Andrew Leigh

Halting the havens

The Canberra Times, 14 December 2017

We often say that the apple doesn’t fall far from the tree. But for some multinational firms, their tax affairs often do.

In May 2013, Apple’s chief executive Tim Cook was being grilled by US Senators about the nature and structure of his company’s tax affairs.

Those Senators were scrutinising a complex corporate structure, and how Apple had come to amass over $100 billion of largely untaxed profits offshore. Mr Cook’s retort to the subcommittee was ‘We don’t depend on tax gimmicks… We don’t stash money on some Caribbean island’.

As the New York Times reported after the release of the Paradise Papers: ‘True enough. The island Apple would soon rely on was in the English Channel’.

Jersey, to be precise.

Like millions of Australians, my life is better as a result of using Apple products. But I want the company to succeed based on product innovation, not tax innovation.

The shenanigans uncovered by tax leaks are not always illegal. But what is legal is not always moral or economically sound. Public health and education services are threatened by the erosion of the tax base by tricky tax tactics. Aggressive tax planning can erode public confidence in the tax system itself. After all, one reason most of us pay the taxes we owe is that we believe we live in a society where our fellow citizens do the same. Bad apples can spoil the whole barrel.

Multinational taxation is a particular issue in industries that are highly capital-intensive, such as technology and resources. If the profits mostly go offshore and the employment impact is limited, then tax becomes one of the main ways that the community can directly benefit. While competition between countries is usually healthy, the race to the bottom in company tax rates can be distinctly unhealthy – particularly when firms use accounting tricks to shift profits to the lowest-tax country.

Let’s put it plainly: there are a lot of crooks in tax havens. Gabriel Zucman, an economist at University of California, Berkley, estimates that around four-fifths of money in offshore bank accounts is there in breach of other countries’ tax laws. Tax havens are used by drug-runners, extortionists and money-launderers. They are used to hide the proceeds of fraud, corruption and tax evasion.

A recent study found that offshore wealth held by Australians was approximately 6 per cent of GDP. In today’s prices, that would mean over $100 billion in assets held offshore by wealthy Australians.

And we know that these people are not just wealthy – they are super-wealthy.

Matching data from high profile leaks to what we already know about taxation statistics, researchers found that half the money in tax havens is owned by the top 1/10,000th of the population. This makes sense, given that offshore private banks typically require customers to have a minimum amount of financial assets to invest. You won’t pass the million-dollar investment threshold if you’re not a multi-millionaire.

It goes without saying that for Australia to be a leader in tackling multinational tax avoidance, our investigators need to be properly resourced. Alas, the Coalition has slashed thousands of staff from the tax office since 2014.

On multinational tax and tax havens, Labor has been leading the policy debate.

The Gillard Government delivered the transfer pricing laws that were fundamental in the Australian Tax Office’s recent transfer pricing victory in court, and the lion’s share of the $4 billion in liabilities raised by the tax office against multinationals – laws the Coalition voted against.

That, of course, didn’t prevent the Government from trying to take credit for those victories, rolling out an $8 million ‘information campaign’.

With net national debt now exceeding $330 billion, the general population might reasonably ask why the Turnbull Government is borrowing millions of dollars to spend on partisan taxpayer funded ads.

While the government is focused on its ad campaigns, Labor is working hard on policy development.

In March 2015 – less than halfway through our first term in Opposition – Bill Shorten, Chris Bowen and I announced a policy suite on multinational tax that closed debt deduction loopholes and would deliver billions to the budget bottom line.

The government has dismissed it. Indeed, they sometimes boast to the big end of town about how they won’t touch these loopholes.

In May of this year, Labor announced one of the world’s most comprehensive Tax Haven Transparency packages, including:

• making companies state to shareholders if they do business in a tax haven;
• creating a registry showing who really owns Australian companies and trusts;
• publicising in which countries big companies pay tax;
• introducing whistleblower protection and rewards;
• making companies disclose their country of tax domicile when tendering for government contracts; and
• developing guidelines for tax haven investment by superannuation funds

Firms operating in Australia through tax havens are on notice that a Shorten Labor Government will open the shutters and let the sunlight in.

Many firms, who are already doing the right thing, will welcome greater transparency. Those who are doing things their customers wouldn’t support might need to rethink their approach.

Labor’s vision is of an Australia that is more open, more equal and more engaged with the world. We want to raise living standards for everyone – not just the fortunate few.

This is an edited extract of a speech delivered to the Australian Petroleum Production & Exploration Association’s Biennial Taxation & Commercial Conference.

Andrew Leigh is the Shadow Minister for Charities and Not-for-Profits. This Opinion Piece was first published in The Canberra Times on Thursday, 14 December 2017.