Macquarie Group has lost its Federal Court battle with the Australian Tax Office (ATO) over a tax dispute relating to Macquarie’s offshore banking unit (OBU) income allocation.
The move follows a Federal Court ruling throwing out a bid by Macquarie to stop the ATO issuing new tax bills for previous years over the group’s use of offshore banking unit (OBU) deductions.
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Federal Court judge said the bank had no reasonable prospect of success in overturning amended assessments about the unit dating back five years.
Justice Richard Edmonds said Macquarie had been seeking to prevent the ATO from conducting a retrospective audit of Macquarie’s offshore banking income tax in 2006, 2007 and 2008.
As a means to encourage Australian banks expand overseas, profits generated by offshore banking units are taxed at 10% rather than the usual corporate rate of 30%.
The case involved retrospective changes to the tax law and contributed to the crackdown in the May federal budget on the low-tax offshore banking unit regime.
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By GlobalDataThe report showed that the payment, which Macquarie claimed would eventually be returned by the ATO, could be as much as US$295 million.
Australian Assistant Treasurer David Bradbury said in May that new rules were required to avoid banks from shifting their domestic banking activities and profits into OBUs.
The group’s Court dispute with the ATO focused on whether the group was claiming expenses in its local business that should have been claimed in the offshore banking unit. The expenses attracted a larger tax deduction if claimed locally due to higher tax rate.
Bradbury said: "The government would consult with industry to develop recommendations to address concerns with the allocation of expenses between OBU and non-OBU activities.
"We consider that the ATO is entitled to apply its view of the law to prior income years relevant to these transactions.
"I am satisfied that the applicants have no reasonable prospect of obtaining the final relief they seek and the proceeding must, in consequence, be summarily dismissed pursuant to s 31A(2) of the FCA Act," he added.
