The Maltese activities of the Commonwealth Bank of Australia – the country’s largest domestic banking and financial services organisation – are being probed by the Australian parliament amid a drastic boosting of the bank’s capital and activities in Malta.
The main concern is that the bank’s low-tax operations in Malta could also be benefiting from the practice of transfer pricing – depending on what the bank charged its Maltese operations for the services it was supplying.
Transfer pricing refers to the prices at which a multinational organisation pays for services or goods from within the organisation, with particular regard to cross-border transactions. The issue has led to a rise in transfer pricing regulations from governments around the world that are looking to curtail tax abuse. The issue has been a major concern for multinational operations over recent years.
In October 2005, the Commonwealth Bank of Australia set up Commbank Europe Limited in Malta with the aim of facilitating investment, lending and business development in Europe.
This week the Australian public accounts and audit joint parliamentary committee took the country’s tax commissioner, Michael D’Ascenzo, to task on the bank’s recently bolstered activities in Malta.
Asked by MPs whether transfer pricing issue could arise if the Commonwealth Bank was found “‘undercharging” for services to CommBank Europe in Malta, a practice the bank had previously denied, Mr D’Ascenzo is reported as having replied, “It does. It would. All of that is part of our bailiwick. We monitor that as part of our process of looking at transfer pricing. Our programme maintains a high focus on transfer pricing activities, particularly where a tax haven is involved.”
The bank’s Malta-based operations have seen a huge boost recently, with its balance sheet having grown to A$4.7 billion (Lm1.254 billion) in the last financial year after a A$1.3 billion (Lm347 million) capital injection.
The Maltese operation’s pre-tax profits skyrocketed from A$865,000 (Lm230,700) in 2005 to AUS31.4 million (Lm8.37 million) last year. And the fact that it paid only A$2.3 million (Lm613,000) in taxes, equivalent to a 7.3 per cent tax rate, has raised eyebrows down under and has led to objections to the bank operating in a “tax haven”.
Asked to comment on the bank’s activities in Malta, Mr D’Ascenzo refused to do so despite repeated questioning from MPs, but when asked what advice the commissioner had given on the “acceptability or otherwise” of the bank’s activities in Malta, he added, “I would prefer not to comment on that because of the direct nature of information provided to a specific taxpayer.”
MPs also requested a follow-up brief from the tax office on the tax regime that would apply to the bank, whether it had avoided tax, and to what extent. The commissioner stressed there were no rules preventing a financial institution from setting up an operation in another jurisdiction.
“We don’t have any control over that,” he added. “We are trying to ensure that if there are residents that receive offshore income, and that offshore income is situated in a bank account offshore, that should be taxable in Australia, generally.”‘
A bank spokesperson insisted the bank met all its tax obligations and added, “‘Commonwealth Bank pays all tax that it is liable to pay, but does not seek to pay more tax than is required by law to be paid.”’