostly strive to make losses in Australia, as the tax rate – at 30 per cent – is higher than in other jurisdictions, particularly tax havens where it is often zero.

That’s as long as they can get the pre-tax profits offshore to related parties. The Cayman Islands has a corporate tax rate of zero.

Vodafone gets its pre-tax profits out of the country via “service agreements”, loan guarantees, swaps and “debt-loading”, that is, the reliable practice of a foreign entity lending money to the Australian subsidiary. The interest on these loans heads offshore before tax.

The latest Vodafone accounts, for the year to December 2017, show revenue of $3.45 billion, up from $3.33 billion the year before. Costs, unsurprisingly, rose too, almost all cost items – despite the maturing business – which left a loss of $178 million before tax.

At the revenue line, you will find $2.2 million in government grants in 2017, sadly down from $6.98 million in government grants the year before. However, buried in the notes to the accounts under the nebulous category of “other”, is a small-print disclosure of another $32 million in government grants.

It’s a fair bet that Vodafone won’t be paying tax for a long time in Australia. There are $4.8 billion in tax losses left which, at the 30 per cent corporate income tax rate, gives Vodafone a potential tax benefit of $1.4 billion.

Looking at the methods for transferring profits out of Australia, we can see in the 2016 accounts, $1.1 billion in related-party, cross-currency swaps. The Tax Office declared a crackdown on swaps-related tax avoidance last year. There are another $745 million in related-party, cross-currency swaps in 2017.

The group strapped on an extra $400 million in related-party borrowings in 2017. Loans from shareholders stand, at last balance date, at $472 million. Among the myriad other related-party transactions are $768 million in guarantee fees and a $55 million “service fee”.

This is part seven of a 10-part series on the nation’s biggest tax dodgers. Click here to see part six.

For the full details of Michael West’s investigation into Australia’s 40 biggest tax dodgers you can visit his website, here.