Government needs to act on tax avoidance - Transcript, ABC News Radio



SUBJECTS: Hundreds of companies paying no tax in Australia; the Coalition failing to crack down on multinational tax avoidance.

GLEN BARTHOLOMEW, HOST: The Australian Taxation Office’s latest corporate tax transparency data shows about a third of companies didn't pay any tax. More than 2300 corporate entities are included in the report looking at the 2018-19 financial year, which finds hundreds of companies reduced their tax bills to zero during that period. So why is that okay? Andrew Leigh is a former professor of economics who is now the Deputy Chair of the House of Representatives Standing Committee on Economics. Good morning.


BARTHOLOMEW: Explain to people how it can be that about a third of companies did not pay any tax.

LEIGH: In some cases it’s because they're doing significant investments. But in other cases, it looks as though there may be questions about their adherence to the laws. There's 80 companies that paid no tax six years in a row, and that's got to raise an eyebrow or two. We know that globally there's around 40 per cent of multinational profits that are shifted to tax havens like the Cayman Islands, and that's a number that's been rising in recent years. Around $600 billion of profits are being funnelled off to low tax or no tax jurisdictions. And it gets easier, Glen, when firms are engaged in weightless production - where it's not immediately obvious where the value is being produced - and firms have been using some sharp accounting tricks in order to exploit some of those loopholes. Unfortunately, while other countries have stepped up to try and close those loopholes, Australia’s been a bit of a laggard when it comes to acting on multinational tax avoidance.

BARTHOLOMEW: Alright, so we've got them channelling income into lower tax jurisdictions - Singapore, Cayman Islands, places like that - but also using mispricing loans. So one part of the company gives a loan to another and gee, the pay back, the interest and everything is so high that they don't funnily enough end up making a profit here at home, but the broader company wins. The ATO did say some entities belong to a larger group, or at least one corporate in the group did pay tax.

LEIGH: Yes, there’s certainly reasonable reasons why some firms are on this list. But in other cases, we know there's real problems going on. Now the fact is that the government's had a soft touch on tax havens. We know tax havens are a hidey hole for drug runners, for counterfeiters, for terrorist financing. So the government really ought to be treating tax havens as persona non grata. They ought to be cracking down on people claiming expenses to fly there. They ought to be cracking down on firms which are using tax havens, and individuals who think that they can hide their wealth from the tax office by locating it in tax havens.

BARTHOLOMEW: As you say, the ATO says 80 companies paid zero tax for six years in a row. And while some of them had legitimate reasons for doing so, others did not. Who are they and what happens to them?

LEIGH: I don’t have the details on all of the tax arrangements here, but we certainly know that overall Australia hasn't been good on cracking down on tax evasion-

BARTHOLOMEW: All I've seen is that all industry sectors are represented in that 80 that managed to get away with it, so to speak, for six years and oil and gas apparently having a pretty high number of entries.

LEIGH: That's right, and Labor changed the laws in order to crack down on Chevron using a particular tax avoidance loophole. The coalition voted against that in 2012. In 2017, it was used to secure a $340 million judgement against Chevron. So we've been ahead of the game on this and we'll continue to lead the multinational tax debate, but also to try and ensure that we've got more fairness in our tax laws-

BARTHOLOMEW: So to one end, the tax office has confirmed it did invoke this diverted profits tax law for the first time to fight such multinational tax avoidance. This is that so-called Google tax that was introduced by Joe Hockey, I think back in 2014. Explain how that works.

LEIGH: It’s had some effect. It allows a 40 per cent tax rate to be levied where a contrived arrangement has been entered into, but it's probably not the bulk of the tax that's been claimed back from multinational firms. Look, the tax office’s doing what it can, but it’s had its resources cut since the coalition came to office and it hasn't been able to muscle up to the large firms.

BARTHOLOMEW: There is also this multinational anti avoidance law, which has apparently seen a number of companies including Google and Facebook restructure their tax bills. Are they paying anywhere near what they should?

LEIGH: Their tax rates compared to the revenues look surprisingly low. The tech firms claim that that's because what they do in Australia is mere marketing and therefore that's not a very high value activity. Ironically, when the miners claim that they've moved profits offshore, they say it’s because they've moved marketing activities offshore and marketing is a very valuable activity. So there's different stories coming from different sectors, and the end result is we're not getting enough tax coming in. The coalition’s been campaigning to cut the corporate tax rate. Labor believes multinationals should pay more. We also believe that arrangements such as patent boxes would just lead to further tax avoidance. We need to be very careful in this and we need to be leading the international debate. Countries need to work together. The OECD and the G20 have a big project on this, but Australia - which used to be on the steering committee - has stepped to the backseat now. We could be playing a leadership role on this with the transition from Trump to Biden. It's a critical time to be asking countries around the world to work together to crack down on multinational tax avoidance.

BARTHOLOMEW: The tax office said to be continuing to work with, shall we say, those who haven't supplied legitimate reasons for paying zero tax. Let's wish them well. Andrew Leigh, thanks for your time today.

LEIGH: Always a pleasure, Glen.

BARTHOLOMEW: Deputy Chair of the House of Representatives Standing Committee on Economics, former professor of economics, Andrew Leigh.


Authorised by Paul Erickson, ALP, Canberra.

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.