Multinationals channel more money through “hubs” in Singapore, Switzerland than ever before, Tax Office says

More than half of Australia’s trade is money being sent offshore by companies to their overseas arms – with almost a third going to Singapore and Switzerland.

Australian companies sent more than $100 billion to related parties in the low-tax nation of Singapore and another $15.6 billion to “hubs” in Switzerland, new figures from the Tax Office reveal.

The data, contained in the Australian Tax Office submission to the federal inquiry into corporate tax avoidance, gives a fresh insight into how commonly multinational groups shuffle money between countries.

The ATO is keeping watch over a large number of companies with international restructures or ‘significant cross-border arrangements’. Photo: Michel O’Sullivan

It comes amid the global push to wipe out the use of tax havens and stop profit shifting by multinationals, as well as noises from Prime Minister Tony Abbott and Treasurer Joe Hockey about the need for multinationals to pay their “fair share” of taxes locally.

The Tax Office said it was keeping a watch over “a large number of companies that have undertaken international restructures or have significant cross-border arrangements”.

Australia’s cross-border trade is $600 billion – and the Tax Office said that more than half of it was transactions between related entities – that is, companies in the same corporate group.

The submission refers to this shifting of money offshore between related entities as “international related-party dealings” and said in 2012-13 the value totalled $388.4 billion.

It also said that the value of these related party dealings was “highly concentrated within the largest 30 corporate entities”, which account for about 50 per cent of the total.

Singapore is the top country of choice for marketing and finance hubs.

The figures shows that in 2012-13, more than $100.4 billion worth of related-party flows went to Singapore. This is up from almost $40 billion just a year earlier.

The next biggest country for related-party flows was the United States ($41.3 billion), Japan ($31.5 billion), Great Britain ($23.2 billion) and Switzerland ($15.6 billion). In all cases the amount of money going to hubs offshore has more than doubled from a year earlier.

The Tax Office submission said that “the large volume of related-party flows with Singapore and Switzerland do not correspond with trade flows as these countries are commonly used as financing hubs for Asia and Europe respectively”.

Australia recently revised a tax treaty with Switzerland – a nation which for years has been a place for wealthy Australians to hide millions in income and assets.

The Tax Office submission details the total amount of tax locally paid by foreign-owned companies. It said in 2012-14 there were almost 13,000 foreign-owned taxpayers that lodged income tax returns and reported total income of almost $760 billion, taxable income of $50.1 billion and income tax payable of $12 billion. This proves that most of them pay well below the 30 per cent corporate tax rate, often by shifting to entities in lower taxing nations or claiming losses.

It revealed that of the “higher consequence taxpayers” – that is those that it focuses most of its attention on each year – there are currently 24 foreign-owned taxpayers.

It also noted that public companies were not the only ones involved in profit shifting. “We continue to see privately owned corporate groups, often controlled by a wealthy individual or family, designing complex business structures, including discretionary trusts, to extract company profits without payment of appropriate tax. This includes shareholders and their associates accessing company profits for personal expenses or using business lifestyle assets for private purposes.”

The submission also states the Tax Office believes that 75 per cent of the tax paid by big corporates – $44.8 billion out of a total amount of $66.9 billion – is right. One former ATO staffer doubted there would be such high compliance.

Singapore has been popular with a number of BRW Rich Listers because it has much more generous tax rates than Australia. Australia’s corporate tax rate is 30 per cent, whereas Singapore’s corporate tax rate is capped at 17 per cent, and there is no capital gains tax. Singapore’s personal tax rate is also much lower than in Australia. It is capped at 20 per cent for residents earning above $S320,000 ($304,000). Non-residents are capped at 15 per cent.

Submissions from multinational companies to the inquiry have defended the lack of tax paid locally. As revealed by Fairfax Media on Wednesday, a number of companies including James Hardie Group, whose parent company is based in Ireland, and Toll have defended the use of hubs.

James Hardie said it would pay zero tax because “James Hardie’s Australian subsidiaries are at a tax loss”. It claims tax losses of about $US5.8 million ($6.3 million) “primarily resulting in income tax deductions for contributions to the Asbestos Injuries Compensation Fund” and that there would be “further tax losses for the foreseeable future”.

Toll said in it its submission Singapore and Hong Kong were “regional hubs for doing business” and were not associated with tax secrecy.

A number of companies are now trying to enter into deals with the Tax Office that virtually lock in the amount of tax they pay on future profits ahead of time. Known as Advance Pricing Agreements, the Tax Office said the use of these has increased by 12 per cent over the past three years. In addition, more companies are requesting private rulings on complex tax matters (up 30 per cent since 2011) and making voluntary disclosures (an increase from three in 2011 to 14 in 2014).