Glencore's Collinsville mine in Queensland.
Australia’s largest coalminer, Glencore, was last month rocked by a report by Michael West, business columnist for Fairfax Media, saying it had paid almost zero tax during the past three years on its income of $15 billion.
Rejecting the report, company spokesman Francis De Rosa said Glencore complied with all tax rules and regulations in Australia and every jurisdiction in which it operated.
For the record, he added that Glencore had paid more than $8 billion in royalties and taxes in this country during the past seven years.
But just where in the accounts can we find the report of these payments? A Google search doesn’t throw them up. Asked for copies, Mr De Rosa told me the group had 200 entities and, in particular, he referred to one called AZSA, which I profess I had never heard of.
It turns out that AZSA Holdings Pty Ltd is Glencore Coal’s NSW parent and its accounts are lodged with the Australian Securities and Investments Commission.
Mr De Rosa said the company had paid $400 million in corporate income tax in the past three years – 2011, 2012 and 2013.
He took issue with West’s major charge that Glencore was radically reducing its tax exposure by taking large, unnecessarily expensive loans from its associates overseas. West had alleged that the company paid up to 9 per cent interest rates on $3.4 billion in loans, a rate double what it would have paid had it simply borrowed the money from the bank.
Mr De Rosa said the loans dated back to 2007-08, when the RBA base rate was 6.75 per cent. The 9 per cent rates were competitive at that time as the borrowing company had significant levels of debt, its risk or credit rating was not great, and the commodity industry was perceived to be risky.
Members of the public wishing to independently verify this might find answers in the ASIC-lodged accounts, if they have access to them. But, then again, they might pay their money and still be little the wiser.
The issue of transparency is not just one for Glencore. The tax paid by multinational corporations is of concern around the world and ranks high on the agenda of the G20 meeting to take place in Brisbane in November.
The Brisbane agenda calls for co-operation to protect the integrity of national tax systems and asks members to focus on promoting tax transparency and the global sharing of information so taxpayers with offshore investments comply with their domestic tax obligations.
In line with this, in February, G20 ministers endorsed a new standard for the automatic exchange of information between tax authorities. But we need more than tax authorities exchanging information, essential as this is.
The public can only have confidence in the system if citizens can see that it is fair. For this, companies’ financial affairs – and, for that matter, those of private citizens – must be open to scrutiny. There is no reason why anyone complying with the law should be ashamed to reveal what they are doing. And in this day and age, thanks to the internet, the means to do so is available.
The benefits for most of us are obvious. As Transparency International has pointed out, opacity can hide corrupt and criminal acts, including asset flight, bribery, and money laundering.
But openness is not in the interests of all.
Companies operating across borders make choices about where they pay tax, and how much they pay.
Prime Minister Tony Abbott sought to resolve the matter by suggesting recently that global tax rules should seek to ensure that businesses pay tax in the countries where they earn revenue.
But this is not as simple as it sounds, particularly in a world where the trade in intangibles is growing daily, and where brand names such as Apple, Coca-Cola, Google, McDonald’s or Microsoft generate revenue.
It is no coincidence that some of these companies are among those most criticised for tax avoidance.
Business people often complain about being taxed twice – both on their company profits and their income. But the interaction of different international tax rules has led to ''double non-taxation'', or less than appropriate single taxation.
The executive director of Treasury’s Revenue Group, Rob Heferen, told the Economic and Social Outlook Conference in Melbourne this month that base erosion and profit shifting was squarely on the G20’s agenda.
But the global community faces a real challenge in getting anything done because ending the practices is not in the interests of powerful players in key countries, such as the US and Britain.
If we wanted real evidence of Tony Abbott’s influence and Australia’s special relationship with the US, nothing would do more to demonstrate it than Abbott getting American leaders to properly apply their Controlled Foreign Corporation (CFC) rules, which are supposed to limit artificial tax avoidance.
Don’t hold your breath. It won’t happen. There are too many powerful interests in the US benefiting from the slack application.
And the same is true for Britain, where the City of London dictates government policy on reform. (It is no accident that 10 European Union countries are pressing ahead with plans for a financial transactions tax while Britain holds out against it.)
It should be noted that Australia has a comprehensive CFC regime, with tough transfer pricing rules and extensive general anti-avoidance rules. If Glencore, for example, sought to minimise tax by borrowing from its parent at a higher than appropriate interest rate, the rules give the Tax Office the power to act.
The Labor government sought to ensure this in its last budget, promising to strengthen the thin capitalisation rules to prevent multinationals shifting profits out of Australia. Happily, the Coalition has committed itself to the reform.
But without global support – and in particular action in the US, where huge benefits accrue – the impact of the Australian action will be limited.