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 income to low- or no-tax jurisdictions using complex corporate structures. The article notes tactics such as the “Double Irish Dutch Sandwich,” moving intangible assets like intellectual property and brands, tax-law shopping across mismatched national rules, and loading profitable operations with deductible debt to shift taxable profits elsewhere.
Apple told a US Senate hearing that one of its key holding companies reported more than $30 billion in net income over a four-year period but paid no tax in any country. That example highlighted the scale of profit shifting and stateless income among large, profitable companies.
Stateless income refers to profits that are not taxed in any country, often because they are allocated to entities that don’t have a clear tax residence. This matters because it erodes government revenue and can shift the tax burden onto households, pensioners, small businesses and investors who don’t have the means to exploit loopholes.
As commerce moves online, more economic value is tied to intangible assets—intellectual property, brands and rights—that can be located anywhere. Consumers transact across borders via digital devices, allowing firms to attribute income to jurisdictions with little or no tax, complicating traditional rules that taxed profits where they were earned.
The article states the Gillard government announced a range of domestic tax amendments to protect the revenue base and is pushing for international cooperation. Australia has helped put the issue on the G20 agenda and will continue to press for global action.
When large companies avoid paying their fair share, governments may need to recover revenue through higher taxes or fewer public services. That shifts costs onto families, pensioners, small businesses and everyday investors who can’t use the same tax strategies, creating an uneven playing field.
Tax-law shopping is taking advantage of differences between countries’ tax rules to minimise liability. One common tactic described in the article is loading profitable operations in higher-tax countries with deductible debt so interest reduces local taxable profits while the taxable income is reported in lower-tax jurisdictions.
According to the article, ensuring profitable multinationals pay their fair share is a more pressing priority than increasing the GST. The view expressed is that closing loopholes and strengthening enforcement is fairer than putting more burden on households and small businesses.
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