GE settled ATO audit for $273m in UK 'tax fraud' case

But “GE told the Australian Tax Office in 2013 ... that the main purpose of streaming income through the UK was ‘to gain a tax advantage in the UK not Australia’,” Justice Antony Zacaroli said.

GE says HMRC is claiming $US1 billion ($1.4 billion) of unpaid UK tax from 2005 to 2015. While HMRC began investigating the arrangement in 2011, the ATO appears to have opened an audit on GE even earlier.

GE Capital Australia Funding (GECAF), the head of GE’s Australian credit operations, reported in its December 2013 accounts that it was being audited by the ATO but appeared confident of its position.

“During 2013 the ATO conducted an independent review of this tax audit, the results of which indicated that the company had a reasonably arguable position which is consistent with the company’s independent advice that items within these returns were treated correctly,” GECAF reported.

But the 2014 accounts, signed on March 18, 2015, reported GECAF had made a tax settlement of $118 million in primary tax, with $8 million in penalties, $53 million of interest plus foregoing $39.4 million in deferred tax assets, a total of almost $218.5 million.

In addition, GECAF reported its tax bill was blown out by $7.3 million in “adjustments for current tax of prior periods” and $47.2 million in current year tax assets not recognised.

This took the hit to GE’s balance sheet to $273 million.

GE did not respond directly to questions about the Australian audit. “GE complies with all applicable tax laws in every country where we do business, and we reject the UK tax authority’s allegations and are vigorously contesting these false claims,” a US spokeswoman said.

After GE’s US arm borrowed $4.9 billion from a US bank in December 2004, the funds were moved to GE companies in Luxembourg, the US and Australia before returning to repay the US bank four days later.

The result of the Australian Transactions, as they were called, was that GE cuts its Australia tax bill by claiming the interest payments on the loan; it cuts its UK tax by offsetting those same interest payments against its UK income; and then those same interest payments were recorded as tax free profits in Luxembourg, avoiding US tax.

The process is known as triple dipping, and in its SEC filings GE says HMRC is claiming $US1 billion ($1.4 billion) in unpaid tax from 2005 to 2015 from the scheme, before penalties and interest.

The ATO’s help was pivotal to the HMRC investigation. HMRC had been given an edited board minute and incomplete diagrams of the deal. But in 2013 the ATO provided an unredacted copy of the board minutes, “detailed step plans which revealed the circularity of funds” and a GE diagram “which highlighted (with ‘exploding star’ shapes) the triple-dip element of the transaction”, Justice Zacaroli said.