Revealed. The 55 millionaires who paid no tax

Fifty-five of Australia's highest earners paid no income tax at all during 2012-13, not even the Medicare levy.

All earning at least $1 million, they managed to write their taxable incomes down to below the $18,200 tax-free threshold, although for most the exercise was expensive.

Tax statistics released Wednesday reveal that 40 of them claimed an extraordinary $42.5 million for the "cost of managing tax affairs" meaning they each paid an average of $1 million to an adviser prepared to help to bring down their taxable income, which is itself a tax deduction.

Between them they reported earning $129.5 million, an average of $2.3 million. By the time their accountants had finished with them they reported losing a combined $12.8 million.

The implausibility of someone earning $2.3 million and paying half of it to a tax adviser suggests some may be understating​ their earnings.

A tax office spokeswoman said there were "legitimate reasons why a wealthy taxpayer might not pay tax in a particular financial year".

These included tax losses through poor business performance, tax losses in previous years which could be carried forward indefinitely and dividend imputation credits.

She said the majority of wealthy Australians paid the right amount of tax.

Most of the 55 were either ungenerous or modest when it came to giving, claiming nothing for gifts. However 10 of the 55 gave between them $10.4 million, also suggesting their incomes were higher than reported. The gifts may not have all gone to charities. The Tax Office also allows deductions for gifts to political parties.

Fifteen were unsuccessful in business, losing $2.7 million between them. They carried over previous losses of $22.5 million.

They were more successful when it came to investing, receiving $8.8 million between them in so-called 'franked' dividends, and only $839,000 in unfranked dividends. Franked dividends allow the recipients to cut their taxable incomes to take account of company tax already paid.

They were also surprisingly successful landlords. Whereas 1.3 million Australian landlords claimed between them losses of $12 billion, the 15 of the 55 millionaires who rented out properties made a combined $1.6 million dollars.

Around 9.5 million Australians paid tax in 2012-13, slightly down on the 9.7 million who paid tax in 2011-12. The number of tax returns on which no tax was paid climbed from 2.9 million to 3.3 million.

Two thirds of the tax was paid by Australians earning $80,000 or more. More than one quarter was paid by Australians earning $180,000 or more.

The biggest deductions were for work-related expenses (19.7 billion), negative gearing ($12 billion), personal superannuation contributions ($2.9 billion) and the cost of managing tax affairs.

The emergence of e-Tax made little difference to Australia's traditional reliance on tax agents in 2012-13. Around 9.4 million of the 12.4 million tax returns were filed by agents and only 2.8 million filled by individuals electronically, little more than in 2011-12. Half a million tax returns were filed by individuals on paper, down from almost a million the year before.

In The Age and Sydney Morning Herald

Read more >>

Hockey wrong. ATO did publish tax dodgers' names

• Hockey may face Senate battle on ATO's multinational tax secrecy
• Treasurer steps in to protect suspected tax dodger multinationals

Tax Commissioner Chris Jordan says publishing taxpayers' personal details would be "unprecedented". Treasurer Joe Hockey says "confidentiality of taxpayer information has been a key feature of Australia's taxation system since the 1950s". Both are wrong.

Both have been stonewalling requests from the Senate economics committee to see the names of companies the Tax Office believes transferred a combined $31.4 billion to the low tax jurisdiction of Singapore in the year to June 2012.

But Fairfax Media can reveal that as recently as 1984 the Tax Office routinely published the names of taxpayers and companies it found to be engaged in breaches or evasion.

"It used to be called 'the honours list' internally," said former Tax Commissioner Trevor Boucher.

He stopped the practice in 1985 because of the workload and because of concerns that it exposed taxpayers to "double jeopardy," being both fined as a punishment and then having their punished in the annual report.

The last list published in 1984 details the name, suburb and occupation of each Australian found to have underpaid a significant amount of tax as well as the amount underpaid and the penalty applied.

In that year trade mark assistant Jeannie Abbott of Greenwich headed up the alphabetical list of Sydney underpayers and process worker Neim Aki of Yarraville headed up the Melbourne list.

The names were published only where the penalty tax due exceeded $1750 and after all appeal rights had been exhausted.

A separate list in the annual report detailed the taxpayers against whom the Tax Office had secured judgements in the courts.  Neither list included taxpayers merely suspected of underpaying.

