Treasury says crackdown has to be global
While Treasury acknowledged that data limitations made it difficult to quantify erosion of Australia's corporate tax base, it said failure of international tax rules to keep apace with changes to the global business environment posed "significant risk" to Australia's tax system if not addressed.
The admission comes despite a strong push by tax advocates for local policies that would force companies to publicly disclose how much tax they pay in Australia and around the world in an effort to deter cheats. In a scoping paper that took into consideration the views of a Treasury-appointed taskforce, the Treasury said Australia should endorse the OECD's plan on profit shifting and explore further options for working with tax authorities overseas for the exchange of greater information.
But while it committed to expanding the public release of tax statistics to include the international dealings of multinational enterprises, it said its ability to prevent companies shifting profits overseas was limited.
"There are some actions Australia can and has taken unilaterally; these are primarily focused on improvements than can be made without significant divergence from international tax settings," it said.
"But the key focus of Australia's efforts should be working multilaterally through international organisations to modernise international tax rules."
The Treasury's paper comes amid a global push by cash-strapped governments around the world to claw back tax dollars from multinational companies that use complex ownership structures to avoid paying tax.
Last year it was revealed Google's Australian arm paid just $74,000 in tax in 2011, despite an estimated $2 billion in revenue from Australian ads. This would mean a tax rate of .000037 per cent.
In May, Fairfax Media revealed that all but one of Australia's top 20 companies listed on the stock exchange had subsidiaries in low-tax or tax-free jurisdictions, including Hong Kong and Singapore. This included Australia's biggest company, the Commonwealth Bank.
A report released by the Uniting Church's justice and international mission unit found two-thirds of the top 100 listed companies held subsidiaries in "secrecy jurisdictions" that have been targeted by tax authorities for lax standards.
Last month, the government passed measures to allow the Australian Tax Office to publish the taxable income and tax paid of companies with revenue over $100 million.
But Mark Zirnsak, director of the justice unit and a member of the Treasury's taskforce, said the government could do more to improve transparency in the tax system.
"If Google was required by Australian law to disclose - on a country by country basis - what it reports, then you would find out where it had shifted profits.
"If a company is shifting money off to a tax haven somewhere, this doesn't do anything at all."
"If you know you are doing something that's dodgy, and it's exposed, then it's going to act as a deterrent."
Robert Jeremenko, a senior tax counsel at the Tax Institute, warned a "naming and shaming" approach would require the government to explain the corporate tax system to the public.
"A company doesn't always pay the top corporate tax rate on every cent it earns."
The paper said many of the risks posed by multinational profit shifting were being driven by "deeply entrenched features of Australia's corporate tax system and policy developments beyond Australia's borders and/or control."
In Moscow on the weekend finance ministers from G20 economies backed the OECD's 15-point plan to fix loopholes in the international tax system. It calls on governments to investigate how corporate tax systems are coping with the growth of a digital economy which has allowed technology companies that operate across multiple jurisdictions to take advantage of favourable tax environments.
Frequently Asked Questions about this Article…
The Treasury admitted it is virtually powerless to stop large multinationals on its own and says Australia needs to focus on an international crackdown led by the G20 and the OECD to modernise rules and reduce profit shifting.
Profit shifting is when multinational companies use complex ownership structures and low‑tax jurisdictions to report profits where tax is low, reducing tax paid in countries where they earn revenue. For investors this matters because it affects corporate tax transparency, public policy risk, and potentially the reputation and regulation facing companies in your portfolio.
G20 finance ministers backed the OECD’s 15‑point plan to fix international tax loopholes. The plan aims to modernise rules for a digital, cross‑border economy and encourage information exchange between tax authorities so countries like Australia can better address profit shifting.
Yes. The government passed measures allowing the Australian Taxation Office to publish taxable income and tax paid by companies with revenue over $100 million, and Treasury says it will expand public tax statistics to include the international dealings of multinational enterprises.
The article cited Google’s Australian arm paying just $74,000 in tax in 2011 despite an estimated $2 billion in Australian ad revenue, highlighting how some multinationals report extremely low effective tax rates locally.
Reports referenced in the article found that all but one of Australia’s top 20 ASX companies had subsidiaries in low‑tax or tax‑free jurisdictions like Hong Kong and Singapore, and a Uniting Church report found two‑thirds of the top 100 listed companies held subsidiaries in so‑called secrecy jurisdictions.
Tax experts are divided: advocates say mandatory country‑by‑country disclosure would expose where profits are shifted and act as a deterrent, while others warn ‘naming and shaming’ risks misinterpretation unless the government explains how the corporate tax system and legitimate tax outcomes work.
Expect gradual change: Australia is likely to push multilateral reforms via the OECD and G20 and expand public tax statistics, but Treasury says its unilateral power is limited. Investors should watch for increased information disclosure and international agreements rather than immediate tough domestic enforcement.
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