Friday, 25 October 2013

Taxing times in Bermuda

As part of its zero enforcement policy, ASIC takes no action against companies engaging in share manipulation and sham transactions, as long as the proper forms are filled out. Not only can listed investment companies avoid tax through correctly structured international sham transactions and "loans" between related parties, they can actually claim a tax benefit. As a recent example, ZER and Utilico Investments engaged in a series of related party transactions, write-offs and loans, resulting in an annual report that best can be described as comical.

Domiciled and tax-exempt in the Bermudas, ZER was listed on the ASX in June 2013 and recently submitted its FY13 annual report, reporting an immediate loss of $9,338,686 and a tax benefit of $546,439 from the R&D tax offset.

ZER had revenues of $310,000 from interest and foreign currency gains in FY13, with expenses and write-offs totaling $9,615,996. The company also took out a "loan" of $4,577,000 from Utilico Investments, resulting in current liabilities twice that of current assets. Nevertheless, KPMG in South Africa signed off on the annual report unreservedly. This mysterious business plan apparently appeals to investors, as the "market price" of ZER has risen 20% since listing. Of course, this may have been helped by the fact that the top twenty shareholders own 95.26% of the company, with the aforementioned Utilico Investments holding a 77.35% stake. No matter. According to ASIC, ZER trades at a market price and belongs on the ASX with its brethren fraudulent investment companies.

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