An apparent fall in some operating costs and increased customer transaction activity drove PayPal’s Australian subsidiary to a record bottom line profit last year.
Financial accounts lodged with ASIC show that PayPal’s local business generated net earnings of A$25.5 million in the 12 months to the end of December – a 28 per cent improvement on the 2020 result.
The ecommerce boom triggered by the global pandemic pushed up transaction fee revenue by 5 per cent or $34 million to $721.6 million.
However, PayPal suffered a decline in revenue derived from customers entering cross-border transactions that required currencies to be converted.
Fee income from currency conversion declined by $6 million to $209 million.
Currency conversion appears to be a critical piece in PayPal’s local business model because the company would trade in the red without it.
The Australian subsidiary generated total revenue of $1 billion last year while total costs excluding taxes came in slightly above $960 million.
While PayPal’s 2021 accounts run for more than 40 pages, the company provides limited disclosure of several important line items in notes to its profit and loss statement.
PayPal’s Australian directors seem particularly eager to limit the level of disclosure regarding the company’s cost base.
No detail is given in the accounts about $821 million worth of expenses, which are collectively described only as “cost of services provided”.
Presumably some of these expenses would include payments to the Australian subsidiary’s immediate parent in Singapore, PayPal Pte Ltd.
Note 16 of the accounts lists the Australian entity’s related party transactions, including more than $A 1 billion worth of “transactions” with the Singapore parent.
PayPal revealed in its accounts that it has a “distribution and support agreement” in place with its parent company that was covered by a bilateral agreement between the tax authorities of Australia and Singapore.
“The cost of services provided by PayPal Pte. Ltd to the Company under this agreement is covered under a Bilateral Advance Pricing Arrangement between the Australian Taxation Office and the Inland Revenue Authority of Singapore,” PayPal’s Australian directors stated in notes to the accounts.
“The Company has no uncertain tax positions as at 31 December 2021.”
According to the profit and loss statement, PayPal Australia paid income tax of $12.4 million last year, which equated to an effective tax rate of 32.8 per cent.
PayPal’s local arm is continuing to work through issues relating to potential non-compliance with anti-money laundering laws.
Directors revealed that AUSTRAC’s enforcement team was continuing to investigate the company after it self-reported possible anti-money laundering compliance breaches in 2019.
PayPal Australia said it “was continuing to cooperate with AUSTRAC in all respects, including remediation activities, ongoing regular engagement with AUSTRAC, and responding to notices and requests for information and documents”.