A member of the government's financial system inquiry, Kevin Davis, warns a tax structure used to attract investors across property, infrastructure and government privatisations is rife and should be banned given Australia is almost alone in providing such generous tax advantages to foreign investors.
"We are almost the only country in the world that allows this kind of structure," Professor David said. "I think there is a real issue with potential tax minimisation or avoidance, the real issue is why does Australia have this structure when no one else does?"
Scott Charlton, chief executive of toll-road group Transurban – which uses the corporate structure – told an analyst call on Tuesday that while some companies may have "abused" the tax arrangements, a crackdown by the Australian Taxation Office will ensure stapled trusts are simply used in the "manner they were intended".
Tax abuse
Mr Charlton said while "some companies may have abused the structures", the ATO is trying to ensure that stapled trusts are used "in the manner that they were intended to [be used]", Mr Charlton told analysts when asked. He claimed Transurban had a very "conservative" approach to tax and consulted "regularly and transparently" with the ATO and is considered "a low-risk taxpayer".
The Australian Financial Review revealed on Tuesday that the ATO had launched a crackdown on so-called stapled structures which are used by listed property and infrastructure companies such as Stockland, Lend Lease, GPT, Dexus, APA Group, Asciano, DUET, Macquarie Atlas Roads, Spark Infrastructure and Sydney Airports, amid concerns the "ingenious" use of the structures is "eroding the corporate tax base".
Sovereign risk
Investors and advisers said the ATO intervention may undermine government policy which has allowed foreign investors to pay a discounted tax rate of 15 per cent under the managed investment rules – intended to encourage investment in passive income activities such as shares, property and land – rather than the company tax rate of 30 per cent.
"Australia's strong track record and our stable economic, fiscal and regulatory environment are key features driving the attractiveness of Australia's infrastructure market," Perpetual Corporate Trust group executive Chris Green said.
"For many investors, these provisions are part and parcel of their decision to invest in Australian infrastructure."
Structures rife
The ATO said more than $10 billion in non-conforming deals were under examination, but Mr Davis, Professor of Finance at the University of Melbourne, said his research reveals the extent of the tax structures is much greater.
Listed companies utilising the structures make up more than 10 per cent of the ASX's market capitalisation, as well as being used in $10 billion worth of bank hybrids, major capital raisings and private asset sales across property, infrastructure and renewable energy projects where the level of foreign investment has more than doubled to $46 billion over the past five years.
Professor Davis questioned the basis for the tax structures when they have been banned in most developed countries with only small markets remaining in Asian regions such as Singapore, Hong Kong and Malaysia.
Low risk
CLSA analysts also weighed into the debate on Tuesday, telling clients they believed there was only a low risk of change for listed infrastructure companies such as Sydney Airport, APA Group, DUET Group and Spark Infrastructure.
"We think the risk of a change in tax position for the listed infrastructure sector is low as these issues were dealt with through a comprehensive ATO review which spanned from 2007 to 2014 and concluded under the current ATO tax commissioner," the broker told clients.
CLSA noted the current ATO tax commissioner had signed off on the restructuring of Sydney Airport, withdrew their challenge of Spark Infrastructure's tax structure and said Cheung Kong Property Holdings had "a strong track record in dealing with ATO reviews and we doubt this will be a risk to its plans to acquire DUET".
