Big business ‘shirks’ fair share of tax load
Almost a third of Australia’s largest companies are paying less than 10¢ in the dollar in corporate tax, a report that exposes a gaping hole in government revenues over the past decade shows.
As Australia prepares to host world leaders at the G20 summit in Brisbane in November, where a global assault on tax avoidance will be discussed, the report found 84 per cent of Australia’s top 200 stockmarket-listed companies pay less than the 30 per cent company tax rate.
Some, among them household names such as James Hardie, do not contribute a dollar to Australian coffers, it found.
Tax minimisation by large companies far outweighs that of small- and medium-sized businesses and has a disproportionately large effect on eroding the tax base.
”Tackling corporate tax avoidance is an urgent priority; Australia does not have a spending problem, it has a revenue problem and it must be fixed,” says Who Pays for Our Common Wealth?, prepared by the union United Voice and the Tax Justice Network – a group of charities, unions and churches.
The 90-page look at tax contributions of the S&P/ASX 200 between 2004 and last year claims up to $80 billion in tax was forgone in that period. That could all but wipe out the past two budget deficits.
It details the widespread and growing use of subsidiaries in tax havens and so-called ”thin capitalisation”, where local entities are saddled with huge debts to reduce tax liabilities in Australia.
Almost 60 per cent of the ASX 200 declare subsidiaries in tax havens. For example, global broadcaster 21st Century Fox has 117 and logistics group Toll Holdings 72 in low-tax jurisdictions.
Nearly a third of companies have an average ”effective tax rate” of 10 per cent or less. James Hardie pays an effective rate of 0 per cent tax, Sydney Airport 2 per cent and Echo Entertainment – owner of
Sydney’s Star casino – 5 per cent, the report found. It said many of the lowest-paying companies are real estate investment trusts, which pass some of the tax burden on to investors.
Before its release on Wednesday, the Corporate Tax Association, which represents much of the ASX 200 on tax issues, dismissed the report, saying ”usually there are logical explanations for low effective company tax rates”.
But the authors of the report said the scope of their research made it clear that ”tax minimisation practices of a minority of very large companies have a significant and disproportionate impact on Australia’s corporate tax revenue base”.
David O’Byrne, national secretary of United Voice, said ”the corporate tax system is broken”.
”When 29 per cent of Australia’s largest listed companies are paying an effective tax rate of 10 per cent or less, it’s clear that the system is broken,” he said.
”In the last five years the proportion of total tax revenue from business shrank from 23 per cent to 19 per cent, while the proportion from individuals rose from 37 per cent to 39 per cent. Working people across the country are doing all the heavy-lifting because many of our biggest companies are shirking their responsibilities and it’s costing all of us billions of dollars a year.”
The Tax Justice Network and United Voice will call for a parliamentary inquiry into the corporate tax take after briefing federal MPs.
But they will face stiff resistance from the corporate world, which points to Australia’s place at second on the list of countries for company tax take to GDP ratio. Business leaders complain that foreign competitors pay far less in their home countries even though countries such as the US have a higher corporate tax rate, of 35 per cent.
Corporate Tax Association executive director Frank Drenth said: ”Financial journalists and some civil society groups don’t have a great track record of analysing tax information from published accounts. Financial accounts were never specifically designed to facilitate a detailed analysis of a company’s tax performance.”
He listed seven reasons why an effective tax rate can fall below 30 per cent, including taxed foreign income not being subject to additional Australian tax, tax offsets for expenditure on research and development, and restructures.
The report, which was reviewed by tax and accounting lecturer Roman Lanis from the University of Technology, Sydney, does not allege illegal tax avoidance by any company – nor does Fairfax Media – but calls for greater transparency and a national debate on the system.
The Organisation for Economic Co-operation and Development this month unveiled plans to tackle profit shifting and tax avoidance by multinational corporations. Australian companies will be forced to provide more transparency to the Tax Office from next year.
The ATO declined to comment.
A spokeswoman for James Hardie said its consolidated statement of cash flows showed it had paid $US495 million.
But Michael Kobetsky, an adjunct professor at the Australian National University and fellow of the Taxation Institute of Australia, said it was unclear where that tax was paid because James Hardie was domiciled in the Netherlands and had subsidiaries in tax havens.
”We know they are not paying tax in Australia because their dividends to shareholders are completely unfranked,” he said.
A Sydney Airport spokeswoman said: ”We comply with all Australian tax laws and pay taxes including payroll tax, stamp duties, fringe benefits tax, council rates, GST and other levies, as well as collecting GST on behalf of government.”
A spokeswoman for Treasurer Joe Hockey said: ”Companies should pay tax where they earn the profits and that has been [Mr Hockey’s] agenda through G20 negotiations.”
Fairfax Media’s estimated tax rate is 25 per cent, the report found. It has subsidiaries in Malaysia and Singapore.
Labor assistant treasury spokesman Andrew Leigh said the data suggested that if all ASX 200 companies paid the full rate of company tax, the budget would gain about $8.4 billion more revenue a year.
”That is more than the total savings the government expects to make next year by unfair measures like slashing pensions, bringing in its GP tax and cutting programs for indigenous Australians.”
