Botched tax raid will cost Australia foreign investment

The Australian Tax Office’s dramatic swoop on the TPG Myer account in November has been described as almost comical in the scale of its ineptitude.

The ATO has been accused of ‘clumsy trampling on the very complicated principles and tax policy involved, including internationally accepted rules and treaties on tax liability.’
This is much broader than any one private equity deal or even the long-running argument about the virtues and vices of private equity itself.
It has huge implications for foreign investment in Australia, including what it means for the ability to fund infrastructure.

And the reverberations of that are only just beginning to be understood.

Yet to the tax office, the logic apparently seemed deceptively simple. The global private equity giant TPG had made a $1.58 billion profit on the public float of Myer but had not paid Australian tax. Not only that, the tax office decided TPG had set up company structures in Europe and the Cayman Islands to avoid the prospect of being liable to pay tax there either.
The resulting botched raid on the Myer account at the National Australia Bank has already badly damaged, for example, Australia’s proud claim to be a reliable destination with predictable rules for the foreign capital the government so desperately seeks. That has come as a rude shock to the government as much as to the investment community.

At the behest of the Prime Minister, Financial Service Minister Chris Bowen has set off on a visit to the US and Britain to tout the country’s potential to international asset managers and fund managers.