News, Telstra reject tax collusion allegation

TELSTRA and News Corp have strongly rejected claims the companies conspired to commit tax evasion over a $902m loan they made to Foxtel.

TELSTRA and News Corp have strongly rejected claims the companies conspired to commit tax evasion over a $902 million loan they made to pay-TV operator Foxtel.

Allegations published in The Sydney Morning Herald and syndicated in The Age claimed Foxtel’s joint shareholders Telstra and News lent the money back to themselves, tax-free, as part of an elaborate “tax dodge”.

In a letter to SMH editor-in-chief Darren Goodsir, News Corp Australia chief operating officer Peter Tonagh said the story made “factually inaccurate points” and drew “conclusions that are simply wrong”.

Contrary to the story’s central assertion, the loan was not lent back to the lenders, Mr Tonagh notes. In fact, the loan was used to fund Foxtel’s $2 billion takeover of regional subscription TV company Austar, which was documented at the time of the deal in 2012.

Despite being publicly disclosed in company filings, the 2000-word story said the ­“irregular transaction” had been completely missed by the Australian Taxation Office.

Asked whether he still stood by the story, Mr Goodsir did not respond to repeated requests for comment. It is understood the Herald’s publisher, Fairfax Media, is reviewing the story.

Headlined ‘Newscorp, Telstra tax bills slashed by loans merry-go-round’, the story said Foxtel “should be borrowing at less than 4 per cent” rather than the rate of 12 per cent.

News Corp (publisher of The Australian) and Telstra said the interest rate the parties agreed to had been based on independent expert advice.

A Telstra spokeswoman said: “The loan was arranged on commercial terms reflecting the structure of the funding and market conditions at the time.

“It is a subordinated loan carrying relatively more risk and the interest rate reflects this and its long-term fixed nature.

“We pay tax on any loan interest from Foxtel just as we do on our share of the partnership profit and our accounts are ­prepared in accordance with ­accounting standards and independently audited.”

The Herald story was based on unnamed sources, unidentified debt experts and a multinational financing expert, who is not named. The story also relies on former ATO employees, who are also not named.

Sinclair Davidson, a senior research fellow at non-profit public policy think tank ­Institute of Public Affairs, said the article showed a fundamental misunderstanding of corporate tax law.

He notes the story fails to grasp that taxes are paid on taxable income, not revenue. “The story is long on rumour and innuendo and short on hard facts,” Professor Davidson said. “I wouldn’t be surprised if Fairfax didn’t have to clarify the story in coming days.”

Among the claims in the Foxtel story, Herald journalist Michael West conflates the Austar loan with a tax reimbursement News Corp received from the ATO. Yet, the amount awarded by the ATO was only received after the matter had been considered by the Federal Court, which found in favour of News following a long-running case.

Ignoring the public record, the article draws a connection between two unrelated matters and states: “News Corp is no stranger to controversy on the tax front”.

Tax statements for News Corp’s operations in Australia obtained by The Australian show it is incurring and paying substantial tax on its operations.

Its Australian operations paid corporate tax totalling $417.3m over a five-year period, with the media group paying an additional $900m in Australian goods and services, fringe benefit and payroll taxes over the same period.