While he stood by his decision to abandon the list and if he was still in the job today would not publish the names of companies he merely suspected of avoiding tax, he fully supported the Gillard government's move to require the Tax Office to publish the tax affairs of the 1600 private and public companies with turnover of more than $100 million.

Prime Minister Tony Abbott plans to wind back the requirement for private companies. Assistant treasurer Josh Frydenberg expressed concern that it could make their owners kidnap targets.

Mr Boucher said the kidnap fears were unrealistic.

"First, they've got to be pretty big companies," he said. "Second, you can go to the Securities Commission website and find who the directors and the principal people are. The publication of their tax details won't make any difference."

Labor Senator Sam Dastyari said the previous publication of taxpayers details showed treasurer Joe Hockey was wrong.

"We now know there are precedents," he said. "While the decision is the Commissioner's to make, if these details are kept hidden it makes it hard for even the Treasurer himself to know what kind of companies are using tax havens."

A spokeswoman for Mr Hockey said the confidentiality provisions of the Tax Act had always been respected by governments of both political persuasions.

In The Age and Sydney Morning Herald

Read more >>

Budget 2013. Bad for shape-shfting multinationals, smokers....

And so many others as it spreads the pain around

Treasurer Wayne Swan has reached out to his colleagues in Russia and the United Kingdom as part of global assault on multinational profit shifting that will form a corner stone of the May 14 budget.

The budget will stop overseas headquartered firms from loading up their Australian arms with debt which used to generate profits that are taxed elsewhere.

When Australian borrowing climbs above 60 per cent of assets the firms will no longer be able to deduct interest expenses from their Australian income. The present limit is 75 per cent.

Mr Swan has written to Russia’s finance minister Anton Siluanov and to Britain’s chancellor of the exchequer George Osborne asking for support for coordinated action against profit shifting at the next G20 finance ministers meeting in July. Russia will chair the meeting. The specific measure included in the budget will raise $2 billion over four years.

Parliamentary Budget Office calculations obtained exclusively by Fairfax show mining tax revenue sliding well below the budget target. Income from the minerals resource rent tax is set to be around $1 billion per year less than expected in October. When more recent iron ore prices are fed into the model the tax will raise only $800 million this financial year instead of the expected $2 billion. In 2016-17 it will raise $1.8 billion instead of 2.8 billion.

The Office modelled a Greens proposal to lift the rate of the MRRT from 22.5 per cent to 40 per cent. It found it would have raised an extra $2.5 billion this financial year and an extra $4.8 billion per year by 2016-17. Other proposals include extending the tax to minerals other than coal and iron ore and limiting the so-called starting-base for the cost of projects. The combined savings amount to $3.9 billion this financial year and $6.5 billion per year by 2016-17.

Up for further consideration is a 25 per cent hike in tobacco excise that would raise an extra $5 billion over four years...

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The increase was considered but rejected in the leadup to the October minibudget. It would push up the price of cigarettes to more than $20 per packet. The proposal would implement a long-standing recommendation of the National Preventative Health Taskforce.

The Foundation for Alcohol Research and Education has revived a proposal for a flat tax on alcohol, one that would remove the low-tax and tax-free status of many types of wine. Recommended by the Henry Tax Review but ruled out by the government at the time, the proposal is backed up by a new cost-benefit analysis that finds it would make 85 per cent of taxpayers better off, hurting only the remaining 15 per cent. It would net the budget $1.5 billion per year.

As Cabinet meets to sign off on further budget measures Monday the Australian Industry group has counselled it not to cut too hard merely in order to bring the budget close to surplus.

Almost half of the 330 manufacturing, services and construction firms surveyed by the group rate returning the budget to balance as the least important of five priorities for the government.

The most important is cutting the company tax rate followed by boosting infrastructure spending and government support for research and development and training.

“It shows that business believes that in this current economic environment balancing the budget is not the main game," said Ai Group chief executive, Innes Willox.

"While businesses appreciate the need for budget discipline, in this slowing economy the majority of businesses rank objectives that will help rebuild competitiveness more highly than bringing the budget back into balance,” he said.

