As we hurtle towards yet another Federal Election, and as news from the investigation into the leaked Panama Papers have emerged, concerns around tax avoidance are gaining more and more momentum.
We often hear moans and groans about the amount of tax we’re paying, and in an ideal world that tax should be going towards making this county great. While most of us recognise that paying tax is necessary to keep things like our schools, hospitals and roads efficient, some of us are pretty good at dodging those responsibilities. But did you know that some of the most profitable corporations doing business in Australia pay little to no tax?
Dr Mark Zirnsak is the director of Justice and International Mission at the Uniting Church in Victoria and Tasmania, and is a member of the secretariat of the Tax Justice Network in Australia. He believes taxation fairness in Australia needs to be improved.
“Tax is essential to have a decent society,” Mark said. “It allows governments to provide the things that we all want and need; everything from paying for our schools, our hospitals, mental health services, ambulances, roads, courts and law enforcement agencies.
“There are problems currently with our laws. One area is large multinational companies getting away with not paying tax here, but it also impacts on other countries as well, and it impacts hardest on developing countries”.
In the recent report titled ‘Closing the Caribbean Connection’, released by Get Up! and the Tax Justice Network Australia, it was noted that many Australians are paying a higher rate of tax than multinational corporations. The report also highlights two main types of tax avoidance that are commonly used in Australia: debt loading and profit alienation.
Debt loading is where a company loans money to itself from its own overseas company and then claims the interest paid to itself as a tax reduction. An example of this, according to the report, was Chevron, a multinational energy corporation, who in the 2013-14 financial year paid no Australian tax, by loading itself up with debt. A court demanded that Chevron pay $269 million last year for unpaid taxes, but they are appealing the decision.
Mark said that while under current Australian law there is a limit to how a company can be loaded up with debt, it shouldn’t be permitted for a tax reduction claim at all when the debt is an artificial construct.
Profit alienation is where profits made in Australia by multinational companies are used to pay their foreign ‘parent’ company for the use of its intellectual property. The report reveals that Apple Inc paid just 1.2% Australian tax on its revenue in the 2013-14 financial year by using this method.
“What happens is, there are governments around the world that deliberately structure their laws to benefit people who are tax avoiders,” Mark said. “And they will also cut special deals. The company has a completely paper, or artificial, presence in the country in question, and simply passes profits through. And the country that’s assisting in the tax avoidance basically takes a clip of the ticket on the way through.”
Mark believes that one way to tackle this problem is to have more transparency between multinational corporations in Australia and the Australian Tax Office.
“Key things for us would be around transparency,” Mark said. “So, being able to know where companies are actually making their revenue; where they’re doing their business, where they’re making their profits – or where they say they’re making their profits – and where they’re paying their tax.
“Currently under Australian law, companies aren’t required to disclose all their subsidiaries. So, if they have a whole lot of companies located out in the Cayman Islands or the British Virgin Islands, they don’t have to disclose those unless they think they’re material to their operation.”
More protection for whistleblowers could also help. Eight hundred Australians are currently under investigation as a result of the Panama Papers, leaked by an anonymous source who exposed 11.5 million documents detailing information on offshore entities, or ‘shell companies’. While the companies themselves are legal, they could be used for illegal activity, including tax avoidance.
“We don’t have legislation currently to protect or reward whistleblowers in the private sector,” Mark said. “We’ve seen both with the Panama Papers, and there’s been other major leaks exposing tax avoidance/tax evasion issues, and that’s largely been through whistleblowers.”
He continued, explaining that in the United States of America, they have a whistleblower reward system, which since 2008 has resulted in recovering $3 billion from tax evasion. As the Chief Executive Officer (CEO) of a big community service provider who is largely government funded, Sue Ash, from UnitingCare West, says her concerns around a fair tax system is about distribution, as well as collection.
“In terms of tax reform, the two issues for us, is how much is collected and how is it distributed,” she said. “The how much is collected is an absolute fairness issue. And at this stage, all the tax reform literature says that government needs to review that.
“How they spend the tax is also about the values of community. So, are we prepared to continue cutting money out of things like Newstart allowance or disability support pensions, but still expend money on all sorts of other things?
“Our concern would be the consequences for the most vulnerable and we’re part of the advocacy through UnitingCare Australia to try and get a fair go around those things.”
Bringing some good news, Mark said that there have been recent improvements in the area of curbing tax dodging, but there are still some changes that could be made.
“The government has announced a package of measures to crack down on tax avoidance,” he said. “So that’s been a significant step forward.
“In the last few years, the Federal Government has made significant changes which have tried to close off some of these loop holes, and have certainly improved the ability of our tax office to crackdown on tax evasion and tax avoidance, but the job is not done and there is still more to do.
“I don’t think this issue is going to go away. I think all political parties are going to be talking about this issue in the lead-up to the election.”
In the lead-up to the Federal Election, which will be held on Saturday 2 July, the Uniting Church in Australia has released resources on a range of issues, including taxation reform and corporate tax dodging. To download the resources visit http://unitingjustice.org.au/election2016.
For more information on building a fairer tax system, contact the Social Justice Unit of the Uniting Church WA on 9260 9800 or email Geoff at firstname.lastname@example.org.
You can also find more information on the Tax Justice Network Australia website at http://www.taxjustice.org.au/.
For regular updates on the investigations into the leaked Panama Papers visit https://panamapapers.icij.org/.