Corporate tax transparency report: Dodging continues

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Arthur Marusevich looks at the elaborate web of currency swaps and wealth shifting schemes that enabled 732 companies to pay no tax at all, according to the latest ATO corporate tax report. ​​​

ON 7 DECEMBER 2017, the ATO released its report on corporate tax transparency for 2015-16.

Of 2,043 companies, 732 paid no tax at all. That is about one in three.

At the same time, the companies that did pay some tax might as well have paid nothing. For instance, RTPDS Aus Pty Ltd, an entity owned by mining giant Rio Tinto, received a tax bill of $6,375 against a taxable income of approximately $15 billion. That comes to approximately $1 in tax for every $2.2 million earned.

The highest rate of tax paid as a percentage of taxable income by a company was 30%. Yet, an individual, if earning between $37,001 and $87,000, pays $3,572 plus 32.5 cents for each $1 over $37,000. That is a rate of 32.5%. So, it’s not surprising that some of us might consider registering ourselves as corporations.

According to ATO Deputy Commissioner Jeremy Hirschhorn, the multibillion-dollar fall in tax payable was “almost entirely due” to the decline in energy prices in 2015.

This was also confirmed by the ATO on its website:

'The significant reduction in tax payable was overwhelmingly driven by the energy and resources segment, reflecting a decline in the average Australian dollar prices for iron ore and coking coal of 16% and 10%, respectively.'

While the explanation may be true for companies such as BHP Billiton or ExxonMobil, what about tech companies such as Google and Apple who are not in the oil or energy business? Yet, Apple, which reported a revenue of $7.5 billion, had a taxable income of only $393 million and paid $117.8 million in taxes — a taxable income to revenue margin of just 5%. On the other hand, Google, which turned over $501.8 million, paid only $16 million in tax on a taxable income of $122 million — an effective tax rate of 13.2%. Similarly, Amaysim (a tax rate of 6.4%), Macquarie Telecom (a tax rate of 6.7%) and the list goes on.  

Although it is true that the decline in commodity prices such as iron ore and coal have had an enormous impact on the corporate tax take, loopholes and sophisticated tax avoidance mechanisms are still one of the biggest reasons as to why so much money goes missing.

Dodging through loopholes

Forget about making claims on the corporate jet. The Australian Government has recognised that many multinational enterprises shift their profits to offshore low tax jurisdictions to avoid paying tax in the source country where the profits were made. At the same time, complications surrounding tax laws give rise to such beneficial loopholes that many enterprises quickly learn and use these to their advantage. One such sophisticated loophole is what is known as a currency swap.

A currency swap allows a company, such as Rio Tinto, to swap its U.S. loan with Australians dollars through its RTPDS Aus Pty Ltd subsidiary — a swap process which also includes the transfer of all associated risks and interest rates in order to avoid paying more tax.

And the currency swap scheme is just one of the many ways through which multinationals operate an elaborate web of complex company structures in order to avoid paying their share of taxes. Yet unfortunately, if caught, the ATO may cut a deal instead of seeking punitive damages through a court order. Such leniency only hurts the Australian economy even more.

According to Oxfam Australia’s Chief Executive Dr Helen Szoke:

In Australia, tax dodging is robbing the public coffers of money which could be used to pay for essential services such as schools, hospitals and public transport … The latest ATO data also comes just two months after the ATO revealed multinationals were avoiding paying an estimated $2.5 billion in taxes in the 2014-15 financial year.

So, what is it going to take to fix this problem?

Enforcing compliance

Of course, the public’s trust in an agency that runs the country’s tax affairs may be at an all-time low. After all, one of its senior commissioners was recently implicated in an elaborate tax fraud. But credit to the ATO, which has begun eyeing multinationals and their sophisticated loopholes. For instance, the establishment of the Tax Avoidance Taskforce, the introduction of the Diverted Profits Tax, Country-by-Country reporting and the Multinational Anti-Avoidance Law are all aimed at enforcing compliance. The message is spreading, which is why McDonald’s and Google have suddenly considered restructuring in the wake of ATO’s crackdown.

And although there are still billions being syphoned away from Australia each year, the new measures are a start.

Arthur Marusevich is a Canberra-based lawyer.

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