In today's Sydney Morning Herald and Age





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Let's impose a special tax, on Apple, Google, and Starbucks

Starbucks, Google, Apple, eBay and other ‘shape shifting’ corporations that route their business through intermediaries located in tax havens may soon face an Australian tax from which other corporations will be exempt.

The idea will be discussed at a special reference group set up to advise Treasury on a scoping paper that will set out the extent of multinational tax minimisation and ways the Australian government respond.

The 14-member reference group is laden with critics of multinational tax practices including ACTU assistant secretary Tim Lyons, Serena Lillywhite of OxFam Australia, Jason Sharman of the Centre for governance and public policy at Griffith University, Mark Zirnsak of the Uniting Church and Tax Justice Network and Frank Drenth of the Corporate Tax Association.

Others appointed by assistant treasurer David Bradbury include the executive director of Treasury's revenue group Rob Heferen who will chair the group, foreign investment review board chair Brian Wilson, former Tax Commissioner Michael D’Ascenzo and public policy specialist Greg Smith who served on the Henry Tax Review.

The only corporate representative is Ross Lyons, a tax executive at Rio Tinto. The consulting firms PwC, Deloitte, Ernst & Young and Clayton Utz are also represented.

Mr Bradbury has asked Treasury to report by the middle of the year, using the specialist group as a sounding board.

“This isn’t just a reporting exercise,” Mr Bradbury said. “That’s pointless without recommendations for ways of collect tax from corporations that make money from the Australian without paying proportionate tax"...

“Some significant multinationals are deriving considerable revenues from Australian economic activity but paying tax out of proportion to that gain.”

In the United Kingdom Starbucks has taken the "unprecedented" step of pledging to pay £20 million ($30.6 million) corporate tax it says it does not owe offering as a gesture not to claim deductions for royalties it pays to its Amsterdam office.

The move has enraged rather than calmed critics such as Liberal Democrats tax spokesman Stephen Williams who said it confirmed corporations such as
Starbucks seemed to think paying tax was voluntary.

Niv Tadmore, a Clayton Utz partner who be on the Australian specialist group said the tax rules were relics of the when doing business in a country like Australia meant “setting up a shop or a factory here or coming here every six months”.

One idea would be a withholding tax notionally applying to all corporate income but from which companies headquartered in nations with tax treaties would be exempt.

“You point it at everyone and have exceptions for countries bound by treaty obligations, that’s the polite way of doing it,” he said.

In today's Sydney Morning Herald and Age


John Kay, in the Financial Times last week:

“The repeated revelations that many major companies pay little or
no tax, even if they do so by legal means, fuels a public sense that tax is mainly
for little people. We need only look at Greece to see how socially, politically and
economically corrosive that perception can be... Well conceived apportionment
is the best – perhaps only – answer to the problem presented by multiple company
tax jurisdictions.”


SPECIALIST REFERENCE GROUP ON WAYS TO ADDRESS TAX MINIMISATIONOF MULTINATIONAL ENTERPRISES

Assistant Treasurer David Bradbury has today announced the members of the specialist reference group on multinational corporate taxation.

The formation of this group, made up of business representatives, tax professionals, academics and the community sector, is the first step in Treasury’s examination of multinational tax minimisation strategies and its risks to the sustainability of Australia’s corporate tax base.

“The way companies do business is changing and we need to ensure that international tax systems keep pace,” said Mr Bradbury.

“I have asked Treasury, led by Revenue Group head Rob Heferen, to begin work on a scoping paper that will set out the risks to the sustainability of Australia's corporate tax base from multinational tax minimisation strategies and identify potential responses.

“The specialist reference group will feed into that process, with Treasury drawing on members’ knowledge and expertise.

“We don’t want to see a future where hard-working Australian families and businesses have to pay disproportionately high taxes because multinational corporations are not pulling their weight.

“We need to make sure that we are doing everything possible through our domestic laws to keep up with the changing nature of global commerce in the information age.

“More importantly, Governments all around the world need to re-examine many of the key rules of international taxation, which are not keeping up with the changing business models and tax planning arrangements of many multinational companies.”

Members have been appointed to the group in their personal capacity, based on their high level of expertise in this area, rather than as representatives of particular organisations.

A key role of the specialist reference group — and the key focus of the Treasury paper — will be to build community understanding of the nature of the challenges we face.

