There was a chorus of tut-tutting, and some admonishment too, when the Tax Office published the tax details of 1500 of Australia's largest corporate taxpayers this week. Among other things, the list showed nearly one in four companies paid no tax last financial year, a significant revenue shortfall to the Commonwealth which prompted the aside from Tax Commissioner Chris Jordan that "Tax should matter to these companies [that pay no tax]. It's not something to be taken lightly". The cynics would argue that in fact tax matters a great deal to large companies, and that the long conga line of non-payers indicates no effort spared in in minimising their obligations.
Kerry Packer famously lectured a Senate inquiry in 1991 that "if anybody in this country doesn't minimise their tax they want their heads read because as a government I can tell you you're not spending it that well that we should be donating extra". He also declared that he paid whatever tax was required under the law, "not a penny less, not a penny more". Then, as now, companies appearing before parliamentary inquiries claim strict adherence to the letter of the tax law. It's standard operating procedure. Unsurprisingly, then, many of the corporations outed this week trotted out that line, while at the same time cautioning against reading too much into the list, or labelling some companies as tax evaders.
The reasons certain companies, and not others, pay little or no tax vary: they could have recorded a loss in a previous year; they may have earned tax credits as a result of R&D investments or through earning profits offshore on which tax had already paid; their taxable profit might have been reduced by asset depreciation; or they could have diverted profits to no or low-tax jurisdictions using a series of complex and arcane transfer pricing arrangements. Miners – among the more noticeable of the non-payers – may have taken advantage of deductions related to exploration and capital expenditure.
Such deductions exist because there's a universal recognition that corporations seeking to expand or enter new fields do so at some risk to themselves (and to shareholders), and that allowing them timely tax breaks will ensure they later become regular and reliable contributors to the exchequer. But just as some individuals choose to sail close to the wind in their dealings with the tax man, some companies regard as discretional, if not optional, their moral obligation to pay a fair share of their profits in taxation.
It's not illegal to adopt a Packer-like approach to tax. But when certain multinationals set out to aggressively minimise their tax bills (with the help of accountants, lawyers and transfer-pricing wheezes) the resultant shortfalls in tax revenue can become glaring – as this week's name and shame list illustrates. Such corporate cynicism is also highly corrosive of the notion, much advanced by the Tax Office, that Australians as a community all benefit when we pay our fair share of tax.
This week's airing of corporate tax details was enabled by disclosure laws first proposed by Labor but passed only recently by the Senate. And if the primary intent was greater transparency, the laws will also focus attention on the Tax Office's ability to ensure compliance with corporate tax laws. Despite claims by Assistant Treasurer Kelly O'Dwyer that it has "all the powers it needs" to keep track of company "structures and arrangements", the Tax Office's budget has been cut significantly in recent years, with attendant loss of expertise and manpower. Indeed, it's currently flirting with the idea of allowing the big four accounting firms (which do significant business as corporate tax consultants) to audit company tax returns – a development which tends to belie Ms O'Dwyer's claims the office is adequately resourced.
The other, perhaps unintended, consequence of this week's disclosure is the revelation that every one of Australia's top 20 companies is currently paying less than the official 30 per cent tax rate; and far less in some cases. Peak business bodies have been tireless in their advocacy of a drop in the corporate tax rate, ostensibly so that Australia can remain "international competitive". Whether self-serving or not, that campaign will be far harder to maintain now.
Profit is not a dirty word, but neither is tax. And companies have a moral obligations to pay a fair share of their profits in tax in the jurisdiction in which those profits were made. If this week's exercise results in nothing more than a conversation on corporate social responsibility, then it will have been worthwhile.