Telstra's Bermuda triangle
By Geoff Elliott
09dec00
TELSTRA is preparing to transfer more than $5 billion in assets to a shelf company in Bermuda to sidestep tax bills that could run to billions of dollars.
The secret transfer of assets to the tax haven is a key part of Telstra's new alliance with Richard Li's Pacific Century CyberWorks, dubbed by the companies' executives as Project Five Star.
The Australian has studied thousands of pages of legal agreements between Telstra and PCCW that detail the biggest offshore deal ever attempted by an Australian company.
These include the creation of two new companies with headquarters in legal offices at 2 Church Street, Clarendon House, Hamilton, Bermuda.
Companies registered in Bermuda usually pay no income tax.
The $5 billion transfer ($US2.875bn) of Telstra's portfolio of international assets, including its interest and ownership rights of about 50 submarine telephone and internet cables crossing the globe, could happen as soon as next Friday. Failing that, the next date for the transfer is March 31, 2001.
The assets will be part of a new 50-50 joint venture company owned by Telstra and PCCW and based in Bermuda.
Stockmarket analysts, as well as Telstra executives, say the deal will benefit shareholders because a bigger and more profitable company is being created.
By registering the joint venture in Bermuda, the partners will avoid the political risk of being legally based in Hong Kong and the relatively high corporate tax rate in Australia.
But this means assets that are 50.1 per cent owned by the Australian Government on behalf of the people will be based in Bermuda.
A spokesman for Telstra said the company would still be liable to capital gains tax provisions in Australia from the PCCW deal and the tax laws governing Australian-controlled foreign businesses.
Bermuda was a location "mutually acceptable" to Telstra and PCCW, he said.
Telstra treasurer Cliff Davis said the Bermuda-registered entities were holding companies and their underlying businesses would be based in Hong Kong.
"We are in no way trying to avoid or minimise tax in Australia, but we are trying to not have to pay tax again in some other tax regime for basically what is a restructuring," he said.
Bermuda is used by thousands of multinational companies to minimise their tax bills.
The Telstra spokesman revealed that the company's partnership in the construction of a new Japan-to-Australia cable was already based in Bermuda.
Telstra's main competitor, Cable & Wireless Optus, also uses Bermuda for the headquarters of its international internet cable joint venture with Telecom New Zealand.
"It's all about tax planning," a telecommunications tax expert said. "The only reason you would do it would be to minimise tax."
The Australian's investigation of agreements between PCCW and Telstra – signed on October 13 by PCCW deputy chairman Alex Arena and one of Telstra's most trusted lieutenants Dick Simpson – shows that:
PCCW and Telstra value the alliance, in which three new companies have been created, at $US15 billion ($27 billion) – much more than previously stated by Telstra executives.
THE internet company (dubbed IPBC) is registered as Joint Venture (Bermuda) No 1 Ltd while a new mobile phone company called the Regional Wireless Company is registered as Joint Venture (Bermuda) No 2 Ltd.
TWO new Telstra companies have also been created as part of the transfer deal and registered in Bermuda and named Telstra Holding (Bermuda) No 1 Ltd and Telstra Holding (Bermuda) No 2 Ltd.
The documents show Telstra and PCCW will transfer to IPBC "the respective global wholesale telecom business of the parties and their subsidiaries".
The documents value IPBC at $US10 billion, the mobile company at $US3.1 billion and $US2 billion is put on the worldwide portfolio of internet-related data centres.
theaustralian.com.au |