In addition to the meetings of the specialist reference group, Treasury will also consult directly with interested stakeholders.

The first of several meetings of the reference group will be in February. The Government will release the Treasury scoping paper for public consultation in mid‑2013.


Specialist Reference Group membership:

Rob Heferen (Chair)
Executive Director, Revenue Group
The Treasury

Michael Bersten
Partner
PwC

Michael D’Ascenzo AO
Expert in tax policy and administration
Commissioner of Taxation (2006 – 2012)

Frank Drenth
Executive Director
Corporate Tax Association of Australia

Serena Lillywhite
Mining Advocacy Coordinator
OxFam Australia

Ross Lyons
General Manager – Tax, Asia Pacific
Rio Tinto

Tim Lyons
Assistant Secretary
ACTU

Peter Madden
Partner
Deloitte

Jason Sharman
Director, Centre for Governance and Public Policy
Griffith University

Greg Smith
Adjunct Professor, Australian Catholic University
Senior Fellow, The Melbourne Law Masters

Tony Stolarek
Partner
Ernst & Young

Niv Tadmore
Partner
Clayton Utz

Brian Wilson
Chair
Foreign Investment Review Board

Mark Zirnsak
Director, Justice and International Mission Unit
Uniting Church



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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Google paid just $74,176 in Australian tax

Our government wakes up

Me on ABC 891 Wednesday November 28, 2012:

15 minutes, play or CLICK THEN CLICK AGAIN to download mp3




The government is preparing for an assault on companies such as Google that funnel their Australian income through low-tax countries such as Ireland and Singapore.

Assistant Treasurer David Bradbury will outline the plan at a conference in Sydney Thursday.

His speaking notes refer specifically to Google and to a technique known as the the “Double Irish Dutch Sandwich” which involves routing income between Ireland and the Netherlands.

“This is not just about dealing with illegal activity. This is about how the drivers of new business models in the information age are presenting great challenges for governments trying to make sure that companies are paying their fair share,” he will tell the Institute of Chartered Accountants national tax conference.

“The way people do business is changing and we need to ensure tax systems keep pace because it's not fair if a multinational company pays much less tax than an Australian company.”

“This is a challenge for other nations as well, as we have seen from recent revelations in the United Kingdom where a parliamentary committee is looking into the issue. That means we need to continue our global cooperation to make sure that there is global consistency with the way we tackle this issue.”

Mr Bradbury will ask Treasury to start work on a scoping paper outlining the challenges posed by multinational corporations who use foreign subsidiaries to collect Australian income.

He will convene a specialist reference group made up of business leaders, tax experts, academics and community representatives to examine measures to combat the practice...

“We do not want to see a future where hard-working Australian families and businesses are having to pay disproportionately high taxes because multinational corporations are not pulling their weight,” he will tell the conference.

"We need to make sure that we are doing everything possible through our domestic laws to keep up with the changing nature of global commerce in the information age."

Company documents filed with Australian, European and Asian authorities show the Australian arms of Apple, Google and eBay are part of complex networks of subsidiaries held by their US parents through intermediary companies located in tax havens.

In April the Tax Office Apple with a $28.5 million bill for back taxes. Google Australia declared a loss of $3.9 million last year, and paid just $74,176 in Australian tax.

In today's Canberra Times, Sydney Morning Herald and Age



David Bradbury MP

Assistant Treasurer

TOWARDS A FAIR, COMPETITIVE AND SUSTAINABLE CORPORATE TAX BASE

ADDRESS TO ICAA NATIONAL TAX CONFERENCE HILTON, SYDNEY

THURSDAY, 22 NOVEMBER 2012


Today, I would like to discuss the importance of securing a fair, competitive and sustainable tax base for the future prosperity of the nation.

Tax is the price we pay for a civilised society.

It is a central element of the social contract. In return we expect that Governments will deliver the public goods and services we require — like world class health and education systems, a strong social safety net and public infrastructure.

Against this backdrop, we have set out our vision for a tax system that enhances productivity and lifts growth; that encourages participation and provides reward for effort; and a system that is fair and sustainable.

Pressures on the Corporate Tax System

Today I want to talk about some emerging structural changes occurring in the global economy, such as what some call the ‘digital disruption’ — and how these changes present challenges that, if left unchecked, threaten to erode Australia’s corporate tax base.

