Multinational Profit Siphoning

Where a service is operated by the government, profits, taxes and revenue returns go back to government and are generally reinvested elsewhere in the Australian economy, creating and supporting Australian jobs.

On the other hand, where the service is privatised, profits and revenue returns may go off shore to avoid Australian taxes. Once off shore the money is NOT going to be creating and supporting Australian jobs.

Michael West, Sydney Morning Herald, used freedom of information laws to investigate multinational tax avoidance and concluded that “Australia’s corporate tax base is in crisis because of the explosion in tax haven dealings by multinational companies”

He also says

“The Tax Office document “Corporate Transparency Overview” showed that between 2005 and 2011 there was a 49 per cent rise in the number of controlled entities in havens and low-tax jurisdictions by companies in the ASX Top 100.”

“……… for foreign-based multinationals: 34 per cent paid zero tax in 2010 and 30 per cent paid zero in 2012. What doesn’t show up in the FOIs is that, thanks to aggressive profit shifting into tax havens, many pay some tax but very little.”

The Tax Justice Network states that “In 2013, 57% of ASX 200 companies disclosed subsidiaries in secrecy jurisdictions (tax havens) – but this could be much higher as reporting is not mandatory” see external link for Tax Justice Network

A specific example of an accounting structure is described by Michael West in the Sydney Morning Herald article, Rupert Murdoch’s US empire siphons $4.5b from Australian business virtually tax-free.

  • News has justified its practice of “repatriating” cash – $1.3 billion only last year – by making a “return of capital” to its New York parent.
  • In order for this capital to be returned, it had to be created in the first place. This was done via a transaction transaction in late 2004 whereby News interposed a $2 company at the top of its web of Australian companies. … then issued 77 billion shares to News Corporation in New York, ..
  • ……..share capital ballooned by $7 billion for a temporary adjustment to intangible assets that has the character of internally generated goodwill…….

Another example from testimony to the Senate enquiry merged with a Tax Office demand on BHP Billiton, extracts from Heath Aston, Sydney Morning Herald.

  • Between 2006 and 2014, the company booked profits of $US5.7 billion in Singapore
  • …is paying an effective tax rate of just 0.002%
  • “marketing hubs, established in recent years by the major miners, allow products dug up in Australia like iron ore and coal to be “sold” to their own division in Singapore before being sold on at a mark-up to China and other nations.”

Just to help put 0.002% tax in perspective, a person earning $100,000 per year would pay less than the cost of a cup of coffee in tax per year.  (A follow up article by Adam West, Sydney Morning Herald, )

Its interesting that media comment on the Senate Committee investigation into Multinational Tax Avoidance frequently mentions the Singapore Tax Treaty being used by technology and minerals companies.  This treaty was signed by PM W McMahon  in 1969.

Two possible legal changes to reduce tax avoidance that have been publicised follow:

  • After a lot of media attention Joe Hockey promised to pass legislation to stop multinational tax avoidance.  The ink isn’t dry and two legal academics have said the wording in the legislation will be ineffective so it seems to me to be designed to fail, created just to defer public concerns. external link  Why the Google tax is doomed to fail, Frank Chung,
  • A very plausible solution was published by Adam West, Sydney Morning Herald noting that Australian companies have to produce public “general purpose” financial statements, which mostly follow Australian accounting standards.
    Instead of allowing multinationals to instead file “special purpose” financial statements, the corporate regulator could simply insist Australian subsidiaries of multinationals produce full “general purpose” accounts
    Further, they could remove the exemption for such companies reporting the financial statements of their wholly-owned subsidiaries offshore.

The Senate sub committee looking at Corporate Tax Avoidance since late 2014 has identified massive avoidance and reports early 2016.  Hence this web page is not being updated for the moment.