CKI records reveal it pays little tax in Hong Kong

Li Ka-shing firm enjoys tax credits of HK$11m in the first half of 2013 as tycoon is accused of dodging taxes in Britain and Australia

PUBLISHED : Thursday, 02 January, 2014, 1:41am
UPDATED : Thursday, 02 January, 2014, 8:30am

Hong Kong tycoon Li Ka-shing is facing claims in Britain and Australia that companies he controls are dodging taxes there, but an analysis of his Hong Kong-listed Cheung Kong Infrastructure reveals it pays only a tiny fraction of the tax that a close competitor here pays.

In the first half of last year, the infrastructure firm enjoyed tax credits of HK$11 million on a pre-tax profit of HK$5.49 billion, which boosted its after-tax profit to HK$5.51 billion.

In comparison, NWS Holdings, a Hong Kong-listed infrastructure firm controlled by another Hong Kong tycoon, Cheng Yu-tung, paid HK$640.9 million tax on a pre-tax profit of HK$4.72 billion for the 12 months to June.

CKI's deferred tax liabilities - a provision for future taxation - jumped 153 per cent to HK$714 million on June 30 from HK$282 million at the end of 2012, according to its 2013 interim report.

NWS had much higher deferred tax liabilities, at HK$2.56 billion for the financial year to June 30, 2012, and HK$2.61 billion for the following year, but they did not grow anywhere near as fast at CKI's.

UK Power Networks has avoided £38 million [in tax] since 2010

CKI's deferred tax liabilities were HK$254 million at the end of 2010 and HK$187 million at the end of 2011, according to its annual reports.

In 2010, the company paid tax of HK$8 million, just 0.15 per cent of its pre-tax profit of HK$5.18 billion, according to its 2011 annual report. In 2011, it got a tax credit of HK$6 million, which boosted its after-tax profit to HK$8.27 billion.

UK Power Networks, a major British electric utility 40 per cent owned by CKI, has been accused of being involved in an international web of tax dodging by British non-profit watchdog Corporate Watch and the Independent on Sunday, a British newspaper.

"UK Power Networks has avoided an estimated £38 million [HK$487 million] [in tax] since 2010 from paying £164.4 million via the Cayman Islands to firms controlled by Li Ka-shing," Corporate Watch says on its website.

Corporate Watch alleged that six British water companies, including Northumbrian Water, took high-interest loans from their owners and the interest payments reduced their taxable profits in the country due to a regulatory loophole. CKI owns a 40 per cent stake in Northumbrian Water.

"In the most brazen case, Northumbrian Water is paying 11 per cent interest on just over £1 billion of loans it has taken from the Cheung Kong group," it said.

Utility Week magazine said in October that borrowing costs for a typical water or energy network company had fallen from 7 per cent five years ago to closer to 4 per cent.

A spokeswoman at CKI said: "All our companies fully comply with regulatory, tax and legal requirements of the countries they operate in."

In the first half of last year, the company's infrastructure investments in Britain and Australia paid no tax, while those on the mainland enjoyed tax credits of HK$11 million and those in Canada and New Zealand paid HK$1 million in tax.

Britain is CKI's largest source of profits, contributing HK$2.86 billion of profits in the first half of last year, while Australia contributed HK$587 million.

A spokesman with British Revenue & Customs declined to confirm if the country's tax authorities were investigating Li's British firms, but said: "If we find evidence of wrongdoing, we will look into it and take appropriate action. We are tackling tax avoidance and have secured more than £50 billion of additional tax since 2010, including £23 billion from large businesses."

In June last year, the Australian Taxation Office filed claims of unpaid taxes against CKI and sister company Power Assets.

The authorities are claiming roughly A$116 million (HK$803 million) from an Australian subsidiary of CKI.

The subsidiary had paid A$58 million to the taxation office, CKI said in its 2013 interim report, adding that the unit believed it should not pay any of the claimed tax and would recover the A$58 million.

CKI said the subsidiary would vigorously defend its case.