While our economy is now around 11 per cent larger than it was when we came to office and economic activity has returned to trend growth, tax revenues have been slower to recover. This can in part be attributed to the use of accumulated losses, incurred during the GFC, to offset tax payable on income in the last few years.

Of greater concern are some of the emerging threats to the corporate tax base posed by some of the structural changes in the global economy, which are being exacerbated by some of the more recent tax planning practices of many Multinational corporations.

Effective Tax Rates of Multinational Enterprises

One of the ways of assessing pressure on the corporate tax system is to estimate the effective tax rates of companies. That is, to compare the actual tax paid with the underlying income earned.

At its simplest, when taxable income is the same as the underlying income, then the effective tax rate will equal the statutory tax rate.

There are also situations where Governments will explicitly decide to provide preferential tax treatment and, in these cases, this will mean that the effective tax rate will be less than the statutory tax rate.

However, other explanations for low effective tax rates are not so benign.

In particular, where low effective tax rates reflect the ability of companies to shift income to low or no tax jurisdictions.

Internet, Knowledge Capital and the Corporate Tax Base

It is not my usual practice to mention companies by name or to publicly canvass the tax position of particular taxpayers. Nor is it my normal practice to publicly discuss strategies employed to minimise corporate tax. However, I will be departing from my usual practice today as I believe there is a strong public interest in drawing attention to practices that have the potential to undermine the future sustainability of Australia’s corporate tax base.

I must stress that all of the material used in this speech today has been sourced from the public domain.

I also want to be clear that I am not suggesting that these companies are in breach of the law as it stands.

Many of you would have seen media reports on the level of tax paid by Google Australia.

Earlier this year it was reported that Google Australia’s annual income tax bill may have been as little as $74,176. The same article reported that a spokesman for Google asserted that the correct figure was $781,471.[i]

Even if the higher figure is correct, I can understand why many in the community would be perplexed to learn that this figure is so low for a company whose annual advertising revenue from Australia has been estimated by media analysts to be over $1 billion per annum.[ii]

It has been reported that this is the outcome of an arrangement called the “Double Irish Dutch Sandwich”.[iii]

While the day-to-day dealings of Australian firms advertising on Google might be with Google Australia, under the fine print of contracts Australian firms sign with Google, they are actually buying their advertising from an Irish subsidiary of Google.

It is then argued that the source of this income – and therefore the taxing rights under our tax treaty – would be with Ireland rather than Australia.[iv]

Despite Ireland’s relatively low company tax rate of 12.5 per cent, we have just started to build the sandwich.

The next step is to route a royalty payment from the Irish operating subsidiary of Google to a Dutch subsidiary of Google, which is then paid back to a second Irish holding company subsidiary of Google that is controlled in Bermuda, which has no corporate tax.

That completes the sandwich – now for the tax treatment.

The first Irish subsidiary receives a tax deduction for the royalty payment to the Dutch subsidiary, substantially reducing the income subject to the 12.5 per cent Irish company tax rate.

Under Dutch law, and because EU member countries do not charge withholding taxes on transfers within the EU, the transfers to and from the Netherlands are essentially tax free.

And under Irish tax law, the second Irish resident subsidiary is not taxed on the royalty payment because it is controlled by managers elsewhere.

The profits from the sale of advertising to an Australian firm then sit in a tax-free jurisdiction – possibly indefinitely.

The point of all of this is not to single out Google for criticism. Google is an important innovator and plays a significant role in our economy, and they have engaged with the Government constructively on many issues — most recently through the Digital Economy Forum.

The media usually attributes the origins of this technique to Apple,[v] who reports earlier this year indicated had around $100 billion in cash, with about two thirds of that sitting in offshore accounts.[vi]

Nor is it my point that this structure is the only pressure facing the corporate tax system.

Rather, the point is to highlight how the digital disruption brought about by the internet and changes in technology have transformed the way economic activity is occurring — and these changes are putting pressure not only on businesses but also on the corporate tax system in Australia and around the world.

In turn, this challenges some of the concepts that form the building blocks of our current international tax architecture – source, permanent establishments and residency.

