The minute the government brings in new tax laws, the Big Four accounting firms get cracking on the loopholes for their multinational clients. It matters not that EY, PwC, KPMG and Deloitte are the biggest beneficiaries of government consulting contracts, they are also the masterminds of global tax avoidance. Michael West reports on the case of the Kiwi corporate raider, Graeme Hart, the once venerable Burns Philp and its accountant Deloitte.
One of the new measures introduced in 2016 to increase the transparency of large multinational companies operating in Australia is the requirement that they prepare General Purpose financial statements. According to the Tax Office website, “These will help the community understand more about the tax compliance of large corporate groups.”
When the laws were enacted a couple of years ago, the Big Four set about finding loopholes. Corporate tax avoiders thrive in the darkness of non-disclosure. Neither the accountants nor their multinational clients wanted this new transparency; and Tax Office sources told this reporter some multinationals were planning to lodge the General Purpose accounts of their offshore parent companies rather than the relevant Australian entities.
The spirit and intention of the laws apparently mean nothing to these operators, just the loopholes and the profits to be wreaked from them.
The reason General Purpose reports help is because they contain full details of the group financial affairs: the revenues, expenses, assets, liabilities and cash flows, and information which explains the impact of related party transactions.
They have been designed deliberately for the “general purpose”, for everybody – the public, creditors and shareholders – to be able to find out how a company is faring.
It was a pretty simple idea for better corporate transparency but it is being screwed up in practice by the Big Four accounting firms who receive fees from multinationals to keep the community in the dark about their financial affairs.
Big Four: guardians of the guards infiltrate the infiltrators
The Rank Group, owned by New Zealand’s richest man, the corporate raider Greame Hart, is a case in point. Rank is a takeovers and acquisitions merchant;. a less charitable term might be “asset stripper”, and a very successful one at that. Among its major targets, Rank has taken over forestry and building products group, Carter Holt Harvey, and earlier, the once great colonial trading company Burns Philp.
Hart busted up Burns Philp, sold off its major assets and left it as a shell, a shell which has since come on the radar of the Tax Office because of its large income and zero income tax. Over the four years of available Tax Office transparency data, it has recorded more than $6 billion of income but zero tax payable.
Mysteriously however, you will not find that income very easily, or even by looking at the Burns Philp financial statements at a cost of $40 a pop from ASIC. The answer lies in a devilishly complex corporate structure.
Graeme Hart, via his investment vehicle Rank Group, owns two separate corporate structures headed up in Australia: the Burns Philip group and the Carter Holt group. For 2017, the Burns Philip group placed General Purpose financial reports on the public record with ASIC but the Carter Holt group did not.
The Burns Philip group recorded total income of just $12.3 million last year. In relative terms, Burns Philp is a mere pimple on an elephant’s rump. The elephant in Australia is the Carter Holt group, which has total income in excess of $929 million.
Welcome to multinational tax transparency Big Four audit firm style, that is, little or no transparency at all. Signed off and advised by Deloitte, the Rank group has responded to Australia’s accounting and tax transparency laws by using General Purpose financial statements for the pimple and the less informative Special Purpose financial statements for the elephant.
‘Special purpose’ approach by accountants hides corporate secrets
Although Burns Philp’s accounts show a pittance of revenue, its transparency disclosures to the Tax Office show $1.2 billion in total income last year – and more than $6 billion for the four years of available data.
How so? This is “Multi Entity Consolidated (MEC) group” for tax purposes, comprised of the two separate corporate groups in Australia. The ATO data discloses that Burns Philp has paid zero income tax on the $6 billion of total income generated in Australia during the past four years.
Then we have Carter Holt, and its myriad entities, which disclosed $929 million in revenue in its 2017 accounts but don’t turn up in the ATO data.
As far as disclosure tricks go, the game-plan appears to be to have decent disclosure in the Burns Philp reports – where there is nothing much to disclose – and to have very little disclosure on the Carter Holt Harvey side of the operation where nearly all of the real business takes place.
Big Four auditor Deloitte is key to all this, signing off on what are effectively uninformative accounts for an Australian corporate group owned by a multinational.
Carter Holt produces skimpy special Purpose reports which means minimal disclosure of income tax matters and related party transactions and balances.
True to the form of the Big Four, Deloitte is therefore instrumental in abusing the spirit of the tax and disclosure laws, which are designed to help the community understand more about large corporate groups.
According to Jeffrey Knapp, the retired UNSW accounting lecturer, Special Purpose financial reports for corporate groups with total income approaching $1 billion are an “abomination masquerading as transparency.”
“Where is the accountability? Where is the professional body, Chartered Accountants Australia New Zealand (CAANZ)? Where are the adults in the room?”
Burns Philp carries what it describes as an “Explanation” in the notes to its financial statements about why it moved to adopt General Purpose reporting.
True to Deloitte form, the “explanation” is feeble. It doesn’t explain why it changed but just says that it did change.
The upshot of having this dual holding company structure – with the top of the tax group different to the top of the accounting group – is that it is difficult to work out what is going on, and deliberately so. How much debt does this Rank leveraged buy-out group have in Australia? Hard to work out without extensive ASIC searches.
This poor reporting by Burns Philp and Deloitte is by no means unique, although it is a fairly blatant example of failure to adhere to the intention of the laws. Goldman Sachs files meaningless Special Purpose accounts too, which don’t record its income. Glencore too also has more than one holding company structure in its corporate empire in Australia.
This year, 2019, will the the year when we find out whether multinationals operating in this country are bothering to comply with the requirement to file General Purpose accounts. The early evidence is that some are filing General Purpose reports, switching back from Special Purpose.
Senate: less debt-loading, much more disclosure and tighten that PRRT!
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Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.