Future Fund refuses to appear before Senate tax avoidance inquiry

Inquiry sparked by leaked Luxembourg files naming the sovereign wealth fund among dozens of Australian companies using elaborate structures to cut tax bills

The $100bn Future Fund has refused to give evidence to a Senate inquiry into corporate tax avoidance despite being named in leaked documents last year among scores of companies using secret Luxembourg deals to reduce tax by routing profits through tax havens.

The fund has declined to appear before the inquiry run by the Senate economics references committee, according to a committee spokesman.

Executives from Google, Microsoft, Apple, News Corp Australia, Rio Tinto, Fortescue Metals, BHP Billiton and Glencore will all give evidence, along with corporate tax experts from PricewaterhouseCoopers (PwC), Ernst and Young and KPMG.

Adani, the Indian mining conglomerate seeking to build the $16bn Carmichael coalmine in Queensland, was also invited to give evidence, but does not appear on the witness list.

The Future Fund, now chaired by former treasurer Peter Costello, was named in leaked documents last year as using PwC for secret tax deals involving interest-free loans through subsidiaries in the Cayman Islands and Luxembourg.

At the time, the fund’s managing director, David Neal, told the Australian Financial Review the type of structure mentioned by the leak was “commonly used by institutional investors and external investment managers”.

“The structure is predominantly about providing operational efficiency and effective risk management,” he said, and suggested it had not helped the fund’s tax position.

“As a sovereign investor, had the Future Fund directly invested in the underlying loans it would have ended up in substantially the same tax position,” he said.

Costello told a Senate estimates hearing in November 2014 that he had gone back and looked at the transaction referred to in the leak.

“It was entered into in 2010. I was not the chairman, and Labor was in government. I was not involved in the transaction then but I have gone back and had a look at it, and I think what the Future Fund did then was reasonable commercial practice – to avoid getting caught outside its statute it has to invest alongside managers, its manager was in Luxembourg, Luxembourg is a member of the EU, it sought a ruling, it got a ruling,” he said.

“Companies all the time get private binding rulings from the Australian Taxation Office. It is standard practice. You are bringing a transaction into Australia, you go to the ATO, you say give us a private binding ruling, it gives it, it tells you what your tax would be.

“This is what they did in Luxembourg – we are coming in, we are investing alongside a manager in Luxembourg, we are seeking a private binding ruling, the Luxembourg tax authority gave it. I am satisfied that that was proper commercial practice.”

The investigation of the leaked documents was led by the Washington-based International Consortium of Investigative Journalists. The documents, showing extensive use of shell companies, hybrid debt structures, internal loans and royalty payments, are available on its website.

The documents include details of a deal struck in 2010 between the Future Fund and Luxembourg that appears to limit income tax on trades in specific distressed debts on a $500m European portfolio to just $136,000 a year.

The Senate inquiry was also prompted by a report by the union United Voice and the Tax Justice Network which found that tax minimisation strategies employed by Australia’s largest companies cost the federal government more than $8bn in revenue a year. Many of those companies have disputed the report’s calculations.

A spokesman for the Future Fund said it had declined to give evidence because it was not a corporation or a multinational and was not liable for tax in Australia.

“This is an inquiry into tax avoidance by multinationals in Australia and we are exempt under the Future Fund Act from paying tax in Australia,” the spokesman said.

The Greens leader, senator Christine Milne, said she was disappointed Adani and the Future Fund had not made themselves available to appear before the inquiry.