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Bupa in $157m deal with ATO

AUSTRALIAN BUSINESS REVIEW   March 8, 2019   Sarah-Jane Tasker

The Bupa office in Brisbane. Picture: David Clark Photography

Health insurance and aged care giant Bupa has agreed to pay the Australian Taxation Office $157 million to settle a dispute.

The Australian arm of the UK-headquartered company said on Friday the in-principle agreement settled several disputed matters, including a transfer pricing issue relating to the funding of its Australian acquisitions in the 2007 and 2008 years.

“Importantly, the settlement will provide clarity for Bupa Australia and the ATO in relation to how taxes will be assessed in the future,” Bupa Australia said in a statement.

Bupa’s tax affairs were highlighted last year in a report by the Tax Justice Network, which said that Bupa posted a total income of $7.5 billion in Australia in 2015-16, but paid just $105m in tax on a taxable income of $352m. The report also said that Bupa’s aged care business in Australia made more than $663m in 2017, about 70 per cent of which was from government funding.

The TJN said in its report, which was on tax avoidance by for-profit aged care companies, that Bupa had been under audit by the ATO for thin capitalisation — the practice of using high interest offshore related party debt to artificially reduce taxable income.

Under the ATO settlement agreement, Bupa Australia said it would pay about $157m to the ATO, reflecting taxes, interest, penalties and an offset for overpaid withholding tax for the 2007 to 2018 years.

The health insurer and aged care company said it considered that the positions it adopted were in accordance with Australian tax law and the settlement involved no admission of liability by Bupa Australia. But it added that the settlement would fully resolve all audit matters in dispute between Bupa Australia and the ATO for the 2007 to 2018 years.

Bupa said that the settlement would provide certainty for both Bupa Australia and the ATO in relation to the taxation treatment of Bupa Australia’s future cross border funding costs. It said those costs would be in the “low risk” or “green zone” rating in accordance with the risk framework set out in the ATO’s Practice Compliance Guideline PCG 2017/4.

An ATO spokesman said due to taxpayer confidentiality laws, it was unable to comment on taxpayer related matters.

The spokesman added that the ATO would only agree to a settlement after careful consideration of the risk to revenue, precedential value of the dispute, and likelihood of success in litigation.

“When settling disputes with taxpayers in the large market we also seek to ‘lock in’ the future compliance of the taxpayer to secure revenue and create certainty for the future,” the ATO spokesman said.

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