By Joanna Mather and John Kehoe From Financial Review

Millions of Australians receive market-leading returns from their industry super funds thanks to foreign infrastructure assets held by a Cayman Islands trust.

IFM Investors, the $126.8 billion money manager owned by 27 industry super funds, uses a company in Luxembourg and partnership in Delaware to buy ports, airports and toll roads, which are then held in a Cayman Island trust.

IMF’s global infrastructure fund has returned 15 per cent over the past three years; the returns flow back to the 27 industry funds that own IFM Investors and, in turn, to the seven million workers who are members of those funds, which include AustralianSuper, Hostplus and Cbus.

IFM founder Garry Weaven, a former union leader, said global fund managers used so-called tax havens as a legitimate mechanism for preventing double taxation of investors.

“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.

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.

Labor leader Bill Shorten was quick to seize on controversy over an $80 million water purchase involving a company with a presence in the Cayman Islands and links to Coalition energy minister Angus Taylor.

On the hustings, Mr Shorten has mentioned the Cayman Islands in the context of low-paid workers, penalty rates and property investing.

“We don’t believe that aspiration is defined by the size of the negative gearing portfolio or the amount of money you invest in the Cayman Islands or the size of your mansion where you live,” Mr Shorten said in April.

“I do not believe Australians want to pay their taxes just so that the high rollers can pay their taxes in the Cayman Islands and other low-tax and no-tax jurisdictions.”

Fewer obligations

Because there is no income, profits or capital gains applicable, the Cayman Islands has become a popular choice for fund managers to establish what are called collective investment vehicles.

Using these vehicles, capital is pooled from investors all over the world and used to purchase assets. IFM’s global infrastructure fund is one such vehicle. Tax on any earnings is paid by investors back in their own countries.

That no tax is paid in the Cayman Islands makes the process simpler because investors do not have to claim credits. There are also fewer reporting obligations.

“For investment vehicles, as is the case for IFM, it’s about avoiding double taxation in two different jurisdictions,” Mr Weaven said.

“If you’re managing money on behalf of a range of international investors from Australia and overseas, you want to be able to pay tax on that investment in the country of origin of your investor.”

“There is no other way you could become a big successful international investor.”

Australian Investment Council chief executive Yasser El-Ansary, whose organisation represents private equity and other funds, said as a capital importing country Australia could not afford to send mixed signals about its appetite for foreign investment.

“The debate about profit shifting by multinational companies is very different to the use of pooled investment vehicles in the Cayman Islands,” he said.

“It’s absolutely wrong for politicians to conflate the two issues.”

Shadow Treasurer Chris Bowen has reportedly written to Treasurer Josh Frydenberg questioning the approval of a $4.4 billion takeover bid for Healthscope by Brookfield.

In his letter, Mr Bowen said neither Brookfield nor its parent entity in the Cayman Islands paid company tax in Australia based on “publicly available corporate tax transparency data”.

Mr El-Ansary said it was unhelpful for politicians to use foreign investment approvals already granted, such as Brookfield’s takeover bid, as a “point-scoring opportunity”.

Complex web

Industry super funds are involved in a complex web of interrelated companies. IFM Investors is a wholly owned subsidiary of IFM Holdings, which is itself a wholly owned subsidiary of Industry Super Holdings. And Industry Super Holdings is wholly owned by 29 Australian not-for-profit super funds.

Earlier this year IFM Investors purchased a stake in DCT Gdansk, the largest container port in Poland. Documents published online by the European Competition Commission show the acquisition was made by Global InfraCo, a wholly owned subsidiary of Cayman-based Conyers Trust Company in its capacity as trustee of IFM’s global infrastructure fund. Global InfraCo is incorporated in Luxembourg.

And in 2014, IFM took a stake in Vienna International Airport. The purchase occurred through Airports Group Europe, which is a subsidiary of Global InfraCo.

Conyers Trust is part of the Codan Trust Group, established by the international law firm Conyers Dill & Pearman, which undertake a broad range of professional trustee services in places like the Cayman Islands and Bermuda.

For more on this story go to: https://www.afr.com/news/policy/tax/got-an-industry-super-fund-you-ve-benefited-from-a-cayman-trust-20190508-p51l8j