The corporate lie: tax transparency ‘misleading’
A list of tax paid by Australia’s biggest companies, released by Tax Commissioner Chris Jordan on Thursday, may have raised more questions than it answered.
Nevertheless, we needed it. This is just the beginning of a long journey towards tax transparency.
The Australian Taxation Office (ATO) released the data for the first time under tax transparency rules introduced by the former Labor government. Within hours, the usual suspects from the business lobby were criticising media for reporting misleading information.
AiGroup boss Innes Willox said it was part of a “culture of naming and shaming and a form of corporate assassination”.
Business Council of Australia chief executive Jennifer Westacott pointed out that large companies listed accounted for $40 billion of the $67 billion in company tax paid in 2013-14.
Australian Chamber of Commerce and Industry boss Kate Carnell noted that weaker economic conditions had hurt the bottom line for many businesses, so “it’s not surprising that loss-making companies are not liable for profit taxes”.
The ATO’s list, which came with heavy disclaimers about its reliability due to some omissions, shows the 579 local and foreign-based companies that paid no company tax in 2013-14 had combined turnover of $405.9 billion and taxable income of $4 billion.
The “zero list” included companies that either paid no tax, had offsets against profits that reduced their tax to zero, or made a loss.
ATO acting second commissioner Jeremy Hirschhorn said a number of foreign companies that arguably should be on the list might not be because they argue Australia has no taxing rights. But tougher anti-avoidance laws passed under the Coalition could mean they make the list in future (a number of these companies are restructuring so they don’t get hit by the laws).
Business is correct to raise concerns and to point out that other countries have more competitive tax rates than Australia.
BCA noted, as it often does, the loss of jobs that could result if laws to stop multinational tax avoidance were too heavy-handed.
“Tax integrity measures must be considered carefully to ensure they do not undermine our competitiveness and cause businesses to locate in other countries at the expense of Australian jobs,” Ms Westacott said.
It’s a difficult balancing act for government.
On the one hand, it must ensure Australia stays competitive against nations such as Singapore and Ireland, where the tax rates are 17 per cent and 12.5 per cent respectively, compared with 30 per cent for large business here. As the government strengthens anti-avoidance and transfer pricing laws, you can expect to see more incentives for businesses to invest in Australia (we’ve already seen some under the Turnbull innovation plan).
On the other hand, the public is tired of a culture of corporate tax dodging that’s been aided by governments around the world for decades (it’s only recently that revenue holes have promoted politicians worldwide to change their tune). The public wants a more transparent tax picture from big business, not confusing financial accounts that hide the true level of taxes paid.
Top executives have been preparing for the PR battle. Within hours of the list being released, the corporate spin doctors were on the phone to journalists explaining why they paid zero tax. In some cases, there were legitimate reasons (mining and manufacturing have taken a hit and this loss shows up in the data as zero tax).
In others, only part of the story is being told. The headline rates fail to show money that has been routed through low-tax nations like Singapore, Ireland and the Netherlands, or no-tax jurisdictions such as Bermuda.
If companies and their spin doctors want to be truly transparent, they should release detailed reports showing how much money is channelled through lower-tax nations.
The once-normal practice of profit shifting or debt loading may have been completely legal under tax laws. Or it may be one of those aggressive tax structures that Mr Jordan repeatedly says he’s got his eye on.
These structures are being challenged now that the OECD’s final plan against profit shifting has been handed down. It will be up to tax authorities around the world to decide which are legitimate tax arrangements (expect to see more revenue disputes).
But greater transparency is still required. The Board of Tax is working with the largest companies on a voluntary tax transparency code – a federal budget promise.
If the result is more spin and omission of detail, it’ll be useless. To argue that putting too much information in the public arena is misleading is nonsense.
It’s only by shining a light on companies through the corporate tax avoidance inquiry this year and media reports that we’ve reached a starting point on tax transparency.
There’s much work to do from here.
