PayPal Australia warns external audit into financial crime could hurt results

The company also reported that its income tax expense more than doubled for the 2019 financial year.

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PayPal Australia has warned the company could take a financial hit after the completion of an external audit into the company's compliance with financial crime laws.

"The company cannot estimate the potential impact, if any, on our business or financial statements at this time," the company said in the reporting of its 2019 financial results.

"An adverse outcome arising from the external auditor's review and any associated proceeding or matter initiated by Austrac, however, could result in injunctions, damage awards, fines or penalties, or require us to change our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise harm our business."

It comes off the back of Australia's financial intelligence and regulatory agency, Austrac, ordering that an external audit be carried out to examine ongoing concerns about PayPal Australia's compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the AML/CTF Act). Specifically, the audit is focused on the local operation's International Funds Transfer Instruction reporting obligations.

The external auditor is currently due to issue a final report at the end of August 2020.

For 2019, the company's Australian operations produced AU$7.26 million net profit after-tax, down from last year's AU$9.5 million. Meanwhile, revenue saw a slight bump to AU$677 million from the AU$594 million reported last year.

Income tax expense was AU$10.7 million, more than double the same period last year that had recorded AU$4 million, while income tax paid was AU$6.72 million, an improvement on last year's AU$1.64 million. 

See also: Australia's Fintel Alliance combining data to thwart criminal activity  

PayPal Australia said, however, its income tax could potentially be adjusted once a new Bilateral Advanced Price Agreement (BAPA) between PayPal Pte Ltd, the Australian Tax Office, and the Inland Revenue Authority of Singapore is reached. 

PayPal Australia has a distribution and support agreement with PayPal Pte Ltd. Under the BAPA agreement, it covers the cost of services that PayPal Pte Ltd provides to PayPal Australia.

"The BAPA expired on 31 December 2015 and the company and PayPal Pte. Ltd. are currently in discussions with the relevant tax authorities on the terms of a new agreement," PayPal Australia said.

"In the absence of a formal agreement, the company maintains that the transfer pricing under the previous BAPA continues to be appropriate and represents its best-reasoned estimate."

As a result, PayPal Australia said the potential adjustment has been reflected in retained earnings of AU$11.6 million and the current period tax expense of AU$6.16 million in the year ended 31 December 2019.

PayPal Australia also showed the amount that was owed to PayPal Pte Ltd was AU$700 million, an increase from AU$663 million last year; and to PayPal Holdings in the US, the amount was AU$7.81 million, up from AU$162,600.

The global payments platform firm also noted that it is currently unable to "reliably estimate" if the novel coronavirus outbreak would have any financial effect on the company's operations.

"Management continues to monitor and actively manage the developing impacts of COVID-19 and will continue to assess any impact to the Company's operations, going concern assumption and the value of assets and liabilities reported in the financial statements," it said.

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