IT'S HIGH TIME TO MAKE THE BIG MULTINATIONALS PAY THEIR FAIR SHARE OF TAXES
Daily Telegraph, 16 June 2021
Ever wondered why your Netflix statement bills to a company in the Netherlands, why people who place Facebook ads are charged by a company in Ireland, and why the tiny island of the Bahamas is the sixth-largest foreign owner of Australian farmland?
In the era when most multinationals produced manufactured goods, taxation was straightforward: the profits were taxed in the country where the goods were produced, and where the firm was headquartered. But these days, firms have become adept at shifting profits into low-tax jurisdictions. Two fifths of multinational profits now pass through tax havens and so-called “investment hubs”. Over half the corporate profits recorded in Ireland are shifted from other countries. In recent years, frustration with the slow pace of debates over multinational tax reform has led more than 40 nations to enact or announce new digital sales taxes on technology firms such as Facebook and Google.
That’s why the weekend’s announcement from the G7 is a potential gamechanger. A global minimum company tax recognises that a race to the bottom in corporate tax is ultimately self-defeating. When multinational profits are untaxed, it simply means that the revenue gap has to be made up by pay-as-you-go taxpayers and small businesses.
The question for the Morrison Government is whether it will be part of the problem, or part of the solution. As Treasurer, Scott Morrison campaigned hard for Australia to cut its company tax rate. In an era when both Britain and the United States are moving to raise their company tax rates, that tax cut fetish looks sadly anachronistic. Through the OECD and G20’s “Base Erosion and Profit Shifting” project, there’s significant work being done to set a global floor on corporate tax rates. Australia has a strong interest in ensuring that floor isn’t too far below our company tax rate - but I’ve seen no evidence that the Morrison Government is actively engaged in these global debates.
Cracking down on tax havens isn’t just economically right, it’s morally correct. Because of their secrecy laws, tax havens are used by terrorists, drug lords, extortionists and money launderers. North Korea used tax havens to hide the proceeds of its sale of nuclear technology. Narcotics kingpin Rafael Caro Quintero hid his profits in a tax haven. Al Qaeda used tax havens to avoid detection.
According to one study, around four-fifths of the money in tax havens is there in breach of other countries’ tax laws. In the case of Australia, offshore wealth in tax havens has been estimated to exceed $100 billion. No wonder that data breaches such as the “Panama Papers” quickly led the Australian Taxation Office to start investigations into why some wealthy Australians using tax havens had deliberately concealed their activities.
What should Australia do? With gross debt heading towards a trillion dollars, there’s no better time for us to be actively engaged in the debate over global tax fairness. Australia’s egalitarian traditions make this a natural issue for us to champion. Playing a leadership role on an issue of global public concern would be especially appropriate in an era when Australia is widely criticised for dragging our heels on efforts to combat climate change. And if we want to fix the budget, making multinationals pay sure beats kicking people with disabilities off the NDIS.
In its original meaning, a haven is a place of safety and tranquillity, but there’s nothing idyllic about the tax dodging that goes on in the world’s tax havens. It’s time the Morrison Government played a more active role in shutting them down, and restoring the multinational tax revenue that is rightfully ours.
An abridged version of this opinion piece was first published in The Daily Telegraph on Wednesday, 16 June 2021.
Authorised by Paul Erickson, ALP, Canberra.