Following new reports about alleged multinational profit shifting out of Australia, I joined Richard Glover on ABC 702 Sydney to talk about what governments can do to tackle this global challenge. Here's the transcript:
ABC 702 SYDNEY
WEDNESDAY, 28 JANUARY 2015
SUBJECT/S: multinational profit shifting; opportunities in the sharing economy
RICHARD GLOVER: The iPhone maker Apple has seen sales surge over the three months to December. Revenue jumped almost 30 per cent in that period to USD$76.4 billion. It was much higher than analysts had forecast; they thought it might come in at a lazy $58 billion. Quarterly net profit came in at US$18 billion. Now, I guess the question in some Australians' minds might be: we all applaud success, but how much tax will they pay in a country like Australia on this record profit? For instance, Apple paid just $80 million in Australian tax last year, despite making more than $6 billion in local revenue, according to accounts with a corporate regulator. Andrew Leigh is the Shadow Assistant Treasurer and he joins us on the line – Andrew, good afternoon.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Good afternoon Richard.
GLOVER: You've been concerned about this for some time?
LEIGH: Absolutely. I think the issue of multinational tax is one of the central challenges of our age. In part, that's because the movement of profits around the world is becoming easier as a result of globalisation and technological change. If you think of the old-fashioned manufacturing firms that produced widgets, they had a permanent establishment in the place where their biggest factory was. But that's just not true if you're an intellectual property firm, as three of the five biggest companies in the world now are. It's increasingly easy for firms to move profits around. Labor has taken the view that we need a set of laws that keep pace and which maintain government revenue at a time when some firms are trying to do the wrong thing.
GLOVER: Do you accept that a set of laws is very hard to craft in this area? You mention intellectual property – Apple says that with the design of this particular part of the phone, the copyright for that is owned by its subsidiary in the Bahamas. I mean, I'm making this up but let's say they make that argument. But then they say that this particular design is so crucial to the new iPhone that an appropriate copyright payment is $2 billion to their sister firm. It's fairly hard to argue with that, isn't it, even if we all might sense that it's a lot of hooey?
LEIGH: You've hit the nail on the head there, Richard. If you take the old widget example, the processes of manufacturing involved buying and selling products that have a market price. But who knows what Facebook's database is worth? Who knows what Ikea's store layout – that famously hypnotic store layout – is worth? Or indeed, who knows what the intellectual property behind the iPhone is worth? But I don't think we need to throw our hands up in the air. When we were last in office, Labor put together a package under Wayne Swan and David Bradbury which added $4 billion to government coffers from taking sensible actions on multinational profit shifting. It's not business-bashing; this is actually creating a level playing field for businesses and making sure that businesses – small and large alike – are competing on the same set of rules.
GLOVER: Ok, but how do you do it? With my example, if Apple say: the way we do this is owned by our subsidiary in the Bahamas and it's worth $2 billion, what do you say to that?
LEIGH: You need to make sure that you're accurately pricing objects within a company's value chain. But you also need to make sure that you're cracking down on other ways of shifting profits offshore. So to take a couple of simple examples: when they came to office Tony Abbott and Joe Hockey gave $1.1 billion back to multinationals by re-opening loopholes that allowed debt-shifting and what I believe is the improper use of Offshore Banking Units. This stuff is complicated in the details, but it's simple in the concepts. You've got a government that's pretty strong with the weak, but pretty weak when it comes to taking on the strong.
GLOVER: Of course you would blame this particular government, in this particular country, in this particular time, but there's no Western country – whether a Labor government is in office or a Tory government is in office – that has managed to crack this, is there?
LEIGH: Well we certainly need to work together and that's why I think it's disappointing that on the Common Reporting Standard, for example – which is one way of addressing this profit shifting – there's a whole host of other countries moving quicker than we are. It's disappointing to me that when I stood up in Parliament last year and called for transparency with the tax affairs of companies turning over more than $100 million being published, the Coalition said they wouldn't support it. So every time they have an opportunity to get in front of a microphone, the Coalition says they're doing the right thing. But when you actually look at the bottom line, the only thing they've done is to give back revenue to the top end of town. It's bad at any time, but particularly bad in a period where we've had this huge rise in inequality, and in which the government is saying that the only approach to budgetary repair is to cut pensions, health and education spending and take one dollar in four out of foreign aid.
GLOVER: It's getting increasingly difficult for local governments though – that's governments in individual countries. For example there's Uber, which almost every day seems to be getting more fares in Sydney – whether you think this is good or terrible – but they bill you in American dollars on your credit card. There's no mention of GST or who's paying tax on that – it's actually billed in America.
LEIGH: I think the sharing economy presents a different set of challenges, Richard. I'm generally an optimist about the benefits of the sharing economy; I'm somebody who's used Uber and AirBNB and in fact, I only wish someone would set up DogVacay in Australia so that I can leave our dog over the weekend with a friendly pet-sitter rather than the pound!
GLOVER: You've used Uber? That is the worst news that a Sydney taxi driver has heard since the words 'Mark Latham'.
LEIGH: I've also taken my fair share of taxi trips, don't worry about that. I think these services offer great potential, but they've also got big challenges. You want to make sure that the regulatory regimes are right, so that customers have the security and the safety that they're assured with the existing services. You want to make sure that these services are gaining market share because they're offering a better service rather than because they're avoiding tax. That's just about making sure we've got a level playing field for the sharing economy.
GLOVER: Ok, but there's something pretty weird, isn't there, about a Sydney bloke getting a Sydney trip in a Sydney car, and the bill is paid in US dollars in LA or something?
LEIGH: These firms have unusual arrangements for doing some of those kinds of things, and I think the important thing for policymakers is to make sure that they're brought into the fold. That we have a conversation where we make sure that the priority of keeping customers safe is maintained, but we don't simply throw up our hands and say: well, we've got to ban AirBNB. Because then I think we'd miss out on some of the potential that we have – for example – to use some of the nine million spare bedrooms that I estimate are in existence in Australia at the moment. To reduce the traffic congestion that's choking our roads – the great irony is that we've got more cars than ever before but fewer people in every one than we've ever had. Put a couple of extra people in cars and congestion drops overnight. These new technologies have the potential to make that happen if we manage them right.
[Talkback with callers]
GLOVER: Can we lock these multinational companies out of the country in some way, Andrew Leigh?
LEIGH: I'm not sure about locking them out of the country, Richard. But I think that making sure the existing taxes apply on a level playing field is exactly what we want to do. Economists have traditionally been sceptical about turnover taxes because they discourage the high value-added industries that I think are part of Australia's future. But we need to have a government which is ensuring that the new economy pays its way. One of the things we've seen recently is more than 4,000 jobs lost from the tax office. It's pretty tough to be asking the tax office to do more with less. To have all of that talent walking out the door and yet deal with all of the challenges of tax administration that we're talking about today.
GLOVER: Good to talk to you, thanks Andrew.
LEIGH: Thank you, Richard.
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