Corporate tax rip-off

Eight of the top 200 companies publicly listed on the Australian stock exchange (ASX200) paid no taxes on profits averaging $50 million to more than half a billion dollars over the decade to 2013! More than 20 (10 percent) corporations paid an average tax rate of five percent or less. Instead of rectifying the situation the government is telling the people of Australia that there is a “budget crisis”, sacking thousands of public servants and slashing spending on social security, health, education and other services.

As a report released on September 29 by the Tax Justice Network and United Voice reveals, “Almost a third of Australia’s largest companies are paying less than 10 cents in the dollar in corporate tax, which has created a gaping hole in government revenues over the past decade.” (http:/taxjustice.org.au/reports)

The report found that overall the effective tax rate of ASX 200 companies over the last decade is 23%, compared with the official statutory rate of 30%. “If the ASX 200 companies had paid at the statutory rate it would have produced an additional $8.4 billion in annual revenues” or more than $80 billion over those ten years.

Tax havens

Fifty-seven percent reported having subsidiaries in secrecy jurisdictions (most likely zero or very low tax havens), between them a total of 1,078 subsidiaries. How many others there are is anyone’s guess. Subsidiaries “overcharge” parents for goods and services, transferring profits offshore to low tax havens.

Singapore, Hong Kong, Malaysia, British Virgin Islands, Mauritius, Luxembourg, Switzerland and the Channel Islands of Jersey and Guernsey are amongst the most common tax havens. Bermuda and Jersey are home to at least 119 entities belonging to the ASX200. Their tax rate is zero.

The report also revealed that 60% of the ASX200 companies reported debt levels in excess of 75%, which is suggestive of tax avoidance set-ups. They also borrow from offshore subsidiaries and between subsidiaries, so the tax deductible interest payments are in countries like Australia and the interest is in a tax haven with zero or close to zero tax rates.

Other offenders include Commonwealth Bank, Telstra and Westfield., BHP Billiton, Rio Tinto and Toll Holdings: the larger and more profitable the corporation the lower the tax rate paid.

These alarming figures do not include Australian private unlisted companies such as Visy Industries ($4 billion in revenue), 7-eleven stores ($3.3b), Gina Rinehart’s Hancock Prospecting ($2.4b), St Vincent’s Health ($1.9b), St John of God Health Care ($1b plus, etc). These figures are their revenue from sales, patients, etc. Their profits or tax paid is not public.

Another unlisted suspect is Murdoch’s 21st Century Fox which has 117 known subsidiaries in tax havens and paid an effective tax rate of 1%.

Apple not so sweet

They also do not cover the foreign-based transnational corporations like Google, Apple and News Corporation where it seems billions more in taxation is being avoided.

The ABC reported an analysis by The Australian Financial Review which shows that while Australians have bought $27 billion worth of Apple products since 2002, the company has paid only $193 million to the Australian Tax Office (ATO) – implying its profit was little more than half a billion dollars. (ABC News, 07-03-2014) What capitalist business would remain in Australia if that were the case! The newspaper estimates that around $9 billion in profit has been shifted offshore to minimise taxation.

“Apple worldwide in the past four years have avoided paying tax on $US44 billion,” said Antony Ting, a senior lecturer in taxation law at Sydney University.

“It’s basically what we call transfer pricing – so Australia Apple purchased the iPads from Ireland and … of course, the Irish company is in fact a paper company, it has virtually no employees, very small costs and all the products are manufactured in China by third party manufacturers,” he said.

“With the global transfer pricing arrangement, Apple Australia has to pay out of this $600 purchase… $550 to Ireland, so by that payment of the bulk of the profit it shifts from Australia to Ireland and where it escaped tax anywhere in the world.”

Transfer pricing

Ting continued, “There are currently 2,156 companies listed on the ASX, with a total of 26,096 reported subsidiaries. Roughly a quarter of these companies (524 in total) reported subsidiaries in secrecy jurisdictions. These companies had 15,564 subsidiaries, and of these 15% (2,262 subsidiaries) were registered in secrecy jurisdictions.”

United Voice National secretary David O’Byrne said, “The community will be shocked to learn that many of Australia’s largest corporations can legally eliminate the need to pay tax at all or reduce their tax bill to 10% or less.”

As previously reported in the Guardian, research by The Australia Institute found that the government would have had an additional $38 billion for the 2012-13 federal budget and would have collected an extra $169 billion over the previous seven years had it not been for unsustainable personal income tax cuts that were made in the lead-up to the global financial crisis. (“Budget 2014-15: The hidden tax agenda”, the Guardian, #1641, 04-06-2014)

Add that $38 billion to the $8.4 billion being lost from tax avoidance by the ASX200, the loss of income is well over $45 billion per annum. And that doesn’t take into account the overseas-based companies like Apple, Google, Microsoft or the non-listed private companies whose books are not open to public scrutiny.

Corporate welfare

At the same time as the government is losing tens of billions of dollars in potential income it is handing out billions of dollars in corporate welfare.

The federal government pays a fossil fuel subsidy of more than $10 billion per annum. The private health insurance companies receive a direct subsidy of more than $6 billion per annum in the form of the PHI rebate (30-40%) of cost of premiums. This indirectly subsidises the private hospitals and other private health services.

The only corporate subsidies being axed are the ones that seek to address climate change.

The report notes that “over the last five years, the proportion of income tax from business shrank from 23% to 19%, while the proportion from individuals rose from 37% to 39%.”

The “budget emergency” is a myth. But there is a tax emergency – which needs urgent addressing before the whole taxation base collapses.

Workers are not only carrying an increased tax burden, but the government is using the short-fall in taxation as an excuse for its austerity measures and continuing to cut the company tax rate.

“Any spending cuts to health, education and other services would have a disastrous impact on some of Australia’s most vulnerable people and the broader economy. Rather than going ahead with unnecessary cuts, the government should focus its efforts on reforming the corporate tax system,” the report says.

Reform of the taxation system so that the corporate sector and rich pay a larger share would overnight result in a large budget surplus, and not shortage of funds for people’s needs.

These reforms should include repeal of the fossil fuel rebate, phasing out of the PHI rebate, an increase in company tax rates and marginal rates on higher incomes. It is time mining companies funded their own infrastructure. The government should be taking measures to close tax loopholes and the use of offshore tax havens.

On the spending side, the military budget which is headed towards $40 billion should be slashed and Australia pull out of the Middle East. Both measures would strengthen our security.

United Voice is calling for a full Parliamentary inquiry into Australia’s corporate tax system in order to get to the bottom of the problem and to investigate solutions for ensuring that our corporate tax system is working as it should. This is worth supporting.