Finance Finance News Back to the future on corporate tax dodgers

Back to the future on corporate tax dodgers

wayne swan
Wayne Swan says Donald Trump is the 'quintessential insider'. Photo: AAP
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The Coalition wasted four years in the fight against ‘transfer pricing’ by multinational tax avoiders only to end up back where Labor started, says former treasurer Wayne Swan.

Last week, the Turnbull government enacted the so-called ‘Google Tax’ with the tepid support of Labor. The law is designed to force companies like Google to voluntarily cough up tax by threatening them with a higher penalty rate if they don’t.

This merely reverts Australian law to where Labor had it in 2013, before Tony Abbott took a wrecking ball to the statute books, Mr Swan told The New Daily.

“Meanwhile, these companies are further down the road of massive tax evasion, so they let the holes continue to open then want to somehow claim the credit for closing them after the horse has bolted.”

Mr Swan was responding to the Turnbull government claiming a victory after it emerged the Australian Taxation Office (ATO) has demanded $2.9 billion in unpaid tax from seven multinationals, including $447 million from Rio Tinto.

He accused the Coalition of hypocrisy, and said the ATO was using powers legislated by Labor. “Every measure that we took, including the 2012 transfer pricing stuff, they fought against. Every measure,” Mr Swan said.

“If they would’ve continued on our pathway, they would’ve had a lot more in the kitty and this would’ve been dealt with much more effectively and much sooner.”

tax avoidance timeline

In the main, both parties are trying to stamp out ‘transfer pricing’, a common tactic used by multinationals to shift profits to tax havens.

As an example, a multinational company registered in low-taxing Singapore will ‘sell’ its products, services or intellectual property at artificially inflated prices to a subsidiary company registered in higher-taxing Australia. The end result is that the parent company’s huge profits are lightly taxed while the subsidiary reports miserly, or zero, profits in the overseas market.

Bans and greater transparency were the centrepieces of Labor’s reforms, whereas the Turnbull government has focused on reversing Abbott-era cuts to the ATO and co-opting the UK approach of forcing tax payment by threatening even bigger tax bills.

Professor Chris Evans, an internationally renowned tax law expert at the University of New South Wales, contradicted Mr Swan by saying that while Labor and the Coalition’s anti-avoidance regimes bore “more similarities than differences”, no time has actually been lost amid the political fracas.

“It’s taken them a while to get to more or less the same position. But to be honest, if you look at what’s happening around the world, we’ve probably tackled most of the issues as quickly as any other country,” Professor Evans told The New Daily.

But even though Australia is now at the frontline of global tax reform, it’s a losing fight, he said.

“Ultimately, I’m sufficiently cynical to think it will all fade into the background. They will find new ways of playing the game. The sovereign taxing jurisdictions will lose out. The multinationals are too big and too powerful. It’s an unequal battle.”

Because of the surviving Labor laws, the ATO has revealed that a third of legal entities, including foreign companies, paid no tax in 2014-15.

The “root cause” of the problem of multinational tax avoidance is the intransigence of the US government, Professor Evans said.

“If they had a sensible tax regime, and the multinationals were prepared to repatriate profits, we wouldn’t have half these problems in the first place,” he said.

“It’s just everybody trying to get their sticky fingers on those profits and the US playing games to prevent that happening and acting as a drag-chain on the process of tax reform worldwide.”

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