SingTel dealt final blow in $894m ATO appeal
The High Court has knocked back special leave for the Singaporean telecom company to challenge Australian transfer pricing rules.
SingTel’s fight to keep around $894 million in tax deductions claimed during its acquisition of Optus has ended in defeat after the High Court sided with the ATO and refused an application for special leave.
The High Court ruled last week that SingTel's appeal showed insufficient prospects of success, leaving it on the hook for a tax bill of $268 million and $125 million in interest and penalties.
The Singapore-based telecom company had attempted to overturn a Full Federal Court finding that it received a transfer pricing benefit for $894 million in deductions paid on loans between subsidiaries when it bought Optus for $14.2 billion in 2002.
The acquisition was funded by its Australian subsidiary SingTel Telecom Australia Investment (STAI) through issuing ordinary shares and $5.2 billion of loan notes to SingTel Australia Investment (SAI), a Singapore resident company incorporated in the British Virgin Islands.
In March, the Full Federal Court ruled independent parties in the positions of SAI and STAI would have been granted a parental guarantee which then set the particular credit rating.
But before Justices Stephen Gageler, Michelle Gordon and Simon Steward last week, SingTel argued both the primary judge and full bench had misapplied transfer pricing principles by assuming a parent company would naturally guarantee a subsidiary’s borrowing.
“The imputation of a guarantee by a wholly owned parent to a subsidiary is fundamentally at odds with the arm’s length principle. It just does not happen anywhere else in the world,” lawyer John de Wijn, instructed by PwC, said.
“It has been seven years since the decision in Chevron. It was a controversial decision, it seems that Australia is out of step with the international community, and this is an ideal case for special leave because, based upon the credit rating evidence, the case could only succeed if there was implied a guarantee and a guarantee without a guarantee fee.”
SingTel pointed to evidence suggesting that without a parental guarantee, the credit spread on the loan would have been 400 basis points, compared to 300-360 basis points with a guarantee. This difference, it argued, demonstrated the artificial nature of the ATO’s assessment.
“A company like SingTel is not in the business of providing guarantees, but it is not going to provide a guarantee to a company if it is dealing wholly independently with it,” de Wijn said.
“And that is the simple mistake that both his Honour Justice Moshinsky made and the Full Court made.”
“If it was improper to impute a guarantee fee, we win, because there is evidence about what the interest rate would be without a guarantee, it is 400 basis points.”
However, the ATO maintained that SingTel’s case faced “substantial hurdles”, citing limited evidence about guarantee fees and questioning the company’s financial modelling.
“There would be a significant factual hurdle, and for most of those scenarios there is not a pathway to success for the applicant,” lawyer Chloe Burnett said.
“We say the applicant would not be able to show that the assessments were excessive, regardless of any determinations on points of principle.”
The High Court refused SingTel’s application with costs, saying the case was unsuitable for examining the broader principles of transfer pricing law that it sought to challenge.
“Having regard to the state of the evidence before the primary judge, we are not persuaded that the appeal would present as a suitable vehicle for this court to examine the issue of principle sought to be raised … we consider that the proposed appeal would have insufficient prospects to warrant a grant of special leave to appeal,” Chief Justice Gageler said, ending SingTel’s legal options.
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