PARADISE PAPERS: How big business evades tax while the ATO does bugger all

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(Image via @CFMEU)

The Paradise Papers show tax avoidance by the rich and powerful is not only systemic but also implicitly endorsed by the Government. Former ATO Assistant Tax Commissioner John Passant reports.

Who would have guessed it? The Queen is a tax avoider.  

Now this is a bit odd. The Queen is not subject to tax. However she agrees to voluntarily pay tax. So why would she invest, admittedly only $17 million or so of her $17 billion estate, in a tax haven?

The thing about tax havens is not only their low or no income tax rates. Until recently, they were also secrecy jurisdictions. It was – and still is – a crime in tax havens to reveal bank and similar details of people with accounts in the haven.

In the last few years, the OECD and other rich countries have been pressuring havens to enter into bilateral Tax Information Exchange Agreements with them. Many have, although some have not. However, as I wrote in the Fairfax newspapers in 2015 about Malcolm Turnbull’s Cayman Island investments:

‘... just because the Prime Minister's investments in the Cayman Islands are all over the news, and he has claimed he has been abiding by Australia's tax laws, that does not on its own give rise to the reasonably foreseeable grounds for the ATO to ask for information about his Cayman Island investments. The ATO would have to already know a taxpayer was shonky before it could ask for information to show the taxpayer was shonky.’

So, the Queen’s advisers might have invested a mere $17 million in a tax haven for secrecy reasons. The Queen’s money in Bermuda, according to the International Consortium of Investigate Journalists, was ‘indirectly invested in a rent-to-own loan company accused of predatory tactics’. Couldn’t have the plebs knowing about that, could we?

The Paradise Papers just confirm what we already know, both in our working class guts and from the Panama Papers and the ATO Tax Transparency Reports, and various Court cases such as Chevron. Rich people and big businesses avoid tax.  It is systemic. They view tax as a cost of business, one to be cut.

Multinational companies have the whole globe and upwards of 192 different country tax regimes to play with to avoid tax. So for example after Ireland closed down the Double Irish Dutch sandwich rort, profit shifter Apple moved its non-US sales profits to Jersey.

With an estimated $32 trillion hidden in tax havens offshore we are talking about hundreds of billions if not a trillion or so in tax avoided globally. Australia has about 2% of the world economy, so that means we could be losing out on up to $20 billion in tax a year.  

The ATO puts the big business tax gap at around $2.5 billion — a very conservative figure in my view and that of many tax experts

As Nassim Khadem says in that article: 

‘The ATO cannot tax what it does not count or see.’

The $2.5 billion is also a net figure. The ATO says the gap is at least $3.5 billion but it will get back about $1 billion in audit activity.  Only $1 billion? That is a collection gap of $2.5 billion, even on the ATO’s own figures.

In 2013 ATO staff numbers stood at just over 25,000.  By 2016 that figure was 20,659. Perhaps cutting 4,400 staff helps explain this collection gap. So too does inadequate training in the ATO, inadequate laws, and inadequate political and administrative resolve.

For example, the Turnbull government’s much publicised so called Google tax will, according to the Treasury, raise $100 million a year for the next few years. Is that all?  Seriously?

According to the ATO’s 2014-2015 Tax Transparency Report, 678 big businesses (or 36% of the big business cohort of 1,920 private and public companies) paid no income tax in that income year. They had gross revenue of $462 billion.

Disgracefully, the Commissioner Jordan said of this:

"There are no surprises here to the ATO."

Actually, there are lots of surprises, as the Paradise Papers are showing. Yet these should not be surprises to the ATO. Why is the Tax Office reactive rather than proactive?

Some significant amount of that $462 billion of untaxed revenue at least is, in my view, due to tax avoidance. Then Deputy Commissioner of Taxation Jim Killaly told a conference in 2010:

“Between 2005 and 2008, more than 40% of all big business taxpayers [turnover greater than $250 million] that lodged tax returns paid no tax. Of those, 20% were making a profit.”

If we assume that 20% is a flag for tax avoidance, that means about $37 billion (20% of 40% equals 8%) of the $462 billion of untaxed revenue of big business is worthy of investigation. The ATO does not have enough staff with the capability to do this. Its leaders do not have the will to do so. Otherwise they would not have sacked over 4,000 tax officers.

Tax avoidance is a class issue.

As Kerry Packer famously said:

"Now, of course I am minimising my tax and if anybody in this country doesn't minimise their tax they want their heads read…"

Only big business and the rich have the capacity and money to minimise their tax. Ordinary workers do not. 

There is another element to this class perspective. The Paradise Papers show that the mining company Glencore is a big tax avoider (along with many more companies and individuals, as will become obvious over time).  Its Australian revenue in 2014 was over $23 billion. It paid only $55 million tax here, using cross-currency interest rate swaps and debt financing at inflated rates to shift its profits from Australia to related companies offshore.

Glencore has locked out its workers at the Oakey North Mine for the last four months for the "crime" of wanting to defend wages and conditions. Living wages and a fair tax burden are all part of the costs big business is driven to cut. That driver is systemic — to improve profits and beat the competition.

Eric Schmidt, the former head of another tax avoider, Google, echoed Packer when he said:

"I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate. The company isn’t about to turn down big savings in taxes. It’s called capitalism. We are proudly capitalistic. I’m not confused about this."

Tax avoidance is systemic. It is an expression of the grundnorm of capitalism: more profit and competitive advantage over rivals. There can be no half measures in dealing with it. Let’s tax the rich and big business until the pips squeak

If or how we can do that is a big topic — the topic for another article.

Read more by John Passant on his website En Passant or follow him on Twitter @JohnPassantSigned copies of John's first book of poetry, Songs for the Band Unformed (Ginninderra Press 2016) are available for purchase from the IA store HERE.

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