Buyout firms structure Australia investments through Singapore

A Cayman-based private equity vehicle used to invest in Australia through entities in Luxembourg and the Netherlands. The former was used because it allows low withholding taxes on payments leaving Europe, while the latter existed to take advantage of the Netherlands-Australia double taxation agreement (DTA).

This was based on the assumption that that buyout firms' profits were a capital gain and beyond the reach of the authorities if the fund in question was domiciled in a jurisdiction that has a DTA with Australia.

Following TPG's exit from department store chain Myer in 2009, the ATO decreed that buyout firms' profits counted as business income and therefore subject to local tax. It subsequently indicated that it would look through all entities thought to exist only for the purposes of leveraging tax benefits and make tax assessments based on the residence of the ultimate LPs.

Singapore is a natural choice for investment structures as it boasts a sophisticated financial services industry, low tax rates and DTAs with a wide range of nations. Many global and regional private equity firms already maintain offices in Singapore so it should not be too difficult to prove "substance" and therefore prevent the ATO from looking through the structure.

The ATO, meanwhile, continues to pursue TPG over the Myer exit. While the US buyout firm insists it has met all its local tax obligations, the ATO has won court orders to pursue the winding up of Luxembourg-based NB Queen SARL and its Cayman Islands parent, TPG Newbridge Myer. This would appear to give the agency license to follow the Myer profits offshore but industry participants rate its chances of recovery at close to zero.

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• Topics
• Regulation
• Exits
• Australasia
• TPG Capital
• CHAMP Private Equity