- Corporate leaders are changing their attitudes on profit-shifting and the ATO has claimed an extra A$1 billion from Chevron alone.
- Australia’s corporate tax base is worth A$70 billion and the top 10 corporates pay a third of this total.
- The ATO still disagrees with Australia’s 1,000 corporates on issues such as offshore marketing hubs.
Two years after saying “enough is enough” on corporate profit-shifting, Australia’s tax chief now believes leaders of Australian multinationals have changed their attitudes to international profit-shifting.
In an interview with Acuity conducted at the end of 2017, commissioner of taxation and chartered accountant Chris Jordan also rejected claims that tougher enforcement of corporate tax law could make a substantial impact on the Australian government’s budget.
Giving confidence to the community
When he assumed leadership of the ATO in 2013, the organisation needed to pursue action against the Australian arms of multinational corporations which were “not doing the right thing”, says Jordan.
“It was very important for us to give confidence to the community and to government, and to civil society organisations which play a very important role,” he says.
But he points out that Australian-based large corporates “frankly were not anywhere near as aggressive as the multinationals in terms of what they were doing” to shift profits overseas.
The whole attitude has shifted. There is a greater degree of accountability at large corporate levels on tax
The former KPMG tax partner says today’s corporate leaders admit companies tried to do too much profit-shifting. “In the old days, if you took 10, or 20, or 30% off the table, you thought you were doing really well – you know, some management fees, inter-company charging, some guaranteed fees, loans, a bit of margin. These companies took the lot off the table; it just became ridiculous.”
Today, he says, CEOs and corporate chairs do acknowledge “that the mere technical ownership of intellectual property in, say, Bermuda should not result in billions of dollars of profit every year ending up there.”
“Most people go, ‘yeah, that’s probably not right’. They accept that now. So I think the whole attitude has shifted. There is a greater degree of accountability at large corporate levels on tax.”
Jordan’s claim of a shift in attitude is significant, because he famously told a 2015 Senate inquiry into corporate tax avoidance that BHP Billiton, Rio Tinto, Apple, Microsoft and Google should not be believed when they deny profit-shifting.
Beyond corporate tax
The ATO now believes there is more missing tax to be earned from the black economy, cash-only businesses and work-related expenses than from large corporates.
“Everyone’s going: ‘if only you could fix the large corporate area, our (Australian national) budget would be fine’,” says Jordan.
But an estimate of the tax gap owed by corporates does not bear out this belief. In October 2017, the Australian Tax Office (ATO) released an estimate of the “tax gap” between what large corporates actually pay and what the ATO estimates they might pay if fully compliant. The ATO calculated that in 2014-15, Australia’s 1,000 large corporates might have paid an extra A$2.5 billion on top of the A$41 billion they actually paid – around 5.8 per cent of the total. Jordan tells Acuity that even if the ATO had gathered the whole of that $2.5 billion: “that’s not going to really fix the budget deficit”.
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The Tax Commissioner, who was reappointed in the top job last year till 2024, says the ATO has “pretty good coverage” of large corporate taxpayers and is extracting close to the amount of tax owed.
“At the end of the day, the entire corporate tax base is only A$70 billion,” he says. “The large market share is A$45 billion; the top 10 companies pay a full third of all of the corporate tax.”
Pursuing the giants
In early 2016, Jordan told a Senate estimates committee that large multinationals, including technology companies, had “pushed the envelope on reasonableness”. For 2016, Google reported a corporate tax liability of $16.6 million and Facebook just $3.3 million.
Multinationals “play games,” Jordan told the Senate in 2016. “They string us along. They believe we can be stooged. However, enough is enough and no more of this.”
He now reports that the ATO still has disagreements with multinational corporations on a variety of tax issues. But because there are only 1000 large corporates, he says, it is not difficult for the ATO to understand what is going on with the large corporate group.
These issues include the use of “marketing hubs” which can shift profits to overseas jurisdictions, as well as tax treatment of hybrid instruments, and related-party debt pricing.
“All of those things we’ve taken very specific action on,” he says. “Just in the Chevron case alone we’ve now collected around a billion dollars in extra tax, and we haven’t even finished that yet.”
Jordan says mining giants BHP Billiton and Rio Tinto – “very good large taxpayers” have continued to dispute that they are earning too much from offshore marketing hubs. “They are transparent, we know them, and they are good corporate tax citizens, but we have a dispute on marketing hubs, we say they earn too much there, they say it’s the right amount. So we’ve got to somehow work that out.”
As well as its longstanding powers to pursue tax evasion and profit-shifting, the ATO’s efforts to raise more tax from multinationals have been aided by a new Multinational Anti-Avoidance Law (MAAL), an international country-by-country reporting scheme for large multinationals, and higher penalties for illegal profit-shifting.
The ATO says 31 multinationals have restructured or intend to restructure in response to the MAAL. And the restructuring of 18 of these companies has already returned “more than an estimated $6.4 billion in sales per annum to the Australian tax base”.
Related: Chevron - A game-changer for multinational tax avoiders
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Picture credit: Sean Davey