Thursday, June 27, 2013

Tax Commissioner: You're not Google, don't shift your profits offshore

Tax Commissioner Chris Jordan says declared war on local firms attempting to emulate the practices of multinationals such as Google and and move their profit centres offshore.

Warning that the corporate tax base was “under threat” he said local firms were starting to think that if foreign firms could route their profits through locations such as Ireland they could too.

"Australian companies are not stupid,” he told the parliament's public accounts committee on Wednesday. “They can see what is happening as a result of these international companies taking profit out of the country.”

“They are thinking: what functions can we move offshore, what functions can we disconnect and have third-party providers fulfill to put the profit in a low-tax jurisdiction and receive an exempt dividend coming back into the system.”

“Companies are putting these structures in place and asserting they have tax compliance,” he told the committee.

“That might be their assertion, but we are going to test every single aspect of those structures. We will want know whether what purports to happen actually happens on the ground"...

“It is one thing to put in place a fancy structure, but it is another to have it tested five years later, because by their nature these schemes are quite, sort of, artificial.”

“Firms in Australia deal with customers in Australia and not in Ireland for example.”

Ireland is the location used by Google to house the subsidiary it says sells advertising to customers in Australia. Documents filed by US congressional investigators show Apple products manufactured in China are resold to Apple retailers in Australia after an Irish subsidiary takes “paper” ownership in transit, collecting the profits.

“We will be taking a leadership role internationally in addressing the problem, but we need to also look at how changes can be made here,” Mr Jordan told the committee.

“The corporate tax base is under threat.”

“What’s happening is unacceptable to the community, to the government, and to regulators. It is the first time in all my career in tax I have seen an alignment of interests saying these practices are unacceptable and we need to do something about them.

A former policeman who worked as an advisor to Coalition leader John Howard in opposition during the 1980s, Mr Jordan was appointed to head the Tax Office in January from a private sector role at accounting firm KPMG.

His appointment was welcomed by the Coalition which has pledged to involve him more closely in tax design.

Asked whether the laws able to be deployed against private equity firms taking capital gains out of Australia were tough enough, he said the general anti-avoidance provisions had proved to be “not necessarily as effective as they could have been”.

In 2009 the Tax Office failed in an attempt stop the private equity group TPG repatriating $1.4 billion after floating Myer.

“I am not only talking about private equity here, but there is a problem in the interaction between our rules for countries with which we have treaties and our rules about tax havens,” he said.

“If we had more powerful general anti-avoidance provisions we could say that the only reason a firm went through a country with which we had a treaty was get protection, and all the funds ended up in a tax haven in Bermuda or the Cayman Islands - we could be able to get act anyway.”

In today's Sydney Morning Herald and Age

Recommended Reading:

. Google: Don’t Be Evil, Don’t Pay Tax - Mike Seccombe, Global Mail

. How savvy multinationals curb their tax bills, Ben Butler and Georgia Wilkins

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