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Australian Taxation Office
Texas-based firm Stellar, the UK-based multinational Serco and Japanese giant Outsourcing Inc have repeatedly won lucrative contracts with the tax office. Photograph: Fairfax Media via Getty Images
Texas-based firm Stellar, the UK-based multinational Serco and Japanese giant Outsourcing Inc have repeatedly won lucrative contracts with the tax office. Photograph: Fairfax Media via Getty Images

Australian Tax Office contractors accused of links to tax havens

This article is more than 5 years old

Report queries arrangements at Stellar, Serco and Outsourcing Inc, which provide labour or help run ATO call centres

Multinational corporations providing labour and call centre staff to the Australian Taxation Office either share links with tax havens or engage in questionable tax practices, a new report has found.

Texas-based firm Stellar, the UK-based multinational Serco and Japanese giant Outsourcing Inc have repeatedly won lucrative contracts with the tax office, typically to provide outsourced labour or help run the agency’s call centres.

A report published on Monday by the Centre for International Corporate Tax Accountability and Research (Cictar), headed by Jason Ward, has raised questions about the firms’ tax practices, prompting calls for the Australian government to do more to scrutinise the tax affairs of its major contractors.

The report traces Stellar’s links to tax havens, criticises Serco for its “history of creative accounting, which reduces tax obligations in Australia”, and attacks Outsourcing Inc for a “complete lack of transparency” on questionable transactions and a complex corporate structure.

Both Serco and Stellar issued strongly worded statements denying any allegation of tax minimisation, and were yet to see the report when contacted last week.

Outsourcing Inc also rejected the report’s findings, saying its corporate structure was not unusual and that it paid the proper amount of tax to the Australian government.

Stellar, a privately-owned call centre and outsourcing business, won a $51.25m contract to provide labour to the ATO last year. The company has also won contracts to help operate Centrelink’s call centre and does debt collection work for magistrates courts in Victoria and Perth.

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

The Cictar report used bankruptcy filings to link the company’s UK call centre business to the British Virgin Islands, a tax haven.

It also found the taxable income of the Australian subsidiary “may have been artificially reduced through several questionable offshore related party transactions”. Related party transactions – the internal shifting of money between a corporation’s various subsidiaries, either through loans, interest repayments, or other transactions – can be used to minimise taxable income.

Stellar paid little tax in Australia, the report finds, pointing to a tax bill of $2m on a taxable income of $6.6m, from a total income of $132.5m.

Serco, better known for running prisons and immigration detention centres, is also a significant ATO contractor. It has helped run the ATO’s call centres and provided labour hire in the past. Guardian Australia revealed last year that Appleby, the offshore law firm at the centre of the Paradise Papers, held serious concerns about taking Serco on as a client.

The report raises questions about interest repayments on internal loans and a $24.4m “central recharges” fee, which it says may have been used to reduce taxable income in Australia.

“Offshore related party interest payments have frequently been used by multinationals – as demonstrated in the landmark federal court case with Chevron – to reduce taxable income in Australia,” the report said.

Outsourcing Inc, a fast-growing company listed in Japan, has recently acquired a majority stake in the Beddison Group, which has three Australian entities with significant government contracts: Hoban, Clicks, and Index. Hoban and Clicks both provide labour hire or outsourced services to the ATO.

The report finds the entities are owned through unit trusts, masking their finances from the public. The report described the structure and the lack of transparency as unusual and “disturbing”.

“The complete lack of transparency raises serious doubts about what may be hidden and why the corporate structure continues to be so opaque,” it said.

In a statement, the Beddison Group said the use of unit trusts was not unusual.

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

“Therefore, [Outsourcing Inc] is not benefitting from the fact that Clicks & Hoban are trusts or the fact that they are foreign-domiciled,” a spokesman said. “It should be noted that withholding tax has been paid to the ATO by OSI in relation to the FY2017. All of the company’s current tax obligations have been met and will continue to be so.”

The report does not allege unlawful behaviour by the three contractors. But Ward said it showed the Australian government was not properly screening its contractors.

“It is particularly egregious that ATO contractors lack transparency and have highly questionable tax practices,” he said. “However, these concerns go far beyond the ATO. There must be greater transparency on government procurement across all federal agencies, state governments, local councils, and other public bodies.”

The report has also prompted criticism from the main public sector union, the Community and Public Sector Union (CPSU). The union’s national secretary, Nadine Flood, said the report raised serious probity and integrity issues. She questioned how companies with “questionable tax practices” could be so deeply involved in 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 privatisation 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 complied the nation’s tax laws.

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

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

Serco said it worked transparently and in accordance with legal and financial reporting requirements.

“We strongly refute any suggestion regarding reduced tax liabilities … Serco does not enter into any arrangements for the purpose of minimising 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 shadow assistant treasurer, Andrew Leigh, said the report’s findings were troubling. He said Labor would require all government tenderers to give greater 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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