Is there massive corporate tax avoidance?

Following the most stupid report ever written by the Tax Justice Network, the parliament has decided to review our corporate tax system.

Having worked for some of these “evil” ASX listed companies, both internally and externally, I have never seen one of these companies bend the law without getting a ruling from the Commissioner first. Why?

Because the Commissioner is always dropping around. When I was the Tax Manager at Seven Network Limited I picked up the AFR to read we were buying Etihad Stadium (first I had heard). At 10:15 that morning the call from the guys at the tax office who reviewed everything that Seven did came in… “Can we catch up this afternoon to discuss the purchase?” I had to say can I at least get a copy of the agreement before we discuss the tax implications…

ASX companies do not hide things from the Commissioner! If there is unpaid corporate tax, either the Commissioner missed it in his review (my experience is ASX 50 every year or two this review happens), or the Commissioner is corrupt – and I am sure Chris Jordan is better at tax than I am and is beyond reproach.

This is politicians thinking corporate taxes work like their individual tax returns,which generally don’t get reviewed by the Commissioner.

ALSO… Company tax is not a real tax. Huh??? Company tax is more like a non final withholding tax – just like PAYGW. When you get your salary the employer takes some out for tax and this is a credit in your tax return. The company pays tax and when it pays a dividend the shareholder claims a credit for the company tax (imputation credits).

So if the company avoids tax, the shareholders pay more on their dividends.

And the company pay non resident withholding taxes if they pay a dividend to a non residents.

Yes, large companies don’t pay out all their profits as dividends to shareholders. But they pay most out to keep shareholders happy and those shareholders want the imputation credit that come from paying company tax.

The profits they don’t pay out are used to invest. And if those investment increase and are sold and the profits are paid out as dividends.

If you don’t think about it you can imagine “evil” ASX companies avoiding tax obligations but in reality the system drives these companies to pay company tax.

Let me end with an example… I worked for an ASX listed company who wanted to pay a dividend (as a part of an off market share buy back). In April I was asked what our franking balance was. In August I was asked again. In between these dates the Government changed the way franking balance were reported. Even though the amount of franking credits had not changed, the guys organising the buyback thought we could not pay a fully franked dividend. The CFO was furious! “Just pay more tax now as we need the franking credits” he yelled. I explained we did have enough franking credits to cover the dividend.

Does that sound like company tax avoidance?

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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