Increasingly, Governments are discovering the lack of effectiveness in the digital age of international tax concepts created for the industrial age.

This has been highlighted by the compelling evidence revealed by the UK Public Accounts Committee examination of the Taxation of Multinational Corporations.

Media reports of the Committee’s hearings state that Amazon paid no tax in the UK despite £3.3 billion in sales by routing transactions through Luxembourg, where it faced an effective tax rate of 2.5 per cent.[vii]

And now we see that the weaknesses that technology companies have exposed in the international tax architecture are spreading to other industries and activities.

The UK Public Accounts Committee was told that Starbucks had paid no taxes in the UK for three years, despite sales totalling £1.2 billion – in part due to royalty payments for the use of the brand.

What is being done about this?

I think some executives of multinational enterprises have been taken aback by the response to these reports from the broader community.

I have to say that it is no surprise to me that these reports have sparked community concern.

Many in business reject the notion that paying a fair share of tax forms part of a broader social compact, instead believing that it is just another cost of doing business.

On this point, I vehemently disagree.

These businesses benefit from operating in an economy built on social and economic institutions — our markets and regulators, the rule of law and our judicial system — not to mention physical infrastructure and human capital that is funded or supported by the taxes paid by others.

Where some multinational businesses enjoy the benefits of these public goods but refuse to pay their fair share, they are free riding on efforts of others.

Whether it is a domestic company put at a competitive disadvantage because it is paying tax on all of its profits.

Or whether it is Australian families that are expected to pay higher taxes or accept fewer Government services.

Losing sight of this perspective risks a community — and consumer — backlash, particularly at a time when the rest of the community is being asked to make sacrifices in the interests of fiscal sustainability.

Nevertheless, having laid out these issues, the natural question to me as Assistant Treasurer is “what are you, the Government, going to do about it?”

False responses

Some might argue that the solution is to cut the corporate tax rate and reduce the incentive to shift profits.

But when multinational companies can achieve effective tax rates of a few per cent – or even zero – trying to compete with these rates is no different to abandoning our corporate tax base.

This kind of international ‘race to the bottom’ is not protecting the sustainability of the tax system — it’s just cutting out the creativity required to avoid paying company tax in Australia.

If enormous multinational corporations aren’t paying their fair share of tax on economic activity in Australia, then that’s not fair game.

We do not want to see a future where hard-working Australian families and businesses have to pay disproportionately high taxes because multinational corporations are not pulling their weight.

Australian Government Initiatives

Faced with the choice of abandoning the corporate tax base or protecting it, the Gillard Government chooses to protect it.

We will continue to take action where necessary to ensure the integrity and sustainability of the tax system, including our corporate income tax base.

And we are doing this by reforms to two of the key integrity regimes in our tax laws — our transfer pricing rules and the general anti-avoidance rule known as Part IVA.

Transfer Pricing

Australia’s transfer pricing rules play an important role to ensure that multinational firms pay their fair share of tax on profits in Australia - based on an amount of income which reflects the economic activity attributable to Australia.

As I'm sure you know, in November 2011, the Government announced its review of Australia’s transfer pricing laws.

The review has been aimed at more closely aligning our rules with international best practice as set out by the OECD.

Our first task was to ensure that the law continued to operate in a manner consistent with the Parliament's long-held understanding and widely disseminated ATO guidance material that treaty transfer pricing rules apply to provide assessment authority in treaty cases.

These amendments received Royal Assent on 8 September 2012.

I know that there are strong held views about those changes — and that applying the amendments back to 2004 was controversial.

The Government makes no apologies for protecting the significant revenue that would have been at risk from taxpayers seeking to exploit uncertainties about Australia’s revenue base.

We are now turning our attention to a wholesale modernisation of Australia’s transfer pricing regime, which will align our laws with the most recent benchmarks of international best practice as set out by the OECD.

Today, I am releasing for consultation an exposure draft containing the amendments necessary to modernise our domestic transfer pricing laws.

Previous discussions with stakeholders have indicated that there is general support to reform our transfer pricing rules making them more effective and relevant to the modern environment in which multinationals operate.

I encourage industry and the wider community to engage with Treasury on these important reforms.

General Anti-Avoidance Rules

Last week, I also released for public comment exposure draft legislation and explanatory material to protect the integrity of Australia's tax system by amending Part IVA of the income tax laws.

