THE DISTILLERY: Bradbury's tech take-down

One scribe gives David Bradbury a lesson in tax minimisation, while another calms local fears about cheap US gas.

Assistant Treasurer David Bradbury has put the global tech firms that operate in Australia on notice that their strangely low tax bills are in the sights of the federal government. This comes on the back of draft legislation on tax avoidance and two Fairfax commentators are taking a look at it.

Also in this Friday’s shot from The Distillery, a senior business scribe finds evidence to suggest that concerns for cheap American gas finding its way into Asian markets, upending the economics of Australian LNG projects, are misguided. While another writer takes the banks to task on capitalisation.

But first, The Australian Financial Review’s Chanticleer columnist Tony Boyd suggests that Bradbury is confusing tax avoidance with minimisation.

"Are Google and Apple really using transfer pricing of goods and services at exorbitant rates to rip off Australian taxpayers? Are they involved in elaborate tax avoidance schemes? Or, are they doing what every Australian company does and playing by the rules that are in place in the countries where they are based?”

Fairfax’s Adele Ferguson says Australia is joining the United States, the United Kingdom and China as a country expressing concern about tax leakage from the big e-commerce firms and looking for a plug.

"This won't be easy, but it isn't impossible. Niv Tadmore, a tax partner at Clayton Utz, says if the government wants to broaden its tax net to include internet commerce it will need to look at the source rules. By this he means the rules that determine at what point the tax office can tax a non-resident. In this case a non-resident is one that has no physical presence in Australia. ‘Our source rules were developed in the first half of the 20th century. They were therefore designed to deal with traditional commerce and are very much focused on physical presence as a prerequisite for taxation,’ he said. For this reason it looks like it might be tricky to change the source rules because it would require the agreement of countries with which Australia has a tax treaty, which are our major trade partners.”

From The Distillery’s point of view, both these commentators are right. The global tech firms are playing by the rules of each individual country because global taxation laws are ill prepared for the modern tech multinational. Worldwide cooperation is required for meaningful action.

Meanwhile, The Australian Financial Review’s Matthew Stevens addresses the potential for the US shale gas boom to produce a significant export force that will change the dynamics for Asian buyers, on which Australia relies so heavily.

"This potential has driven some fairly reasonable speculation over the sustainability of the long-run demand and price projections that underpin both WA’s offshore gas boom and, more particularly, the $60 billion plunge on unconventional gas-to-LNG projects in Queensland. But that speculation is built on a range of misapprehensions about the drivers of the Asian LNG market that supports those aspirations. At least that is the view of Santos’s head of strategy and development, Peter Cleary. Speaking at Santos’s investor day yesterday, Cleary insisted that the inevitable drift of US gas into Asian markets would change the competitive framework for existing producers but would not critically alter market structures or the outlook for pricing. Cleary said existing contracts that underpinned local investments were, across the board, enforceable, long term and based on a pricing formula firmly linked to the oil price.

And The Australian’s economics correspondent Adam Creighton makes the point that Woolworths and BHP Billiton would have to see the value of their assets fall by at least 40 per cent before their liabilities would exceed their assets. For banks like, say, National Australia Bank, that figure is just 6 per cent.

"It is a little unfair to compare banks with ordinary firms – taking in deposits and lending them out is their core business. But the truth is Australia's banks, like the bulk of the West's financial system, are woefully and recklessly undercapitalised. A century ago and decades thereafter, before prudential regulation was even conceived and only market forces provided discipline, Australia's banks maintained capital ratios of between 15 per cent and 20 per cent, more than three times what they maintain today. With memories of the 1890s, when the Depression wiped out half of Australia's banks, banks prudently built up their capital ratio to near 20 per cent. In the Great Depression of 1929, not a single bank failed. A far smaller economic lull in 2008 paralysed the world's financial system.”

Speaking of banks, The Australian’s John Durie reports on the focus that Commonwealth Bank chief executive Ian Narev – who is about to welcome his third child – has on productivity through the prism of technology.

In other company news, The Australian Financial Review’s resources reporter Jamie Freed says the $US76 billion Glencore-Xstrata merger makes the $US37 billion Angle American look increasingly marginalised. The Australian’s Bryan Frith reports on the rush into Canadian listed shares of an Australian incorporated company Talison Minerals.

Elsewhere, The Australian’s Glenda Korporaal uses Telstra’s annual Businesswoman of the Year award from Wednesday as a springboard to talk about the importance of keeping talented women in the workforce.

And finally, Fairfax’s Asian affairs reporter Peter Cai offers some suggestions on how Australia might maintain a manufacturing industry in the Asian Century. The business writer also heavily underlines the importance of domestic manufacturing for a vibrant economy.