Offshore Business News

* Malta tax haven base for Commonwealth Bank







Commonwealth Bank has been using the tax haven of Malta as a base to boost its European operations, with the island's lower rates helping cut the tax bill of Australia's largest bank, Melbourne Herald Sun reported.
CBA said in its annual results presentation earlier this month that lower offshore tax rates and tax-deductible capital losses enabled the group to cut the effective tax rate for its banking operations by 150 basis points to 26.7 per cent.

CBA ploughed $1.3 billion of capital into CommBank Europe Limited in the 2006 financial year, enabling it to increase its balance sheet almost fourfold to $4.7 billion. Last November, the parent pumped a further $176 million into CommBank Europe, which since 2005 has held a Maltese banking licence that enables it to operate in the European Union.

In a further use of the tax haven, CBA's asset management arm Colonial First State Global Asset Management introduced a Malta-registered entity, CommTrading Limited, to hold its 32.3 per cent stake in leading British water company AWG, the Melbourne Herald Sun continued reporting.

Colonial bought the stake last October as part of the successful Osprey consortium, comprising the Canada Pension Plan Investment Board (32.3 per cent), Melbourne-based Industry Funds Management (19.4 per cent), and Britain's 3i private equity group. CommTrading followed up on November 30 with a $484 million share issue to Newport Limited, the CBA group's holding company in Malta, to help fund the purchase.

A CBA spokesman said that the group would actually pay a higher level of Australian tax on the AWG equity investment than on an alternative investment structure, where higher foreign tax would have arisen, the Melbourne Herald Sun further reported. "CBA has met all of its tax obligations," he added.

The Malta operation accounted for two-thirds of the increase in the bank's international assets from $15.77 billion to $20.95 billion in 2006.

Pre-tax profit exploded from $865,000 to $31.4 million, with $2.3 million in tax payable -- equivalent to a 7.3 per cent tax rate. However, the CBA spokesman said that further tax was payable in Australia under the controlled foreign company rules. This meant that the Maltese accounts did not reflect the full tax payable on the business profits in that country.