The former owner of the Optus business and brand has been denied a last-ditch legal claim to recoup more than $452 million in taxes from the multibillion-dollar sale of its telco business in Australia to Singtel.
In a Federal Court of Australia ruling published on 1 May, justices CJ Allsop, Middleton and JJ Beach dismissed an appeal by Cable & Wireless Australia to claim taxes from the Australian taxation Office (ATO) that it believes were erroneously paid in the process of selling Cable & Wireless Optus.
The legal proceedings are the latest chapter in an ongoing effort by the United Kingdom’s Cable & Wireless Communications, which owned the majority of the Optus business when it was sold to Singtel, to claim back some of the hefty tax payments that resulted from the sale of the company.
According to reports, Cable & Wireless Communications revived the Netherlands-listed holding company that originally conducted the Optus sale to Singtel in a bid to launch the legal action aimed at reclaiming the taxes.
Cable & Wireless Communications, via its holding company, sold the Optus business to Singtel after the Singaporean telecommunications giant launched a successful takeover bid for the company in 2001.
The deal saw Singtel buy Optus in a share buy-back scheme. The company agreed to buy back 1.64 billion shares from shareholders for a total consideration of $6.23 billion, leaving Cable & Wireless with a $586.9 million tax bill on the sale in the process.
The legal action against the ATO, which Cable & Wireless initially took to the Federal Courts in 2015, saw the company claim that it should have paid $134.5 million in tax from the sale.
The case had hinged on a 2012 decision by the High Court that saw media conglomerate, Consolidated Media Holdings, ordered to pay additional tax arising from an off-market share buy-back scheme with Crown Ltd.
Consolidated Media Holdings tried to argue that the shares involved in the buy-back deal with Crown were dividends, and should be treated as such for tax purposes – a move that would have meant less capital gains tax.
The court disagreed.
However, the decision led Cable & Wireless to believe it may have paid too much tax in its own share buy-back deal with Singtel, prompting its legal action.
“Depending upon the correct characterisation of the amount debited to the buy-back reserve account, the appellant [Cable & Wireless] may be entitled to a refund from the Commissioner of Taxation of $452,452,013 in dividend withholding tax,” the latest Federal Court ruling stated.
“It [Cable & Wireless] says that such an amount was withheld from the appellant and paid to the Commissioner in ‘error’,” it said.
This is a charge the Commissioner of Taxation contended, claiming that no error had been made, with the ATO’s stance on the matter clearly not wavering since its decision in 2014 not to refund the withheld tax from the deal.
Ultimately, the Federal Court has backed the Commissioner of Taxation in its decision to dismiss the case, ordering Cable & Wireless to pay the ATO’s legal costs.
“None of the appellant’s grounds of appeal has been made good,” the justices presiding over the case stated in their decision. “The appeal should be dismissed with costs.”
The case comes as the ATO moves to crack down on tax avoidance by multinational companies operating in Australia, with the likes of Apple, Google, Microsoft and, indeed, Singtel Optus coming under the watchful gaze of the Australian tax collector.