The Australian Taxation Office has only one company in its highest risk category for tax avoidance – Rupert Murdoch’s News Corporation.
Four years ago, 13 of the country’s biggest companies were in Q1, the ATO’s highest-risk category for tax avoidance, but now only News Corp Australia remains, reflecting what is described as a secretive, aggressive approach to the ATO.
As the only company with a high-risk rating, News Corp faces continual audits and reviews.
News Corp declined to respond to questions by The Australian Financial Review about its tax-risk status.
“News Corp Australia paid $417 million in corporate taxes over the last five years and $900 million in goods and services, fringe benefits and payroll taxes over this same period,” a spokesman said on Friday.
“We have answered extensive questions on our tax matters at the Senate Inquiry [into corporate tax avoidance] in an open and transparent way and have nothing further to add.”
On April 22, ATO officials at the Senate committee inquiry declined to answer questions by former Greens leader Christine Milne about the tax status of News Australia Holdings which holds most of News Corp’s Australian subsidiaries.
However, the Financial Review has confirmed with several sources that News Corp is the mystery company still in Q1.
ATO refuses to confirm
Tax Commissioner Chris Jordan did not name the mystery Q1 company but told the committee, “It is about the history of their aggressive behaviour in tax over a period of time.
“But, importantly, it is about transparency and willingness to be open with us.
“Historically, this particular taxpayer has made it quite clear that they have not had an interest in being open with us and discussing any of their affairs with us prior to their doing transactions.”
News Corp has had a string of tax challenges before the courts. In the most recent case, News Corp’s accounts reveal that its 2013-14 tax refund was even larger than reported, at $923 million.
The Tax Office had challenged $2 billion in tax deductions which News Australia claimed, based on paying out a foreign currency loan to another News subsidiary in the last days of the 2001 and 2002 tax years.
In July 2013 the Court of Appeal ordered repayment of base tax of $623.8 million plus $299.5 million of interest payments.
Income tax of $85 million was payable on the interest earnings, if there were no tax losses to claim against, taking the net gain to $838.8 million.
News also won a 2010 appeal when the Tax Office disallowed $1.5 billion in capital losses it created in a round-robin series of exchanges when it re-incorporated in the US in 2005.
At the Senate inquiry ATO officers compared the behaviour of the remaining Q1 company with the 12 companies which were moved to the lower-risk Q2 category, which held Australia’s 68 biggest companies, each of which had more than $5 billion a year in sales.
“It was actually a behavioural change from those companies,” Deputy Commissioner Jeremy Hirschhorn said.
“They started coming to us before the event and talking to us about what they were doing rather than us working out what they had done after the event and trying to investigate.”
This was part of a proactive policy the Tax Office has developed with large companies.
“So we go out and we talk to them about the deals that they are doing in their business throughout the year so that when they go to file their return we know what is going to be in that return,” Deputy Commissioner Michael Konza said.
The Tax Office uses this process with the 68 large companies in Q2 to flag problem areas which need a ruling or special attention. But News Corp has refused such contacts.
“They have said, ‘We are not required to talk to you before we file a tax return,’ and they are right,” Mr Konza said of the unnamed Q1 company.
“We say, ‘If you don’t want to co-operate in that manner, then you can expect that we’re going to have to do audits and reviews on you all the time, because we won’t have any other way of seeing things’,” Mr Konza said.
“And they have said, ‘We intend to demand all our rights and meet our responsibilities under the act.'”
Change in attitude
Mr Jordan said, “I understand that that attitude may be changing and there have been approaches to us recently to work with us to get out of that Q1.”
Mr Hirschhorn said the company was under intensive review by the Tax Office.
“I could not say if it is an audit, but I am aware that they are under intensive review around particular aspects of their operation currently,” he said.
News Corp Australia chief executive Julian Clarke told the corporate tax avoidance inquiry on April 8, “I would define it as this: we want to pay, we must pay, the right amount of tax – no more and no less. That is our corporate position.
“So I sit here today confident that we are doing exactly that with the corporate laws that apply in Australia.”
News Corp has also been on the losing side in tax cases. In 2010 it settled a tax avoidance case for $77 million after the Murdochs listed the family company Kayarem on the Bermuda stock exchange days before it was sold to News in 2005, to sidestep $52 million in Australian stamp duty.
In 1995 the Murdoch company Cruden Investments was held to be liable for South Australian stamp duty in a 1987 deal when the Murdochs sold $670 million of News shares to Queensland Press, which claimed the shares were registered in a computer in the Northern Territory.
On April 8 Mr Hirschhorn, asked if the Tax Office was looking at News Corp’s treatment of intangibles, said, “I cannot comment on individual cases, but I think it is fair to say that we look … at the 69 largest groups and we are on top of everything that they do. We also look at significant transactions. I think it would be a surprise if we were not looking.”
Mr Hirschhorn said the Tax Office looked closely at group restructures and when tax benefits of a deal outweighed the corporate benefits of a deal, the ATO sought to apply Part IVA tax avoidance provisions.
“In the public domain, we have pursued those sorts of arguments against News Corp on previous restructures and indeed have on occasion been unsuccessful in applying part IVA on the basis that there was a dominant commercial purpose rather than a dominant tax purposes.
“Part IVA has recently changed and that stops taxpayers arguing that they would not have done the transaction at all.”
That was a common defence claimed by corporates, he said.
“They said: ‘We would not have done the transaction at all if there had been a tax cost.’ Part IVA has recently changed and no doubt in the near future there will be cases in which the Tax Office seeks to argue the new part IVA against things like corporate restructures.”