The report will I think make it almost impossible politically for this government to sell its austerity program or its GST “reform” proposals. The mantra that Australia has a spending problem, not a revenue problem, looks hollow in the light of the low tax contribution from big business.
And so Fairfax runs the same argument it has all through the holidays. The fact that 30% of large companies paid no company tax in 2014/15, means we don’t need to pursue any revenue or spending reform. We can just raise all the revenue we need to cover the $35 billion yearly deficit (closer to $50 billion if we include the States and Territories).
They are forced to admit…
Some will have an innocent explanation
But that still not going to stop Fairfax’s crusade to avoid any spending restraint or real tax reform.
But lets think this through? If there are a large number of companies not paying the tax they owe, then what has the Commissioner been doing? He has the power to access all of the financial information of these organisations (more powers than the police have) and would already know if there is an innocent explanation for each of these companies.
So if there is no innocent explanation, and the Commissioner has not issued additional assessments on these taxpayer, then the only conclusion is he is either incompetent or corrupt. So does Fairfax think the Commissioner is corrupt or incompetent?
I know most of the senior staff at the ATO and they are some of the smartest people I know. More importantly they are the most ethical people I have met!
But back to Fairfax. The journalist know all this and they know there is no story if they concede this. So they try to argument that the Commissioner needs more resources (which he specifically denies he does), that there needs to be more public disclosure (the Commissioner already has all the information and the broadest access powers of any government agency), or that certain “big business concessions” need to be removed. For example:
Foreign tax offsets (tax credits), imputation offsets and research and development offsets might be part of the explanation. That however just raises a question as to whether such offsets (and special deductions and exemptions businesses may get) are good policy.
Removing foreign tax credits means that Australian companies that invest overseas should pay tax in the other country and tax in Australia on the same amount. 35% US corporate tax and then another 30% Australian tax – how stupid.
Removing imputation means that if the subsidiary company earns income and pays it up to the head company of the group the tax rate is now 60% – how stupid. Worse still, ever suggestion to remove imputation is linked to a massive reduction on the company tax rate which will decrease the company tax take from inbound multinationals!
So with their argument causing anyone who knows the smallest thing about tax to start laughing or crying (Rob Heffernan, who is the head of Tax Policy in the Federal Treasury did actually chuckle when he was last called before the Senate to be asked about why certain companies are paying so little tax), they try their last argument…
Google also appears to have “diverted” much of its Australian source income to Singapore. It is easy to do. When Australians contract with Google to put ads on the site, we contract with a Singapore entity. In general terms, under the tax treaty with Singapore, that country then has the taxing rights over that income because it isn’t associated with the Australian entity.
This entire argument relies on the journalist ignoring the network of world wide tax treaties, and that there are more countries other than Australia in the world.
First the treaties. These treaties are pretty much the same all over the world and they all decide which country gets the taxing rights over what income. They say that income is taxed out of the “permanent establishment” from which it is derived. Selling advertising on a website is obviously not derived where the customer who wants something advertised is. But it is where the advertiser runs their operations. So Google has not diverted any income at all, they have just applied the tax treaties correctly.
At this point people scream that we should change the tax treaties so the income is taxed where the customer is? Do you really want all of BHP’s tax to be paid overseas and none in Australia as most of its products are sold overseas? No mining or resources companies paying any tax in Australia? You can’t have it both ways. Changing the treaties to tax based on the location of the customer would bankrupt Australia overnight as there would be no tax on any of our exporters (and the rest of the world is not going to agree anyway).
Second, let remember there are other countries in the world other than Australia. All the Google entities in the world are owned by a US company. And when Google wants to buy its next $1 billion acquisition, it repatriates some of its global income to do this back to the US. When it does this, the repatriated amount is taxed at 35% (US company tax rate) less the tax paid in the foreign country.
So if Australia wants to start taxing all of Googles advertising revenue paid by Australian customers (ignoring the treaties) then when Google bring the cash back to the US instead of getting 23% tax (25% US tax less 12% Singapore tax) they will get 5% tax (35% US tax less 30% Australian tax).
Earlier this year, the Secretary of the US Treasury called Joe Hockey. He was concerned that it looked like Australia was considering “stealing” the future tax payments that the US Treasury has already budgeted for. And “stealing” is the right word, as it is contrary to the signed US / Australia double tax treaty.
I think that the public finances in Australia are broken. And I think we need BOTH spending reform and tax reform. But until Fairfax stop lying to the Australian public that this problem can be solved by corporate tax reforms, no one will listen to any idea on how to solve the real problem.
And here is the real problem. Go read the article linked above. And then laugh or cry that it was written for Fairfax by a former assistant commissioner of taxation in the Australian Tax Office. When arguments as weak as this are peddled by people with reliable CVs, what hope do we have.