Not so Taxing Times: Senate Committee to Investigate Low-Tax Companies
Wednesday 15 October 2014 @ 11.04 a.m. | Corporate & Regulatory | Taxation
On 2 October 2014, at the instigation of the Greens and other opposition parties, the Senate referred an inquiry into "corporate tax avoidance" to the Senate Economics References Committee (the Committee). The inquiry is to be carried out and to report by the first sitting day of Parliament in June 2015 and submissions to the inquiry are to be made by 2 February 2015.
Generally, the inquiry is to look at tax avoidance and aggressive tax minimisation by corporations registered in Australia and multinational corporations that are operating in Australia.
Specific Inquiry Terms of Reference
The inquiry is to consider tax avoidance and aggressive minimisation, with specific reference to:
- the adequacy of Australia's current laws;
- any need for greater transparency to deter tax avoidance and provide assurance that all companies are complying fully with Australia's tax laws;
- the opportunities to collaborate internationally to address the problem;
- the performance and capability of the Australian Taxation Office (the ATO) to investigate and launch litigation, in the wake of drastic budget cuts to staffing numbers;
- the role and performance of the Australian Securities and Investments Commission in working with corporations and supporting the ATO to protect public revenue; and
- any relevant recommendations or issues arising from the Government's White Paper process on the 'Reform of Australia's Tax System'; and any other related matters.
Background
The Committee's inquiry results from a recent Fairfax Media report "Who Pays for our Common Wealth?" that is reported to have found that almost one-third of Australia's largest companies were paying less than 10 cents in the dollar in corporate tax. These companies were shown to have had very low "effective tax rate(s)" over the past decade and to have operated a large number of subsidiaries in tax havens. As SMH indicated in its report:
"It estimated up to $80 billion could have been forgone by the Australian Tax Office over the past decade due to the complex tax-minimisation strategies employed by the biggest 200 share market-listed companies".
The call for a Senate inquiry was moved by the Greens following negative community reaction, and both political sides agreeing that more needed to be done to maintain the nation's tax revenue base and get companies to pay their correct share of tax. However, while the government agreed more should be done, it still opposed to the creation of the Committee's inquiry.
Adequacy of Current Laws and Their Enforcement
The adequacy of current laws and the ATO's ability to enforce them is reported as being a key aspect of the Committee's inquiry particularly as the inquiry will take place at a time when Australia is hosting the G20 and the Australian Treasurer is reported to have: ". . . vowed to lead an assault on corporate tax avoidance by multinationals".
In this environment, the Committee will consider whether the ATO is equipped for the task of tracking the estimated $270 billion that is said to flow between Australian companies and their foreign subsidiaries. It will be part of the Committees inquiry to attempt to unravel the growing complexity of foreign tax havens used to keep company profits from the ATO and in doing this the Committee is expected to call bank chiefs, mining executives and media executives to give evidence to the inquiry.
Reaction to the Inquiry
SMH reports that representatives of business such as The Corporate Tax Association, have rubbished the Fairfax Media report and claimed that there are: ". . . legitimate reasons for a company's effective tax rate to fall below the statutory 30 percent".
The leader of the Greens Senator Milne said on the Greens website that:
"The Abbott government could afford to look after families, the elderly, the sick and the unemployed, if they weren't so busy protecting their mates at the big end of town, . ."
She also indicated in the press that Google, Apple, Amazon and Glencore would be among the witness list, along with economists, academics, the ATO and other government agencies. In all it is reported that some 40 of Australia's largest companies will be asked to explain their tax affairs to the committee.
The Committee's Chairman, Labor Senator Sam Dastyari has indicated that the Committee could and would subpoena chief executives to appear if they declined the committee's invitation to attend the inquiry. Senator Dastyari is reported as saying that:
"While we want to have a co-operative relationship, we are putting them on notice that we have the power to force all these companies to front up, and we will use it if they make it necessary."
The Prospect of Actual Results
Government inquiries do appear to be the best way to sort out how tax avoidance happens and the extent to which it happens as the strategies involved are often complex and difficult to pin down. As is reported by SMH:
"Government inquiries have been described by tax law experts as one of the only ways to get to the bottom of the complex tax-minimisation strategies used by some of the world's biggest companies."
The Committee's inquiry is not a first and it may prove valuable if it achieves the results delivered by similar inquiries the USA, UK and Europe, which as SMH reports ". . . successfully unraveled some of the tax-avoidance strategies of multinationals including Apple, Google, Amazon and Starbucks".
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