A blowout in the cost of services provided by its Singapore-based parent company underpinned a slide in profit at PayPal Australia Pty Ltd in 2022.
PayPal’s local arm reported a net profit of A$22.3 million over the 12 months to the end of December 2022 – 12 per cent down on the record annual profit of $25.5 million posted in 2021.
The online payments provider recorded a slight increase in top-line revenue, which came in at $954 million – up from $949 million in the previous year.
It also reduced most of its Australian-based costs – including salaries (down $1 million) and professional fees (down $14 million).
However, the solid work done by local management to lower costs did not result in a higher bottom line because the Australian subsidiary incurred a $42 million blowout in service costs paid to its immediate parent company, PayPal Pte. Ltd.
PayPal’s Australian arm uses platforms operated by its Singapore parent to process online payments.
The bill for services provided by the Singapore parent came to $863.2 million in 2022, which accounted for 90 per cent of the Aussie subsidiary’s total cost base.
In 2021, PayPal Australia shelled out $821.3 million to cover services provided out of Singapore.
PayPal Australia does not disclose the formula used to calculate these payments but states in note 4 to its accounts that they are subject to a distribution and support agreement between the Australian business and the Singapore owner.
According to PayPal, the agreement is “covered under a Bilateral Advance Pricing Arrangement between the Australian Taxation Office and the Inland Revenue Authority of Singapore”.
The 2022 financial performance of the Australian business was largely unaffected by AUSTRAC’s investigation of the company over potential non-compliance with anti-money laundering laws.
In 2019 PayPal Australia self-reported that it had incorrectly filed international funds transfer instructions to AUSTRAC.
On March 17 this year, the regulator announced that it had accepted an enforceable undertaking from PayPal Australia regarding the self-reported issues.
“The enforceable undertaking does not include a monetary penalty,” PayPal states in its accounts.
“The entry into and compliance with the enforceable undertaking will not require a change to our business practices in a manner that could result in a material loss.”
PayPal Australia Pty Ltd was sitting on net assets of $193.7 million at the end of December 2022.