Singtel loses landmark Australian tax case

SINGAPORE • Australia have won a landmark court ruling against Singapore Telecommunications Ltd (Singtel), a victory in the country’s battle against tax avoidance by multinational companies through cross-border financing arrangements. 

The Federal Court of Australia last Friday dismissed the company’s appeal of a tax assessment related to the acquisition financing of Singtel Optus Pty Ltd in 2001. 

Transactions between two wholly-owned Singtel units “differed from those which might be expected to operate between independent enterprises dealing wholly independently with one another”, Judge Mark Kranz Moshinsky wrote for the court. 

Tax experts warned in the aftermath of the decision that multinationals should expect scrutiny on intra-group financing that doesn’t appear to have taken place at arm’s length — as if it were done 

between two unrelated parties. The arm’s-length principle is an often-contentious aspect of transfer pricing rules that govern transactions between companies within the same multinational group to make sure they aren’t abused for tax reasons.

The Australian Tax Office (ATO) “has had a laser focus on multi-nationals cross-border financing for many years now”, said Angela Wood, Melbourne-based tax partner at law firm Clayton Utz. “Transfer pricing, particularly for related-party financing, has been the single most important focus area for the ATO in recent times.” 

“The Singtel case has endorsed many key principles that underlie various Australian transfer pricing provisions that have previously been debated,” said Jacqueline McGrath, special counsel at HWL Ebsworth Lawyers, citing the multi-year Chevron and Glencore disputes. 

The case stretches back to Sing- tel’s 2001 purchase of Cable and Wireless Optus Ltd, which operated one of Australia’s largest telecommunications businesses, known locally as Optus. 

Domestically incorporated Singapore Telecom Australia Investments (STAI) subsequently issued shares and loan notes under a loan 

note issuance agreement to British Virgin Islands-registered subsidiary Singtel Australia Investments (SAI). STAI became a wholly-owned subsidiary of SAI in 2002, issuing loans and later paying interest to SAI, which is tax resident in Singapore. Both entities have been entirely owned by the parent company Singtel of Singapore. 

The loan agreements put in place during the purchase process set interest rates due on loans between the two entities, which the ATO took issue with almost 15 years later. In October 2016, the Australian Tax Commissioner contested tax deductions claimed for interest paid on the loans in the tax years ending March 31, 2010, 2011, 2012 and 2013. 

This assessment meant STAI had fewer losses to carry forward for tax purposes from 2010, ultimately meaning it would see an increased taxable income of just under A$895 million (RM2.69 billion). The primary tax would be A$268 million. 

In December 2016, STAI lodged objections to the amended assessments, which the commissioner disallowed in 2019. STAI’s appeal against the commissioner’s decisions was the case heard last Friday. 

Singtel has 28 days within which to file an appeal, Wood said. — Bloomberg