Labor and Greens give tech giants a taxing time

senate ctteeAustralian politicians are considering legislation to force some of the world’s largest corporations to pay company tax on the profits they generate in the country, rather resorting to profit shifting techniques and tax minimisation. In doing so they risk a clash with multilateral efforts, led by the OECD and the G-20, which aim for a coordinated agreement which they hope can be concluded in October, and be operational by 2017.

Australia, along with other nations including Britain and France, has for two years been seeking a concord that will make major international companies pay taxes in those countries where the profits are generated. Though long regarded as an arcane issue, Greens leader Christine Milne has successfully gained national media attention with sharp, and sometimes abrasive, questioning of the local CEO’s of these multinationals. But Pascal Saint-Amans, head of tax at the OECD, in a less theatrical performance, made it clear he thought Australia – and other nations – would be best served by supporting the OECD’s 15-point action plan to fight tax evasion, arguing that it would reduce or remove altogether profit shifting through low tax countries like Ireland or Singapore. However, faced by the joint efforts of the Greens and Labor to “take action”, the Abbott government may well bring forward legislation to Parliament later this year, on the British model.

Analysis

Many of the world’s biggest and most profitable companies are saving hundreds of millions of dollars through profit shifting and tax avoidance. There is nothing new in that. Painstaking work has been undertaken by the 34-nation OECD, which was supported by the G-20 leaders in November 2014, to usher in a new world order based on the principal that companies should pay tax in the countries where the income is generated, not siphon profits through countries with more favourable tax environments. Australian governments from both sides of politics have been among those leading the push for change. Australia used its chairmanship of G-20 last year to secure agreement. However politicians in Canberra have just staged a cynical exercise to convince the public that they are fighting a just cause and that profit shifting by multinationals is partly to blame for Australia’s budget woes and economic mismanagement.

Many of the world’s biggest and most profitable companies are saving hundreds of millions of dollars through profit shifting and tax avoidance. There is nothing new in that. Painstaking work has been undertaken by the 34-nation OECD, which was supported by the G-20 leaders in November 2014, to usher in a new world order based on the principal that companies should pay tax in the countries where the income is generated, not siphon profits through countries with more favourable tax environments. Australian governments from both sides of politics have been among those leading the push for change. Australia used its chairmanship of G-20 last year to secure agreement. However politicians in Canberra have just staged a cynical exercise to convince the public that they are fighting a just cause and that profit shifting by multinationals is partly to blame for Australia’s budget woes and economic mismanagement.

The Senate Inquiry into corporate tax avoidance has had three days of public hearings in Sydney, Canberra and Melbourne, conducted more in the manner of a show trial than an attempt to build on the work already undertaken over two years. Under interrogation were the Australian chiefs of Apple, Google, Microsoft and News Corporation, and Australian resources giants BHP-Billiton and Rio Tinto.

First, the case for the prosecution was laid out. Apple: $6 billion of revenue from Australia in 2012-13, tax paid $80.3 million. Google: $358m of Australian revenue, tax paid $7.1 million. Microsoft: $2 billion of revenue from Australia reported through Singapore, $100m tax paid. And so on.

There followe some impressive flourishes by the chairman Senator Sam Dastyari, an upcoming Labor figure likely to feature in Cabinet in the event of a Government defeat in 2016. But the real theatre was created by the headline-seeking leader of the Australian Greens, who sought to show that Apple’s Australian subsidiary deliberately paid too much for iPads purchased from other parts of Apple Inc in order to minimise tax liabilities.

Apple’s Australian managing director, Tony King, had told the inquiry that his company booked Australian sales of all Apple products, including iTunes, into the accounts, logged all costs, including the purchase of products, and paid full tax at the 30pc corporate tax rate. He explained that the transfer pricing of Apple products developed and manufactured overseas was based on an advanced pricing agreement (APA) the company had with the Australian Tax office developed over two decades and which is reviewed annually.

Milne
Senator Christine Milne

Senator Milne was clearly not much interested in the APA. Her mind was elsewhere. What is a double Irish sandwich with Dutch affiliations, she asked.

“I have no idea what you are talking about”, replied Mr King.

Senator Milne: “Oh come on, you have not come here to say that”.

Both Google and Microsoft made no bones about the fact that most of their revenues were invoiced from their companies in Singapore, and remitted there; for example, all sales of Microsoft’s on-line Office suite, and Google’s Ad Sense.

Google Australia MD, Maile Carnegie, was quite happy to give as good as she got in exchanges with senators across the table. “We are not opposed to paying tax”, she told them, “we are opposed to being uncompetitive”. She went on, ”If I asked each one of you what is the appropriate and morally right tax to be paying, I would probably get as many different answers as the number of people sitting at the table…. we have competition sitting at this table and all around the world. When I think about the morality of it, I think the people who need to give the right number are, quite frankly, the people sitting on your side of the room.”

The ATO is committing almost $250m to an intensive audit of companies it thinks should be paying more tax. By the end of the financial year in June it expects to have undertaken 40 or more audits of corporations, 12 of them in the technology sector. It expects to return to the Government a 400pc return on its investment, though tax commissioner Chris Jordan says he is confident the ATO will easily exceed this figure.

The OECD’s head of tax, Pascal Saint-Amans, made it clear in his evidence he thought an international solution was not only possible but also more desirable. “From China to the US, from Australia to Europe, almost all countries in the world have faced that phenomenon that we in the OECD have identified as base erosion and profit shifting”, he said. He said the OECD would bring to this year’s G-20 a set of proposals to “put an end to aggressive tax planning by closing loopholes” in transfer pricing and international tax arrangements, as well as ending harmful tax practices used by some governments to enable companies to facilitate tax avoidance”.

What happens now?

The inquiry has achieved one of its proposed major aims – to attract domestic media headlines and give the public the impression that Labor and the Greens are taking action while the government is sitting on its hands. There will be more headlines, and fodder for parliamentary questions in the crucial Budget session that will wedge Treasurer Joe Hockey between his desire to be seen to do something and a preference to wait for international agreement. That agreement, if it comes, is unlikely before the next Australian election towards the end of 2016, so we can expect some draft legislation to take a stab against profit shifting.

Published by admin@Strategies

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