World's big companies must be made to pay fair share of tax
The scale of this problem was brought into stark relief last week when Apple, one of the world's most profitable companies, gave evidence to a US Senate hearing that one of its key holding companies had paid no tax, in any country, even though it had reported more than $30 billion in net income over a four-year period.
This profit shifting and stateless income represents one of the biggest challenges of the modern age. In the industrial age, where economic activity was centred on the production of physical commodities, profits were taxed in the country where they were earned.
As we move into the digital age, commerce is regularly transacted across national borders, not simply through transactions on financial markets but through consumers engaging in trade from all corners of the globe using the devices they hold in the palms of their hands. These changes have brought many significant benefits for consumers and businesses, improving opportunities for trade, investment and consumption on an unprecedented scale.
Today, a growing proportion of economic activity is being driven by the assets of the digital age: intellectual property, brands and rights. These intangible assets allow companies to shuffle their income into countries that apply little or no tax and can even give rise to income that is stateless and not subject to tax anywhere.
Intangible assets are not the only way multinationals can shift profits and avoid tax. There is the notion of tax-law shopping, where companies take advantage of the mismatches between the laws in different countries.
There are also the money shuffles where multinationals load up their profitable operations in countries such as Australia with deductible debt and shift
taxable profits into countries where they pay little or no tax.
As governments around the world rebuild their economies after the global financial crisis, one of the most significant challenges is the protection of our revenue base against erosion by the aggressive tax planning of large multinational companies.
We must do what we can domestically, which is why the Gillard government has announced a range of tax amendments. However, Australia can't combat this problem alone and international co-operation is vital. Australia has helped to put this issue on the G20 agenda and will keep pushing for global action.
The consequence of not acting is that the tax burden is shifted onto those who do not have the capacity or desire to exploit tax loopholes. This provides an unfair advantage to those businesses that engage in these practices.
Families, pensioners and small businesses should not be left to foot the bill through higher taxes or fewer services because some of the world's most profitable companies are refusing to pay their fair share of tax. At a time when some are advocating for Australia to increase the GST, I believe ensuring profitable multinationals pay their fair share is a more pressing priority.
The Gillard government will continue to fight for a tax system that is fair for all Australians.
Frequently Asked Questions about this Article…
Profit shifting is when multinationals move profits away from the countries where sales or users are located into low- or no-tax jurisdictions. The article explains companies use complex corporate structures (for example the “Double Irish Dutch Sandwich”), intangible assets and legal mismatches between countries to shift income and minimise their tax bills.
According to the article, Apple told a US Senate hearing that one of its key holding companies had paid no tax in any country, even though it reported more than $30 billion in net income over a four‑year period — highlighting how big, profitable firms can report large profits yet avoid tax.
Stateless income is profit that isn’t taxed anywhere because it’s routed through jurisdictions or structures that leave it without a clear tax residence. The article warns this practice erodes governments’ revenue bases, can create unfair advantages for tax‑avoiding firms and ultimately affects public services and the investment environment.
Intangible assets are easily moved across borders and valued in ways that let companies allocate profits to low‑tax countries. The article notes that the digital economy is increasingly driven by these assets, which makes it simpler for firms to shuffle income into jurisdictions with little or no tax.
Tax‑law shopping refers to exploiting differences and mismatches between countries’ tax rules. The article also describes how multinationals can load profitable operations in countries like Australia with deductible debt so interest reduces taxable profits locally while shifting taxable income to low‑tax jurisdictions.
Everyday investors should care because aggressive tax planning can erode public revenue, potentially leading to higher taxes or fewer services for families, pensioners and small businesses. The article argues this creates an unfair advantage for firms that avoid tax and can distort the competitive landscape investors face.
The article says the Gillard government has announced a range of domestic tax amendments to protect the revenue base and has pushed the issue onto the G20 agenda, arguing international cooperation is essential because Australia can’t solve the problem alone.
The article suggests that instead of increasing the GST, ensuring profitable multinationals pay their fair share is a more pressing priority. It argues families, pensioners and small businesses shouldn’t be left to shoulder the burden when some global companies avoid tax.
Call 1300 880 160
Start a chat
Schedule a call
