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In detail: Brookfield’s tax arrangements under scrutiny

Los Angeles, California, USA - 25 March 2019: Illustrative Editorial of Brookfield Asset Management website homepage. Brookfield Asset Management logo visible on display screen.

The Canadian proprietor of Canary Wharf and Manhattan West faces accusations of avoiding tax through subsidiaries in Bermuda and beyond.

Brookfield, one of the world's largest asset management firms, is set to hold a shareholder vote on the adoption of the Global Reporting Initiative and make its country-by-country reporting public tomorrow, June 9.

However, the Centre for International Corporate Tax Accountability (CICTAR) published a report on Tuesday, June 6, claiming that the Canadian company is reducing its tax burden by operating through tax havens around the world.

A Brookfield spokesperson said: “Our effective tax rate is influenced by several factors, some of which are not reflective of cash taxes paid, therefore can be significantly misleading.

“We report our income to include non-controlling ownership interests, whereas our reported tax provision includes only our proportionate share and not the share attributable to our investment partners,” the representative said.

All of this is in line with International Financial Reporting Standards, stressed the spokesperson. Nevertheless, CICTAR claims that the company has reduced its taxable income through a network of pyramid structures.

Although Brookfield is not a household name, the asset management company is the fifth largest company in Canada with a market capitalisation of over $71 billion in 2023. The Canadian company is just the latest in a growing list of businesses to hold a shareholder vote on the GRI standard.

The GRI 207 tax standard is a voluntary reporting framework would disclose tax receipts to shareholders in every country where the company operates.

Technology companies Amazon, Cisco Systems and Microsoft have all held AGM votes on the GRI. So far, shareholders at these multinational groups have rejected proposals to adopt public CbCR, but some investors think the GRI should become the norm.

Energy companies such as Shell and TotalEnergies have taken up the GRI and published their tax reports. This is far from the consensus among multinational groups and Brookfield shareholders may well choose to reject the proposal.

The case of Canary Wharf

The CICTAR report highlights Brookfield’s part ownership of Canary Wharf Group with the Qatar Investment Authority – a feature of its investigation into the company’s tax affairs. Canary Wharf is worth more than £8 billion ($9.9 billion) today.

Brookfield paid £2.6 billion in 2015 to take control of Canary Wharf Group, and made an annual operating revenue of £419.7 million in 2021 with pre-tax profits of £51.9 million. The company paid £11.5 million in tax on these profits, CICTAR claims.

According to the report, Canary Wharf is owned through a chain of holding companies based in Bermuda and Jersey. Out of hundreds of subsidiaries, Brookfield has 27 structures in Jersey.

Brookfield manages over $800 billion in global assets through complex structures based in offshore low-tax jurisdictions such as Bermuda, the Cayman Islands, the Isle of Man and Jersey, according to the report.

“These assets are owned by corporate subsidiaries in their local jurisdictions, where all applicable corporate income taxes are paid in compliance with local tax laws,” said Brookfield’s representative.

Other jurisdictions where Brookfield has subsidiaries include the British Virgin Islands, Gibraltar, Hong Kong SAR, Luxembourg, Malta and Singapore, according to CICTAR.

“We would also note that jurisdictions around the world have substantially different corporate tax rates and offer important tax incentives for investment, for example in sectors such as renewable energy in which Brookfield is a recognised global leader,” said the representative of Brookfield.

The Canadian company reported revenue of over $25 billion in the UK in 2022. This made the UK Brookfield’s biggest market in 2022, with the US coming second at $24.7 billion, followed by Canada at $10.7 billion.

However, the CICTAR report has not gone unchallenged. Some tax experts have eyed its findings with suspicion over the details and assumptions about the UK tax system.

Dan Neidle, director of think tank Tax Policy Associates in London, has raised questions about the report’s findings. He points out on Twitter that the company would have paid an effective rate of 22% in the UK when corporate tax was 19%.

The 2021 pre-tax profits amount to 12% of Canary Wharf Group revenue. This level of profit is relatively high and does not fit a pattern of aggressive tax planning, according to Neidle. He put his questions to CICTAR in an email.

In response, Jason Ward, principal analyst at CICTAR in Sydney, makes the case that the pre-tax profits have been reduced by the company’s structures.

“The effective tax rate of 22% is very misleading,” says Ward. “A high effective tax rate on the reported taxable profit is pretty normal.

“All of the avoidance is baked into reducing the taxable income,” he tells ITR. “That is why total revenue is important to consider as well.”

Ward stresses that public CbCR would help answer questions about the company’s taxes and its overall structures.

“The real question is, if Brookfield made $25 billion in revenues in the UK in 2022, what were UK profits and how much UK tax was paid on those profits?” he asks.

New era of transparency

Every year Brookfield files a country-by-country report with the Canada Revenue Agency, which shares such information with other OECD jurisdictions where the company operates. For now, this data is not publicly available.

Ward maintains that the Canadian company has nothing to fear from greater transparency. He also points out that the taxpayer may not have much choice about making wide-reaching tax disclosures soon.

Australia’s forthcoming draft legislation will require multinational companies operating in the country to publicly report on a country-by-country basis from July 1. This proposal for mandatory public CbCR would go further than the OECD standard and apply to global activities and assets.

Any multinational corporation falling within scope of the Australian proposal would have to disclose information on its worldwide operations.

Meanwhile, the EU is going ahead with its plan to establish public CbCR across its 27 member states by June 22 2023, with the rules coming into effect from 2024. One way or another, taxpayers are going to have to adapt to a more transparent world.

Since Brookfield has significant holdings in Australia and across Europe, the Canadian company may end up having to open its records to public scrutiny, even if the shareholders reject the GRI. This could mean more difficult questions for the group, but it could also mean more answers.

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