The amendments will ensure that Part IVA can apply to taxpayers who enter into arrangements with the sole or dominant purpose of avoiding tax.

The amendments focus on the definition of 'tax benefit'. They will not affect taxpayers unless they have obtained a tax advantage from an arrangement entered into with a relevant tax avoidance purpose.

For example, the amendments could play a role in countering multi-nationals who seek to defeat Australia’s taxing rights by artificially altering the source or character of profits they generate from economic activity in Australia.

The amendments will ensure that such enterprises are taxed on the reality of their Australian activities — they will not be able to argue they did not get a tax benefit simply because they would not have invested in Australia had they known, in advance, that they would have to pay tax here.

I encourage you to participate in the consultation process.

Multilateral Initiatives

We need to make sure that we are doing everything possible through our domestic laws to keep up with the changing nature of global commerce in the information age.

More importantly, Governments all around the world need to rethink many of the key rules of international taxation, which are not keeping up with the changing business models and tax planning arrangements of many multinational companies.

Rethinking key aspects of the international tax architecture, by definition, requires international cooperation, as difficult as that may seem.

While I understand the degree of difficulty involved, we should also recognise that the G20 and the Global Financial Crisis have changed the dynamics of international relationships.

G20 & Global Forum on Transparency and Exchange of Information for Tax Purposes

The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) was established in the early 2000s as a vehicle for OECD economies to promote greater transparency — particularly with regard to access to information held in secrecy jurisdictions and tax havens.

This followed work by the OECD on harmful tax practices that focussed on “unfair” competition by low or no tax jurisdictions, as well as the exploitation of bank secrecy and lack of international co‑operation to hide tax avoidance or evasion activity.

The idea is that effective international co-operation and information sharing can help to tackle tax avoidance and evasion.

In turn, this improves the integrity and sustainability of the tax base of all countries.

The April 2009 G20 Leaders’ meeting in London put the work of the Global Forum firmly on its agenda, stating that:

“We agree to take action against non-cooperative jurisdictions including tax havens. We stand ready to deploy sanctions to protect our public finances and financial system. The era of bank secrecy is over.”

This crystallised the implementation of commitments and encouraged all members to translate these into action.

Critically, all major financial centres have become deeply engaged in this process.

The Global Forum has made significant progress in ensuring international cooperation in the exchange of information.

The work of the Global Forum is changing international practice as member countries and jurisdictions respond to the recommendations of peer review reports.

More than 800 agreements that provide for the exchange of information in tax matters have been signed by various jurisdictions.

Australia has signed 30 of our 33 Tax Information Exchange Agreements with low tax jurisdictions in the last 5 years.

Through our membership of the G20, the OECD, and particularly, as Chair of the Global Forum for the past three and a half years, Australia has been at the forefront of the development and implementation of the international standard for exchange of information.

While Australia will shortly pass on the role of Chair of the Global Forum to South Africa, we will continue to be actively engaged in the work of the Global Forum.

G20 & OECD work on Base Erosion and Profit Shifting

These international efforts are not just about increasing transparency.

The G20 has also been arguing for the need for greater international co-operation to prevent base erosion and profit shifting. This has also enabled the OECD to give priority to this issue.

The international tax treaties system has served us well in preventing double taxation, and therefore promoting cross border trade and investment.

There is an increasing recognition that rules designed to prevent double taxation have in some cases resulted in double non-taxation instead – where income is not taxed in any jurisdiction.

This situation is unsustainable – it not only weakens the tax base of individual countries but also weakens the international tax system.

As the Chair of the OECD’s Committee of Fiscal Affairs, Mr Masatsugu Asakawa has said:

“International tax policies must therefore be adjusted to the current business environment, in a way that ensures a level playing field and a fair allocation of taxing rights among both developed and developing countries.”[viii]

As you would expect, Australia is actively involved in the OECD’s work to address the important challenges of intangibles and hybrid mismatch arrangements.

Although there is a long way to go, it is clear momentum to address these issues is building and that the focus of multilateral attention is now squarely on addressing situations of “double non-taxation”.

What else could be done?

As important as these initiatives are, the reality is that countries around the world with corporate income tax systems will continue to be challenged by those who seek to shift income to low or no tax jurisdictions.

