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Multinationals still don't pay 'fair share' in tax

by September 26, 2017 General

You can forgive Aussies for being sceptical when they see advertisements claiming that “the Australian Government is ensuring multinational corporations pay their fair share of Australian tax”.

Across our TV sets, and via our Facebook and Twitter feeds, we keep hearing how the Turnbull government’s new laws close loopholes and ensure profits are taxed here (judging by public comments on some of those feeds, not everyone is convinced).

Surely the $8.1 million in taxpayer funds being spent by the government over two years for its own propaganda could have been put to better use?

The government, via the Australian Tax Office, will be collecting some more tax from corporates. But it is seriously overstating its estimated success in clawing back tens of billions of dollars in revenue.

First, the government claims it is making companies pay their fair share – whatever that is – thanks to the recently passed Diverted Profits Tax (DPT aka Google tax) and the tougher anti-avoidance powers under the Multinational Anti-Avoidance Law (MAAL).

Fast-food giant McDonald’s, which routinely routes profits via Singapore, is considering whether it might need to restructure to avoid being hit by the diverted profits tax.

Companies such as Google are considering restructuring but the outcome of ATO audits remains unknown.

Companies such as Google are considering restructuring but the outcome of ATO audits remains unknown. Photo: Tamara Voninski

And Google has announced it is restructuring in response to the MAAL laws, but that it is still under ATO audit and won’t disclose how much the Tax Office thinks the tech-giant owes.

Even as the tech companies debate whether or not to pay more, not all structures will be hit by the laws.

The DPT law doesn’t apply to managed investment trusts or similar foreign entities, sovereign wealth funds and foreign pension funds; it will only impact multinationals with global revenue of more than $1 billion and Australian revenue of greater than $25 million.

For those who are captured, not all will agree with the ATO’s judgment. It might ultimately have to be tested in the courts (or deals will be cut, but more on this later), and other countries might have a different view that challenges Australia’s right to tax.

And bear in mind Australia’s laws might end up being tested in a whole new world of greater tax competition.

US President Donald Trump wants to change the US tax system.

US President Donald Trump wants to change the US tax system. Photo: AP

It’s one where Donald Trump has already indicated he wants to slash the US corporate tax rate from 35 per cent to 15 per cent, and switch to a “territorial system” of taxation whereby big (mostly US tech) companies basically pay zero tax on their foreign profits.

The Australian government also claims companies will pay their fair share because there is a new 1000-strong ATO Tax Avoidance Taskforce, which has already issued bills of $2.9 billion to large multinational corporations, and is looking to issue tax bills amounting to $4 billion.

Tax Commissioner Chris Jordan told the August public hearing of the Senate inquiry into corporate tax avoidance that more than $7 billion worth of sales made in Australia will now be taxed for the first time, and it could triple the amount of tax coming in.

Could? These are just tax bills. The companies have not paid them, and might not agree to ever pay up.

The more likely outcome is that the ATO will cut big deals, like the almost $3 billion in deals cut in one financial year alone, and we will never know how much they settled on with each company because this information is “confidential”.

Microsoft’s corporate vice president of worldwide taxes Daniel Goff told the inquiry it ???reached a confidential settlement with the ATO.

Apple's Australian managing director Tony King, says ATO  audit found no issues.

Apple’s Australian managing director Tony King says an ATO audit found no issues. Photo: Christopher Pearce

And Apple’s local chief Tony King told the inquiry that its tax arrangements in Australia had been given the tick of approval by the ATO, with no penalty imposed. He said over the five years the ATO audit was conducted, Apple paid $630 million in tax in Australia, including $120 million in 2016.

If litigation does occur, it takes time. The ATO’s win against Chevron in the Federal Court took a decade from the time objections were lodged. It started well before Chris Jordan was commissioner. And in the end what happened? Another settlement. Chevron abandoned its High Court challenge after setting with the ATO for an undisclosed sum, which is understood to be worth about $1 billion.

The final reason the government gives as to why companies will now pay their fair share is that “large multinational corporations are required to report their global activities”. This data will be kept secret. Only tax authorities will have access to it.

The Senate Economic Committee holding the corporate tax avoidance inquiry in its first report contained a suite of recommendations that would have increased transparency.

A crucial one included establishing a public register of tax avoidance settlements reached with the ATO it would name individual settlements where the value of that settlement is over an agreed threshold (this suggestion of naming and shaming came courtesy of the Greens).

The other was introducing a public register of beneficial ownership (secret identities behind shell companies) so that tax avoidance like that seen in the Panama Papers leaks, ends once and for all.

Those recommendations didn’t make the second report and are unlikely to ever become Coalition policy (Labor also has not agreed to naming individual settlements).

Maybe if they did the public would be less sceptical.

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The story Multinationals still don’t pay ‘fair share’ in tax first appeared on The Sydney Morning Herald.