Singtel flags A$304m of exposure, interest and penalties from Australian tax case loss

SINGAPORE Telecommunications (Singtel) Z74 : Z74 0%on Sunday (Dec 19) said it estimated a net tax exposure and related interest and penalties amounting to A$304 million (S$295.9 million), following the Federal Court of Australia's dismissal of Singtel's appeal of a tax assessment by the Australian Taxation Office (ATO).

The dispute relates to the acquisition financing of Singtel Optus, then known as Cable and Wireless Optus, in 2001. In 2016 the ATO objected to how the acquisition was paid through cross-border financing arrangements between Singtel's subsidiaries, and estimated a primary tax payable of A$268 million from an increased taxable income of about A$895 million.

Singtel lodged its appeal against these assessments, and announced it received unfavourable judgement from the Federal Court of Australia last Friday (Dec 17).

Shares of Singtel ended S$0.06 or 2.5 per cent lower at S$2.37 on Dec 17, before the dispute's outcome was announced that day.

In its Dec 19 filing, Singtel said the total amount includes a refund of withholding tax estimated at AS$89 million for the holding company of Singtel's Australian subsidiary, Singtel Telecom Australia Investments (STAI). Amended assessments from the ATO comprise a primary tax of A$268 million, interest of A$58 million and penalties of A$67 million.

Singtel's exposures were "fully disclosed" as contingent liabilities in its audited financial statements in prior periods, it added.

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Underscoring its commitment to complying with tax obligations in markets where it has operations, the group said STAI continues to be a "significant taxpayer" in Australia.

"The Singtel group will consider the details of the (Australian government's) judgement, explore available options and determine next steps. If the above tax exposures are assessed to be probable, provisions shall be made in the accounts," it stated.

Experts have told Bloomberg that the Singtel ruling suggests that intra-company pricing of financing for major investments will continue to be met with closer regulatory scrutiny.

Bloomberg in its Dec 18 article also reported one source saying transfer pricing - particularly for related-party financing - was the "single most important focus area for the ATO in recent times".

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