Greater Transparency on Tax Paid

One response to criticisms of low corporate effective tax rates is to criticise the basis on which the calculations are made.

It is true that these calculations often require a number of simplifying assumptions – and there are many traps for the unwary in comparing tax and accounting data.

It is also true that reports comparing income tax paid with gross sales revenue are to some extent comparing apples with oranges.

But if these criticisms are valid, I would have thought that the better response would be for companies operating in Australia to be more upfront on the revenue they derived from sales in Australia and the income tax contribution they make to the Australian community.

Exploring the problem further

To deepen our understanding of these issues, I have also asked Treasury to develop a scoping paper, to be led by the head of Revenue Group, Rob Heferen.

The discussion paper will set out the risks to the sustainability of Australia’s corporate tax base and look at the potential solutions.

The Treasury analysis will be informed by a specialist reference group, made up of representatives from business, tax professionals, academics and the community sector.

This follows the Government’s efforts since it came to office to increase consultation and the involvement of the community in the tax design process.

Conclusion

I would like to conclude on a positive note.

Despite the challenges facing Australia’s corporate tax system that I have outlined today, it remains the case that $66.6 billion in company income tax was paid in 2011‑12.

So our company tax system is far from broken.

My message today is simply that there are some looming threats to the corporate tax base and that we would be negligent not to consider them and work towards developing effective and appropriate responses.

The Gillard Government is committed to a fair, competitive and sustainable corporate tax base.

The Government is taking action to improve the integrity of Australia’s income tax laws, through modernising our domestic transfer pricing regime and ensuring Part IVA works as intended.

Australia is also actively engaged in multilateral efforts to improve international cooperation on tax issues and address fundamental problems in the international tax architecture.

And the Government continues to engage with the Australian community on how to get the balance right in addressing these issues.

Thank you.


[i] David Ramli, “Google Australia Tax Bill Slashed by 90pc”, The Australian Financial Review, 3 May 2012, available at: http://www.afr.com/p/technology/google_australia_tax_bill_slashed_vC6kGkvcxjOYB1THc6fWUN.

[ii] David Ramli, “Google Australia Tax Bill Slashed by 90pc”, The Australian Financial Review, 3 May 2012, available at: http://www.afr.com/p/technology/google_australia_tax_bill_slashed_vC6kGkvcxjOYB1THc6fWUN; other reports estimate the figure to be as high as $2 billion. See for example, Ben Butler and Georgia Wilkins, “How Savvy Multinationals Curb Their Tax Bills”, Sydney Morning Herald, 17 November 2012, available at: http://www.smh.com.au/business/how-savvy-multinationals-curb-their-tax-bills-20121116-29hhm.html.

[iii] See for example, Jessie Drucker, “Google’s Recipe forTax-Rate Cut: Double Irish and a Dutch Sandwich”, The Washington Post, 31 October 2010, available at: http://www.washingtonpost.com/wp-dyn/content/article/2010/10/30/AR2010103000034.html; Mike Seccombe, “Google: Don’t Be Evil, Don’t Pay Tax”, The Global Mail, 7 June 2012, Available at: http://www.theglobalmail.org/feature/google-dont-be-evil-dont-pay-tax/261/.

[iv] Of course, any income earned by Google Australia for services provided to the Irish subsidiary would still be taxable here, and would be subject to transfer pricing rules.

[v] See, for example Charles Duhigg and David Kocieniewski, “How Apple Sidesteps Billions in Taxes”, The New York Times, 28 April 2012, available at: http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?_r=0.

[vi] Chris Nuttall, “Apple’s $100bn reserve ripe for spending”, Financial Times, 26 January 2012, available at: http://www.ft.com/intl/cms/s/2/2c1c3c1a-47f0-11e1-b1b4-00144feabdc0.html#axzz2CjFXRdhU.

[vii] Rajeev Syal, “Amazon, Google, Starbucks Accused of Diverting UK Profits”, The Guardian, 12 November 2012, available at:

http://www.guardian.co.uk/business/2012/nov/12/amazon-google-starbucks-diverting-uk-profits.

[viii] http://www.oecd.org/ctp/WCRVol6Issue2_BEPS.pdf



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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