Dodging Taxation: The Truth of How Top Australian Firms are Paying Less Tax
Tax avoidance is being documented across the world, with Australia no exception. The government is now looking at how to clamp down on the billions of dollars being lost as top Australian firms are succeeding in dodging taxation.
Last year saw the release of multiple reports highlighting the worrying number of multinational firms using extreme measures to avoid tax. In Australia alone, it was held that one third of the country’s top firms were paying less than 10 per cent tax. This is an astounding sum, considering the tax figures being paid by the general public along and smaller companies around the country.
The report from the Tax Justice Network and United Voice –Who Pays For Our Common Wealth? – suggests that between 2004 and 2013 the country has lost out on up to $80 billion in unpaid tax. It says that this is because 84 per cent of the top 200 stockmarket-listed companies in Australia pay less than the 30 per cent company tax rate.
Industrial building materials firm James Hardie was found to pay an effective rate of 0 per cent tax, while Sydney Airport contributed two per cent and Star Casino in Sydney owner Echo Entertainment paid a mere five per cent.
This report further added to the list of multinational firms found to be using intricate offshore schemes to keep their tax bills down, as discovered by the International Consortium of Investigative Journalists (ICIJ). The Australian Financial Review (AFR) concluded upon analysing the mass leak from the ICIJ that dozens of Australian firms were partaking in the complex legal structures that helped them avoid taxation.
On the list was household name Ikea. Between 2002 and 2013 the firm turned over $4.76 billion from their stores in Australia. However, due to a payment totalling $2.67 billion in supply fees to an independent Ikea entity and $904 million to Ikea companies in Luxembourg and the Netherlands, they announced a pre-tax profit of $103 million. This meant that their tax bill over that period came to just $31 million, while their sales went up by 500 per cent.
One of the ways in which companies seek to avoid tax is via artificial debt loading. This is a legitimate measure used by firms to cut tax, and involves the borrowing from an offshore subsidiary, usually at an inflated rate, then using interest repayments as a tax offset. However, since the most recent reports, the Federal Parliament has moved to tighten rules surrounding this scheme.
This is just one of the many legal methods firms are using to cut their tax bill. However the Australian government, in conjunction with the G20, is seeking to clamp down on tax avoidance and prevent companies from profit shifting between countries. Australia has launched its own Senate inquiry into how to close up tax loopholes and ensure that firms are paying their fair share of tax, like the rest of the country’s citizens.
