Illegal corporate tax dodging is costing the public coffers $2.5 billion a year in lost revenue, new figures from the Australian Taxation Office reveal.
That’s a shortfall of almost 6 per cent of what the nation’s biggest companies – including foreign-owned multinational and domestic corporations – ought to have paid.
But although this so-called ‘tax gap’ ran to the billions, the ATO claimed the shortfall was “normal” and reflected a tax system that was “operating well”.
“It is normal to have a tax gap. To eliminate all gaps completely would cost more than the additional revenue that would be collected,” the ATO said in a statement on Wednesday.
“The size of the large corporate groups gap reflects a tax system that is operating well, demonstrates a high degree of voluntary compliance, and compares favourably with other international jurisdictions – for example, the United Kingdom, which has a gap of approximately 5–6 per cent.”
The so-called tax gap is the difference between what the ATO should have received and what it actually did receive.
The $2.5 billion figure applies to what are called ‘large corporate groups’ – that is, companies with a turnover of more than $250 million per annum.
It’s the first time the tax office has released detailed figures of the tax gap for this group of companies. The figures apply to the 2014-15 fiscal year.
There are 1400 groups in this ‘large corporate’ category, 44 per cent of which are overseas firms, 25 per cent of which are Australian publicly listed companies, and 31 per cent of which are Australian private companies – i.e. that are not traded on the stock exchange.
In the 2014-15 fiscal year, these 1400 groups paid $41 billion in corporation tax, most of it “voluntarily”, the ATO said.
That compared to income of $1.8 trillion, and total profits of $143 billion.
The vast majority (75 per cent) of those profits were generated by Australian publicly-traded companies. This category includes 350 companies, from most of the household names – giants such as Telstra, Commonwealth Bank, Woolworths, and BHP Billiton – down to much smaller, lesser known companies.
The foreign-owned category, meanwhile, included 620 firms, while the Australian private category included 430 firms.
The banking and financial services sector was the biggest contributor to the public coffers, providing 33 per cent of total corporate tax receipts. That was followed by energy and resources companies, which contributed 26 per cent.
Manufacturing, meanwhile, contributed just 13 per cent of total corporate tax receipts.
Don’t single out multinationals, says ATO
Multinationals such as Google, Apple and Microsoft may have born the brunt of the public’s fury over corporate tax dodging, but according to the ATO they are no worse than domestic corporations.
The tax office said the tax-to-income ratio of “majority foreign-owned large corporate groups” was on a par with Australian public companies.
But according to the Australia Institute’s senior research fellow David Richardson, there was a great deal more revenue lost through technically legitimate loopholes.
“Google pays licence fees for copyright to Irish subsidiaries. Now, why should Australia allow that sort of deduction?” he said.
He pointed out the intellectual property deductions paid by companies to overseas recipients amounted to $4.3 billion a year, while “other business services” amounted to $10.2 billion.
In other words, the lion’s share of lost revenue was lost through legal loopholes, not illegal tax dodging.
As for the ATO’s claim that a 6 per cent tax gap was normal, Mr Richardson was sceptical.
“You can’t really pat yourself on the back until you get 100 per cent,” he said.