Banks use tax havens to conceal
Why does Macquarie control 49 entities registered in the Cayman Islands, 18 in Bermuda, nine in Mauritius, six in the Isle of Jersey, four in the British Virgin Islands, two in Aruba and one apiece in the Dominican Republic, Isle of Man, Curacao and the Netherland Antilles?
Is it that the bank has diversified its island operations between the Caribbean Sea, the Indian Ocean and the English Channel in case there is a tsunami?
No, this significant island presence is complemented by 14 entities in Luxembourg, 58 in Ireland and four in landlocked Switzerland.
What all these places have in common is that they are tax havens. And the reason companies, funds and trusts are registered in such exotic locations is that they have something to hide.
Most often, but not always, that something is profits. It would do no good, for instance, for this reporter to inquire why Macquarie's Caliburn Greater China Fund Segregated Portfolio (a sub-fund of Caliburn Absolute Strategies SPC) is domiciled in the Cayman Islands.
One can only surmise that if the shareholders and directors of this Caliburn wanted their business known more intimately by the public they would not be locating it in the Caymans.
Same deal for Rupert Murdoch's News Corp, with its 19 Caymans companies, 17 entities in Mauritius and a prolific 25 in the British Virgin Islands.
This is not to say, as a generalisation, that there is anything wrong with minimising tax. Within the law, it is perfectly acceptable to get your tax bill down. Just as, in a democracy that holds dear to the principles of free speech, a journalist is perfectly entitled to say, for instance, that Google Australia is a disgrace for paying almost no tax on its billions in income in this country.
Google - which shifts its profits offshore to low-tax jurisdictions - is a worse offender on aggressive tax plays than Macquarie or News.
For governments and their citizens around the world, however, the law is proving to be a blunt and clumsy instrument when it comes to enforcing tax.
If Joe Citizen pulls off a $2000 swiftie on the social security apparatus he could invite a stint behind bars for his second offence. If Joe Corporation Limited pulls off a fancy $200 million tax scam and is pinged by the Australian Taxation Office, it merely behaves in an indignant and victimised manner, cites its expensive legal advice and appeals the impertinence of the taxman in the Federal Court.
Joe Citizen picks up a good deal of the costs - the silks, the solicitors, the lot - even if Joe Corporation loses. Appealing and appealing again are deductible expenses of doing business.
The point of all this is that tax is soon to be an increasingly public issue globally as governments struggle to fund their deficits in the face of ever more sophisticated corporate tax frolics.
But, the taxman is turning up the screws - as evinced by last week's judgment in the Federal Court, where Justice Richard Edmonds tossed out Macquarie's application for an injunction to stop the ATO from issuing amended tax assessments for 2006, 2007 and 2008.
An amended assessment, potentially in the vicinity of $295 million, poses not merely financial risk but reputational risk too.
Which brings us to last month's story here that Sydney Airport had paid no tax since Macquarie bought it in 2002.
We are going to undertake a "reverse James Hird" here - that is, do the opposite of saying sorry while not really meaning it and claiming to have done nothing wrong.
While the story was correct, and we don't apologise for it, it did suffer from an error of omission for which we owe further clarity on Macquarie's behalf.
Thanks to its trust structure, it is the investors, rather than the airport, which are obliged to pay tax - not that they necessarily do (vid the ATO's investigation into the redeemable preference shares).
Still, trust or not, this stuff needs to be tightened up.
As one of the finest tax brains in the country chuckled in the aftermath of the story: "It's a 'zero leakage' structure, as we call it in the tax trade"!
Frequently Asked Questions about this Article…
The article explains that many large firms register offices or entities in jurisdictions like Zug (Switzerland), the Cayman Islands or Malta because those places are tax havens. Companies, funds and trusts often use these locations to minimise tax liabilities or limit public scrutiny of certain operations — typically to shelter profits or benefit from favourable tax rules.
The article cites several well-known names: BHP (with offices in Zug), the Commonwealth Bank (previously making profit in Malta), Macquarie (controlling numerous entities across the Caymans, Bermuda, Mauritius, Jersey, BVI, Aruba and others), News Corp (many entities in the Caymans, Mauritius and the British Virgin Islands) and Google Australia (noted for shifting profits offshore).
According to the article, minimising tax within the law is legally acceptable. The piece distinguishes lawful tax planning from wrongdoing, but also highlights that aggressive offshore arrangements can draw public and regulatory scrutiny — and that what’s legal can still be controversial.
The article notes a Federal Court decision where Justice Richard Edmonds dismissed Macquarie’s bid to stop the ATO issuing amended tax assessments for 2006–2008. Those amended assessments could be material — the article mentions a potential figure in the vicinity of $295 million — creating both financial and reputational risk that investors should be aware of.
The article explains that in some arrangements, like the Macquarie-owned Sydney Airport example, the trust structure means the investors (beneficiaries) are obliged to pay tax, rather than the operating asset itself. That doesn’t guarantee tax is paid, and the ATO has been investigating redeemable preference shares in that context.
The article says corporations often respond by appealing ATO decisions, hiring expensive legal teams and treating the taxman’s challenge as impertinent. Those legal battles are costly, and the article notes that appeal costs are deductible business expenses for companies.
Yes. The article argues tax is becoming an increasingly public and political issue worldwide as governments struggle to fund deficits and as corporate tax strategies grow more sophisticated. It also notes that tax authorities are 'turning up the screws' with tougher enforcement.
Everyday investors should know that offshore structures can create financial and reputational risks for companies. While tax minimisation can be legal, regulatory challenges — like amended assessments or public backlash — can affect a company’s finances and standing. It's reasonable for investors to monitor tax-related disclosures and regulatory developments as part of evaluating investment risk.
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