Well done to The Canberra Times for its recent editorial on big business tax avoidance.
It is good to see some members of the ruling class understand the political ramifications likely to flow from the fact that 38 per cent of the public companies and foreign private companies in the Corporate Tax Transparency Report with turnover greater than $100 million paid no income tax.
The report will I think make it almost impossible politically for this government to sell its austerity program or its GST "reform" proposals. The mantra that Australia has a spending problem, not a revenue problem, looks hollow in the light of the low tax contribution from big business.
One benefit of the report may be to force companies to be more upfront about their tax affairs. This is certainly warranted for the 579 companies who paid no tax. Some will have an innocent explanation – they made a loss that year or carried forward previous year losses to wipe out any taxable income.
Qantas for example has said, in response to the release of information showing that despite in having gross revenue of $15 billion that it made a loss that year. True enough, but what we want to know is if that was a trading loss as a result of poor market circumstances or a result of playing the tax planning game – or a combination of both.
Even those companies which do pay tax in Australia might need to come forward with an explanation about their tax affairs. For example on the surface it looks good that Apple paid $74 million tax on taxable income of $247 million, a rate of about 29 per cent. However this is on sales of over $6 billion in Australia.
According to Neil Chenoweth in the Australian Financial Review, Apple shifted $8.9 billion in profit from Australia to Ireland over the decade to 2013. Apple here pays a lot of money to related companies in Ireland, a low-tax country, for intellectual property rights. Maybe Apple should tell us about those arrangements.
Google too, after a few years of reports suggesting it had in one year paid only $740,000 tax yet earned more than $2 billion in revenue for Australian sources, seems to have a better story to tell. Closer examination suggests we need more detail from the company.
Google paid $9 million tax in Australia on a taxable income of $90 million. What explains the discrepancy between the statutory company tax rate of 30 per cent and the tax rate of 10 per cent that Google paid in 2013-14?
Foreign tax offsets (tax credits), imputation offsets and research and development offsets might be part of the explanation. That however just raises a question as to whether such offsets (and special deductions and exemptions businesses may get) are good policy.
Google also appears to have "diverted" much of its Australian source income to Singapore. It is easy to do. When Australians contract with Google to put ads on the site, we contract with a Singapore entity. In general terms, under the tax treaty with Singapore, that country then has the taxing rights over that income because it isn't associated with the Australian entity.
There are legitimate legislated ways to reduce tax, including "extra" deductions, exemptions and offsets (credits). The low amount of tax big business pays suggests such legitimate ways which are only legitimate because of government legislation, should be under the spot light too.
Given 60 per cent of the energy and resource companies covered in the report pay no tax – and yes I know the collapse in resource prices and whether a mine is on-stream and exporting its products or not are important factors in this – surely the usefulness of an extra $1.5 billion in deductions, resulting in tax foregone in 2012-13 of $550 million, is open to question?
This Corporate Tax Transparency Report gives us some information but not enough to make informed decisions about who are and who are not the tax avoiders and the tax planners. The onus is now on the companies who pay little or no income tax in the report to explain how that has come about.
If big business wants to win back the trust of working class taxpayers who pay more tax than them, in some cases literally and in many cases as a percentage of their income, then it is time for those companies to explain how it is that their tax contribution is zero or small. After all if they have nothing to hide they should have nothing to fear from telling us their full tax story.
John Passant is a former assistant commissioner of taxation in the Australian Tax Office.