Companies including Bupa and Opal paying minimal tax while receiving hundreds of millions in government subsidies.Australia’s largest aged care providers are shifting profits offshore and paying minimal tax, all while receiving hundreds of millions of dollars in government subsidies, a new report finds.
The report, authored by the Tax Justice Network, analyses the complex and opaque corporate structures used by the biggest for-profit operators of nursing homes in Australia.
Two of the biggest companies named in the report – Bupa and Opal Aged Care – paid minimal tax in Australia.
The report finds both used tactics commonly associated with profit-shifting, including related party loans and the use of trusts in so-called “stapled security” arrangements.
Bupa – which also has business in health insurance, dental and optical – recorded a staggering $7.5bn in total income in Australia in 2015-16. But it paid just $105m in tax on a taxable income of $352m. Its aged care business in Australia made more than $663m, about 70% of which was from government funding.
The report alleges Bupa, headquartered in the United Kingdom, has a highly complex multinational corporate structure and made frequent use of massive related party loans and debt from a corporate restructure, among other things, to reduce its profits in Australia.
Opal Aged Care – half owned by AMP Capital, part of the embattled AMP Group – had a total income of $572.2m in 2015-16. It paid just $2.4m tax from a taxable income of $7.9m. The year prior, it had a total income of $236.9m but paid zero tax and had zero taxable income.
The report alleges Opal used significant related-party loans to shift profits out of Australia, lowering its taxable income. The TJN also questioned whether Opal was renting its own aged care residences from a separate corporate entity within the Opal group of companies – a common way to reduce taxable profits.
The report found that Opal recorded a rental expense of $24m and that it had “entered into commercial leases on 40 nursing homes and four assisted living apartment facilities”. But the report said it was not clear who this rent was paid to.
The report also named Allity, which paid no tax in 2015-16, and a series of other family-owned aged care companies.
TJN spokesman Jason Ward said the practices were particularly egregious, given the industry’s reliance on taxpayer money.
“The residents of these facilities, most of them have been paying their income tax throughout their lifetime,” Ward told Guardian Australia. “But when it comes to caring for them, they’re not getting the best care, and the companies that are caring for them are avoiding their own obligations.”
In a statement, Bupa denied it was breaching any tax law. It said it ensured tax was paid in a way that complied with all “applicable laws and practices” and that it was “committed complying with Australian tax laws”.
“Bupa paid A$114m in income tax on taxable income of $391m for the year ended 31 December 2016,” a Bupa spokesman said. “While we have some international related party debt to fund the expansion of our businesses, we consider our associated tax positions are in line with Australian tax law and practices.”
The spokesman said it does not comment on its dealings with regulators but said it was “rigorous in managing our tax affairs to ensure compliance”.
A spokeswoman for Opal said it disclosed all the information on its tax affairs that it was required to, noting that it was not a publicly listed company. She said the company had a transparent relationship with the ATO.
“We can confirm that Opal discloses the required level of information to the regulators,” the spokeswoman said. “We treat our tax compliance obligations seriously and we have an open and transparent relationship with the ATO in respect of our tax affairs.”
Stapled securities have other purposes, particularly in real estate investment, but can also be used to shift profits and avoid tax. They allow the subsidiary to be saddled with debt and profits shifted to the trust, which pays far less tax.
The trust, for example, could take ownership of a building and rent it back to the subsidiary. The rent payments reduce the subsidiary’s taxable income and the profits move to the trust.
Ward said that appeared to be the case in the aged care sector. He said the trusts were being used to take ownership of nursing homes and then rent them back to related subsidiaries.
The report makes a number of recommendations for governments to boost transparency in companies receiving significant taxpayer funding.
It says any entity receiving more than $10m in government funds a year should file complete audited annual financial statements with the corporate regulator. Public and private companies should also be compelled to reveal all transactions between trusts or similar parties, which are part of stapled structures.
Ward said the government’s multinational tax avoidance reforms, announced in the 2016-17 budget, were a good start in rooting out such behaviour.
The government announced the creation of a tax avoidance taskforce in the ATO, tougher penalties, a non-binding tax transparency code and reforms to close loopholes allowing the use of excessive related-party transactions to shift profits outside of Australia.
“Transparency is the missing piece here. The government’s reforms didn’t increase transparency at all.”