When it comes to tax, it’s Virgin by name and Virgin by nature

Virgin Australia founder Sir Richard Branson actually resides in a tax haven. He even has his own island, Necker Island, in the infamous archipelago of tax secrecy, the British Virgin Islands.

You don’t get more tax-haveny than that. Some may quibble that rival airline Qantas dodges far more tax. The national carrier has paid no tax on $62 billion in total income over the four years of Tax Office transparency data. Virgin, with its $18 billion in income and zero tax payable, is piddling by comparison.

Yet, as explained in the methodology attached, the rankings are not only based on sheer magnitude of total income but also on how much taxable income the company managed to wipe out.

Qantas still produced $336 million of taxable income (on which it still paid no tax!). And if you look at last year’s numbers – as 2018 is not included in the lagging Tax Office transparency data – Qantas racked up another $18 billion in total income and disclosed a measly $3 million tax paid (and that was to a foreign government to boot).

Qantas is therefore very worthy of note. Despite its billions in bona fide tax losses, there is evidence of chicanery on the tax front involving its treatment of tax losses.

Qantas: $46 billion, zero tax and a neat timing caper

That said, because of the way the numbers fall, and the need to stick closely to the Tax Office data in formulating a rankings system, this is Virgin’s story. Qantas is off the list. And Virgin’s story is that the board of the airline, its executives and those who pull the strings from overseas appear to think that paying income tax in Australia is optional, not compulsory.

Virgin and its auditors from KPMG don’t even bother to list tax as an item in their cashflow statement. Tax is just not their thing.

There are $6 billion in cash receipts from customers last year, and finance costs and so forth, but no tax. They do deign to include a “tax expense” line in their income statement, but this is a forward-looking, an accounting estimate and, in Virgin’s case, quite possibly a fantasy.

We shall see how this fantastical tax expense number is borne out in real life this time next year.

Moving along to the notes in the latest Virgin accounts about its subsidiary, Tigerair, and you will find this:

“(Tax losses) relating to the Tigerair … have not been recognised as there is insufficient convincing evidence that future taxable profit will be available against which these tax losses can be realised.”

Apparently Virgin would have the Tax Office believe that it is running a business which it thinks will never make a profit. What is the point of running a business which you reckon will never make a profit?

Last year we noted the Virgin accounts said Tigerair “cannot foresee using” its tax losses. Same deal.

It is fair to say that airlines are deeply cyclical, they make huge losses. They are tough businesses to run. It is also fair to say that the Qantas/Virgin duopoly on the Sydney-Melbourne route is one of the most profitable capers in world aviation.

The profits go somewhere. Its key shareholders – Etihad joined Singapore Airlines and Chinese duo HNA and Nanshan Capital on the Virgin share register last year – are not there for the free upgrades.

Then there is the mysterious Corvina Holdings Ltd from the British Virgin Islands with its ten per cent. Just five foreign shareholders control 90 per cent of the stock.

Virgin, as is the case with most airlines, has ample scope to avoid tax. The latest accounts show $138 million in operating lease payments to related parties in the 2018 year and $268 million in payments for goods and services to related parties.

How much Virgin founder Richard Branson and associates siphon from Australia in IP payments and so forth is not visible in the accounts.

There is still plenty of tax shelter left, so we can expect more abstinence on the taxpaying front from Virgin in the present year.

In 2017 it was $2.3 billion in tax losses. Last year the group had $753.7 million of tax losses carried forward. The airline enjoyed a strong rise in revenue to $5.4 billion last year though, unsurprisingly, costs kept pace.

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Response

An interview request was made to speak with  a Virgin director or executive. Chief executive John Borghetti was unavailable for comment. A spokesperson sent an email with the following comment on the company’s tax affairs:

The Virgin Australia Group remits tax in accordance with relevant tax legislative frameworks in Australia and overseas and engages in regular, transparent discussions with the Australian Taxation Office and other revenue authorities about its tax compliance.

Importantly, the Australian tax system, along with most other sophisticated tax systems globally, imposes income tax on a net income basis (not gross revenue) allowing for deductions for expenditure incurred in generating that income. This includes expenses such as fuel, staff and navigation charges, as well as deductions for depreciation of capital assets acquired for use within the business, which the Virgin Australia Group has invested in heavily over the past decade.

Therefore, due to the historical financial performance of the Virgin Australia Group and our continuing investment in long term productive assets to benefit the Australian economy, the Group is currently not required to pay Australian Federal Income Tax due to having prior year tax losses, which are available pursuant to the Australian tax law. Once these tax losses are fully utilised, the Virgin Australia Group will pay income tax on future taxable profits.

In every transaction undertaken by the Virgin Australia Group, whether it be carriage of passengers, purchase of goods or services or employment of staff, the Virgin Australia Group pays, collects or remits numerous forms of taxes. These range from Federal taxes like Goods and Services Tax, Fringe Benefits Tax or Fuel and Alcohol Excise; State taxes like Payroll Tax or Stamp Duty; or taxes imposed by the Government directly on others, which are collected and remitted by the Virgin Australia Group, such as PAYG withholding on wages, Passenger Movement Charges or Foreign Withholding Taxes.

The Virgin Australia Group is a major contributor to the Australian economy, as a direct employer of over 10,000 Australians and providing carriage to over 24 million tourist and business passengers during the 2018 financial year.