Rupert Murdoch’s News Corporation and Telstra Corporation are lending money to their cashed-up pay TV business Foxtel at 12 per cent, claiming tax deductions on the loan and lending the money back to themselves at an interest rate of zero.
An investigation by Fairfax Media has found this irregular transaction helped the Foxtel Partners reduce their tax in Australia, but the ATO seems to have missed out in taxing the interest income. Both companies have responded by saying they comply with tax laws although neither was prepared to address specific questions on the Foxtel transaction.
The $902 million loan appears even more peculiar in light of its high fixed rate and duration, 15 years, and the fact that Foxtel is highly profitable and does not need to borrow that sort of money. Further, Foxtel has refinanced other loans since the Foxtel Partner’s arrangement was struck in 2012 but not this loan. Debt experts told Fairfax Media that Foxtel – a pay TV monopoly acting under government mandate – should be borrowing at less than 4 per cent, one-third of the 12 per cent rate it is paying its parent companies.
News Corp is no stranger to controversy on the tax front. It was awarded a tax rebate of $880 million in 2013 after winning a case against the Australian Tax Office (ATO) in the Federal Court. The large rebate sparked controversy as the Tax Office elected not to appeal the case at a time when the federal election campaign was in full swing, Murdoch’s newspapers were backing Tony Abbott for prime minister and Mr Abbott was ahead in the polls.
Former tax officials have told Fairfax there was angst within the Tax Office following the decision not to appeal the case. Earlier this month, News filed its submission to the pending parliamentary inquiry into corporate tax avoidance. Its executives are likely to be called to appear and testify as to the nature of the company’s tax structures. Along with other multinationals being targeted by the inquiry, News says its activities are legal and independently verified by auditors, Ernst & Young in this case.
“These facts demonstrate that we are incurring and paying substantial tax on our operations in Australia,” said the News submission by chief executive Julian Clarke. This appears to be the case, at least as far as its stated pre-tax profits go. On a deeper analysis however, over the past five years the group’s tax minimisation tactics facilitated $1.24 billion in transfers to other companies within the global group in interest payments on loans alone. News declined to identify which entities made the loans.
“The loan was struck in April 2012 on commercial terms for a subordinated long-term loan, based on external independent advice,” a News statement said.
“The News Corp entities that made the loan are Australian companies, subject to Australian tax law”.
This news story is reprinted from www.smh.com.au
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