Macquarie Group tax issues may be ‘market sensitive’

Macquarie Group has acknowledged that a revised tax bill following a full-scale audit by Tax Office investigators may be market sensitive and could move its share price.

The information, which relates to three years of additional tax, has never been disclosed by the homegrown investment bank to the sharemarket.

Macquarie’s admission of the scale of its tax problem is contained in an affidavit sworn by the financial services group’s external lawyer, Peter Speed, based on information given to him by company executive Kathryn Burgess.

The affidavit is among documents, obtained by Fairfax Media, that were filed by Macquarie during its recent Federal Court dispute with the Tax Office over treatment of its offshore banking unit between 2006 and 2008.

Offshore banking units, which are bank divisions that mostly used to do business with overseas clients, are taxed at a concessional rate of 10 per cent, compared with the corporate rate of 30 per cent.

In September, the Federal Court ruled against Macquarie’s bid to stop the ATO retrospectively levying the additional tax, which court documents show is at minimum in the millions of dollars.

During the legal case, Mr Speed, a partner at Sydney law firm Speed and Stracey, asked the Federal Court to keep confidential 14 pages of documents filed by Macquarie.

”I am informed by Kathryn Burgess and verily believe that the information concerned is information disclosing or revealing, broadly, amounts of tax which might be at stake between the applicants [Macquarie] and the commissioner [of taxation],” Mr Speed said in the April 2, 2013 affidavit, which has only now been released to Fairfax Media.

”These amounts and the associated information have been treated by the applicants as confidential, may be price sensitive and have not been disclosed to the ASX.”

Under Australian Stock Exchange rules, once a company becomes aware of ”any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information”.

There are exceptions, including if the information ”comprises matters of supposition”, but it is also required that the information be confidential and that a reasonable person would not expect it to be disclosed.

Mr Speed could not be reached and a spokeswoman for Macquarie declined to comment.

Ms Burgess, the director of Macquarie’s tax division, told the court the ATO had twice looked at the company’s use of OBUs in a year-long ”client risk review” that started in September 2009 and again in a large business audit that started on March 7, 2011.

The audit was still under way two years later, when Ms Burgess swore an affidavit as part of the court case. In her March 2013 affidavit, Ms Burgess said the ATO and Macquarie were still at loggerheads over the tax treatment of a laundry list of expenses.

The tax deductions associated with expenses are worth more to a company if they can be allocated to the high-tax domestic bank rather than the low-tax OBU.

An ATO minute, relied on by Macquarie during the court case, shows that the audit had ”been reviewing a number of different types of expenses to determine items that should have been categorised as general OB [offshore banking] deductions”.

While dollar figures are redacted, the October 9, 2012 minute shows that the ATO had calculated ”projected outcomes” that included millions of dollars in tax and penalties.