Andrew Leigh

CRACKING DOWN ON MULTINATIONAL TAX DODGING

The Australian, 14 December 2021

Appearing before a US Senate Committee in 2013, Apple CEO Tim Cook flatly denied that his company was engaged in tax shenanigans. “We don’t depend on tax gimmicks,” he told the committee. “We don’t stash money on some Caribbean island.”

Months later, the Committee handed down its findings. It concluded that Apple had managed to create subsidiaries that were – for tax purposes – stateless. Like Tom Hanks in The Terminal, they were in a legal limbo. But rather than sleeping on hard plastic seats, Apple’s stateless subsidiaries didn’t have to file tax returns. As US Senator Carl Levin noted “Apple successfully sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere.”

For multinationals and billionaires, avoiding tax has become a sport. In October 2021, the  International Consortium of Investigative Journalists reported on the Pandora Papers, a trove of leaked documents that revealed more than 100 billionaires who had been using secret offshore accounts. Like the Panama Papers, Paradise Papers and LuxLeaks, they showed that the use of tax havens is the province of the ultra-wealthy. One study which matched data from high-profile leaks to tax statistics estimated that half the money in tax havens was held by the top 1/10,000th of the population.

Tax havens aren’t just a tax dodge – they’re dodgy in other ways too. Tax havens are favoured by drug runners and extortionists, terrorists and money launderers. Firms that use tax havens are rubbing shoulders with some pretty unsavoury characters. Yet there’s plenty of firms that seem content to play this game. According to one estimate, one-tenth of global GDP – around $12 trillion – is currently stashed in tax havens.

When multinationals exploit tax lurks, ordinary taxpayers end up footing the bill. A firefighter can’t ask to be paid using a shell company in Bermuda. The local café can’t route its coffee orders through the Cayman Islands. Across Australia, employees and firms are working hard and paying their fair share of tax. Most people don’t begrudge others for their success, but they do expect that they’ll be competing on a level playing field. How can a small Australian technology start-up take on the global giants if it has to pay a higher rate of tax than they do?

Over recent years, there has been increased global attention on multinational tax dodging. Some multinationals have wised up to the fact that they risk substantial brand damage if they continue to engage in tax bludging. Meanwhile, the OECD and G20 have brought together more than 100 nations to reach a global agreement on improving the global taxation system. Yet just like the international meetings on climate change, Australia has been mostly missing in action. Energetic global engagement is in our national interest, yet Australia has behaved like a plodder at the back of the pack, not a leader of global action.

We can do better. Tax havens have become modern-day smuggler’s caves – places where some of the world’s shadiest characters store their loot. Recent leaks from the firms that manage money in tax havens have exposed dozens of dictators and their associates. Even if there were no revenue benefits, it would be in Australia’s national interest to work with other countries to close down tax havens. ‘Follow the money’ is a tried and true strategy to put the squeeze on illicit activity.

You don’t have to look far to find the fingerprints of tax havens. Cast your eye over the latest register of the foreign ownership of agricultural land, and you’ll initially see a list of countries that are pretty unsurprising. The biggest five owners of farmland are Britain, the United States, the Netherlands, Canada and China. But in sixth place comes the Bahamas. Wait, what? An island with a few hundred thousand people, and income levels about half of Australia’s, is our sixth largest foreign owner. It doesn’t make much sense until you realise that the Bahamas has no company tax, no income tax, and appears on most people’s lists of tax havens.

Curtailing tax havens and multinational tax dodging isn’t easy work. It requires careful analysis of the loopholes, engagement with other countries, and a willingness to stand up to vested interests. It takes a government that is willing to get tough with the powerful. Stopping multinational tax dodging is a whole lot harder than, say, running a RoboDebt scheme to illegally demand money from poor people, or cutting the support packages of people with disabilities.

But the consequences of ignoring multinational tax avoidance are clear. Someone has to pay for schools and hospitals, national security and transport networks. When powerful interests squib their turn, everyone else ends up paying more. Like Robin Hood in reverse, multinational tax dodging hurts those who can least afford it. In a choice between multinational tax avoiders and regular Australians, it comes down to a simple question: whose side are you on?

Andrew Leigh is the Shadow Assistant Minister for Treasury.

ENDS

Authorised by Paul Erickson, ALP, Canberra.