Cayman trust caught in Australia's 'Watergate' scandal

Australia is in a political upheaval following a controversial 2017 taxpayer-funded water buyback deal where an A$80m water purchase was conducted through a Cayman Islands-headquartered business known as Eastern Australia Irrigation.

The deal, which has now been dubbed 'Watergate', attracted national headlines last week due to the high price of the buyback and the fact that the water rights sale to the government saw much of the A$52 million profit go to the  Cayman-based company.

Eastern Australia Irrigation shareholders were reported to be a number of major investment funds based in Hong Kong and the UK. The early directors of EAA included Angus Taylor, who is now the Australia's energy minister, but who was at that time was an investment banker specialising in agriculture investments.

It’s completely the opposite motivation to the big multinationals such as tech companies who try to pretend they don’t make money in Australia even though they make a lot of money here"

He has described himself as a co-founder of Eastern Australia Irrigation in his parliamentary biography. Asic records show he was a director from mid 2008 to late 2009.

The Department of Agriculture and Water Resources said the 2017 purchase of 28.7 gigalitres of water was made to benefit the Murray-Darling basin, which faces ongoing environmental problems. 

Australia's superannuation fund industry has hit back at criticism of structuring local investments through the Cayman Islands, reminding that millions of Australians have benefited from a Cayman trust.

The Australian Financial Review used the example of IFM Investors, which is owned by 27 Australian super funds, to show how ordinary Australians  are already among the beneficiaries of similar infrastructure investments through Cayman Islands entities.

The business newspaper reported that IFM's infrastructure fund buys ports, airports and toll roads through a Luxembourg company and a Delaware partnership, with the assets held by a Cayman Islands trust.

Superannuation is part of Australia's system to help workers generate income for retirement. Employers make compulsory contributions for their employees, who are encouraged to make voluntary contributions to super funds.

IFM founder Garry Weaven told the newspaper that this kind of structure had nothing to do with profit shifting and was all about avoiding double taxation. 

"It's completely the opposite motivation to the big multinationals such as tech companies who try to pretend they don't make money in Australia even though they make a lot of money here," he said.

Yasser El-Ansary, chief executive of Australian Investment Council, an advocacy organisation for private capital investments, noted Australia was a capital-importing country that is actively seeking foreign investments and politicians were "absolutely wrong" to conflate the issue of profit shifting by multinational companies with the use of pooled investment vehicles in the Cayman Islands.

The article lists equity investments by IFM Investors in a container port in Poland and Vienna International Airport in Austria as examples for transactions that benefit about 7 million Australians invested in the 27 not-for-profit super funds that own IFM.

The assets in these deals are held by a subsidiary of Cayman-based Conyers Trust Company, which acts as trustee of IFM's global infrastructure fund.

Crackdowns on tax avoidance and loopholes are the centre of Labor's election campaign. Policies include new reporting obligations for big companies dealing in tax havens and guidelines for super funds using no and low-tax jurisdictions.

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