The tax dodgers
In the latest attempt elevating the long-standing issue, a United Nations report has called for a fight against cross-border tax evasion — as in the kind of “smart” accounting that has let high-profile multinationals such as Apple, Google and Starbucks save billions in taxes for years.
A US Senate committee last year put several executives under the spotlight, seeking accountability, and they mostly responded by saying they were simple playing by the rules put in front of them. Consequently, organisations such as the OECD have worked on aligning the world’s tax regulations to close loopholes. This, however, is proving to be a gargantuan task.
“Profits should be taxed where they are earned,” the UN said last week in a report on the key economic issues and developments for 2014. “Further progress is needed to fight cross-border tax evasion and tax avoidance… Efforts are needed for international tax cooperation.” For campaigners, however, increasingly the solution is to have the public hold these corporations accountable by decrying the accounting tactics: only when tax dodging becomes a public relations problem will they make any effort, they say.
Recently, a UN-sponsored group estimated that Africa was losing $50 billion a year from illicit capital outflows, including tax avoidance by multi-nationals — an amount twice as high as the total foreign aid the continent receives a year. A global poverty report by Action Aid, a UK non-profit, echoed the findings, noting it was the world’s weakest economies being deprived of tax revenue.
For the whole of the developing world, Christian Aid estimates the loss in revenue at $160 billion, while The Economist says $20 trillion in funds is parked in tax havens. “Essentially, what this means is that the poor are subsidising the rich. That’s the heart of the injustice,” a spokesman for global non-profit Tax Justice Network told the Sydney Morning Herald. Previous inquiries have found egregious examples of companies exploiting international tax loopholes, such as Google funnelling 80 per cent of its global pre-tax profits from international subsidiaries to Bermuda in 2011, which has no corporate tax rate. That year, the company reported an effective tax rate of about 19 per cent instead of the statutory 39 per cent in the US, while records in the UK showed its tax bill worked out to about 1.5 per cent of revenue. In Australia, Google paid just $74,000 in taxes.
Despite criticism from many quarters, executive chairman Eric Schmidt said during an interview in 2012 about the company’s tax payments: “I am very proud of the structure that we set up.” Small, honest businesses pay far higher taxes than global corporations armed with lawyers and clever accountants. The unfairness is plain enough. It is up to individuals to realise they can be the key influencers on this issue.