Luxembourg tax leaks put pressure on G20 leaders to act on loopholes
G20 leaders are under pressure to go further in their efforts to crack down on tax avoidance after the revelation that thousands of companies, including several major Australian firms and multinationals operating in Australia, have legally avoided tax with complicated deals negotiated through Luxembourg.
The chairman of a Senate inquiry into corporate tax avoidance, Labor’s Sam Dastyari, has said he will ask for explanations from the accounting firm PricewaterhouseCoopers, which facilitated the arrangements, and a number of the companies named, including Ikea, LendLease and the government-owned Future Fund – and could call on executives to give evidence.
The G20 leaders’ meeting in Brisbane on 15-16 November will trumpet the combatting of tax avoidance and profit shifting as one of its major goals.
The leaders will sign off on an already-agreed “common reporting standard” – a requirement that banks identify and report the tax affairs on non-residents to their home countries, and a pledge to force multinationals to report their accounts country by country to avoid profit shifting.
But the multinationals’ country by country reports will only be available to tax authorities, not publicly. And some countries, including Australia, have delayed the scheme’s implementation for a year.
Claire Spoors, the G20 coordinator for Oxfam, said the leaked tax documents proved why public reporting of country by country profits would be much a more effective deterrent.
“This shows just how powerful it would be if people had the right to know what tax multinationals paid,” she said.
The tax commissioner, Chris Jordan, said the Australian tax office would be checking the leaked data “and if we see discrepancies from what we’ve been told we will take audit action”. He said he had written to Australia’s tax treaty partners asking for a joint investigation of the leaks.
The finance minister, Mathias Cormann, insisted Australia had “some of the strongest anti-avoidance tax laws in the world” but was “acutely aware of the need to stay alert to constant changes in financial arrangements used for tax minimisation purposes across the global economy.”
When Australia took over the G20 presidency almost a year ago the prime minister, Tony Abbott, nominated tax shifting as one of his highest priorities.
“We are determined to ensure that we, as far as we can, improve the world’s international taxation arrangements so we don’t have the kind of leakage we’ve had in recent times through transfer pricing,” Abbott said.
“The principle here is you should pay tax in the country where you earn the revenue and we will be talking to our G20 partners to make sure this is the case.”
According to the leaked documents, Ikea’s Australian stores turned over $4.76bn between 2002 and 2013. But they paid $2.67bn in supply fees to another independent Ikea entity, and a further $904m to other Ikea companies in Luxembourg and the Netherlands and this arrangement allowed Ikea to declare a pre-tax profit of only $103m, on which it paid just $31m in tax, as its sales surged 500%.
Dastyari, who chairs the inquiry by the Senate economics reference committee into corporate tax avoidance, said his committee would be writing to companies named in the leaks to ask for an explanation. It has already written to 40 companies named in a recent report by the Tax Justice Network.
“We will assess their replies and we reserve the right to subpoena chief executives or directors of these companies if necessary,” he said.
The Greens leader, Christine Milne, said the leaks were “a big embarrassment ahead of the G20” and said the meeting “needs to do more than just talk about information exchange”.
But at a special workshop about the new multilateral rules organised with Clayton Utz, the chief executive of the Business Council of Australia, Jennifer Westacott, said the G20 should make sure international tax laws did not “become an obstacle in the unstoppable evolution of the global economy”.
“They should not be so excessive or complex such that they hinder trade, investment and innovation,” she said. The BCA was unavailable for further comment.
