Australian Tax Office contractors accused of links to tax havens

International corporations providing labor and call center

staff to the Australian Tax Workplace either share links with tax havens or take part in questionable tax practices, a brand-new report has actually discovered.

Texas-based firm Excellent, the UK-based international Serco and Japanese huge Outsourcing Inc have repeatedly won rewarding contracts with the tax office, usually to provide outsourced labor or aid run the firm’s call centers.

A report published on Monday by the Centre for International Corporate Tax Responsibility and Research Study (Center), headed by Jason Ward, has raised questions about the firms’ tax practices, triggering calls for the Australian federal government to do more to scrutinize the tax affairs of its primary specialists.

The report traces Stellar’s links to tax havens, criticizes Serco for its “history of innovative accounting, which lowers tax obligations in Australia,” and attacks Outsourcing Inc for a “total absence of openness” on incredible deals and an intricate corporate structure.

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Both Serco and Stellar issued strongly worded statements rejecting any allegation of tax minimisation and were yet to see the report when contacted recently.

Outsourcing Inc also declined the report’s findings, stating its corporate structure was not unusual which it paid the proper quantity of tax to the Australian government.

Excellent, a privately-owned call center and outsourcing organization, won a $51.25 m contracts to supply labor to the ATO in 2015. The company has also won agreements to assist operate Centrelink’s call center and does financial obligation collection work for magistrates courts in Victoria and Perth.

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Stellar is headquartered in Texas however its corporate structure traces back to Nevada, a favored tax-friendly jurisdiction in the United States.

The Center report used bankruptcy filings to link the business’s UK call center business to the British Virgin Islands, a tax sanctuary.

It also discovered the gross income of the Australian subsidiary “might have been synthetically minimized through numerous questionable overseas associated party deals.” Related celebration transactions– the internal moving of cash in between a corporation’s numerous subsidiaries, either through loans, interest payments, or other deals– can be utilized to reduce taxable income.

Excellent paid little tax in Australia, the report finds, pointing to tax costs of $2m on a gross income of $6.6 m, from overall earnings of $132.5 m.

Serco, much better known for running jails and immigration detention centers, is also a significant ATO contractor. It has actually helped run the ATO’s call centers and supplied labor hire in the past. Guardian Australia exposed in 2015 that Appleby, the foreign law office at the centre of the Paradise Papers, held serious concerns about taking Serco on as a client.

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The report raises questions about interest payments on internal loans, and a $24.4 m “main recharges” cost, which it says might have been used to decrease gross income in Australia.

” Offshore associated party interest payments have actually regularly been used by multinationals– as demonstrated in the landmark federal lawsuit with Chevron– to decrease taxable income in Australia,” the report said.

Outsourcing Inc, a fast-growing company

noted in Japan, has just recently gotten a majority stake in the Beddison Group, which has 3 Australian entities with substantial government contracts: Hoban, Clicks, and Index. Hoban and Clicks both provide labor hire or outsourced services to the ATO.

The report discovers the entities are owned through system trusts, masking their financial resources from the general public. The report described the structure and the lack of transparency as uncommon and “troubling.”

” The total absence of openness raises major doubts about what might be hidden and why the business structure continues to be so opaque,” it said.

In a statement, the Beddison Group said making use of system trusts was not uncommon.

It said its revenues were distributed to its unitholders, who pay all appropriate tax. Outsourcing Inc also paid the proper rate of tax (30%) on any revenues.

” Therefore, [Outsourcing Inc] is not gaining from the reality that Clicks & Hoban are trusts or the fact that they are foreign-domiciled,” a spokesperson said. “It must be kept in mind that withholding tax has been paid to the ATO by OSI about the FY2017. All of the company’s existing tax obligations have actually been satisfied and will continue to be so.”

The report does not allege illegal behavior by the three professionals. However, Ward stated it showed the Australian federal government was not correctly evaluating its contractors.

” It is especially egregious that ATO contractors do not have transparency and have extremely doubtful tax practices,” he said. “Nevertheless, these concerns go far beyond the ATO. There need to be higher openness on government procurement throughout all federal agencies, state federal governments, local councils, and other public bodies.”

The report has also prompted criticism from the main public sector union, the Neighborhood and Public Sector Union (CPSU). The union’s nationwide secretary, Nadine Flood, stated the report raised significant probity and integrity problems. She questioned how companies with “doubtful tax practices” could be so deeply associated with the running of Australia’s tax system.

” People rightly expect the highest possible levels of integrity in the tax office, and what’s going on here just isn’t meeting the public interest test,” she said.

” The Australian community doesn’t like outsourcing and privatization at the best of times, let alone when lucrative ATO contracts are being given to companies whose own tax practices are under a cloud.”

An ATO spokeswoman said the agency could not comment on the individual tax affairs of companies. But she said the ATO adhered to procurement rules, which required contractors to guarantee they compiled the nation’s tax laws.

” When entering into contracts

the ATO requires suppliers to provide warranties that they are compliant with Australian tax laws and will remain compliant throughout the term of the contract,” she said. “Also, standard ATO contracts require vendors to comply with all legislative and government policy obligations.”

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The ATO also engaged probity advisers and conducted more detailed financial checks for larger or more complex contracts, the spokeswoman said.

Serco said it worked transparently and by legal and financial reporting requirements.

“We strongly refute any suggestion regarding reduced tax liabilities … Serco does not enter into any arrangements to minimize tax,” it said.

Stellar said it “complies with all taxation obligations in Australia” and was externally audited. It rejected the suggestion that it paid little tax in Australia, saying its effective tax rate was 33.5% in 2014 and 32% in 2015. It said it no longer had any “affiliation, connection or form of recourse” with the subsidiary linked to the British Virgin Islands.

“Stellar has a proven track record of strong corporate governance and good corporate citizenship, which is evidenced by its board and committee structures, comprehensive policy and procedure framework and strict adherence to statutory and reporting deadlines and payments,” the company said in a statement.

The assistant shadow treasurer, Andrew Leigh, said the report’s findings were troubling. He said Labor would require all government tenderers to provide further transparency on their tax structures, including by forcing them to state which country they were based in for tax purposes.

“Labor would also require listed firms to report tax haven dealings as a material tax risk,” he said.

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