Qantas CEO Alan Joyce, one of the most prominent supporters of the Turnbull Government’s proposed big business tax cut, presides over a company that hasn’t paid corporate tax for close to 10 years.
The period roughly coincides with Mr Joyce’s tenure at the helm of Australia’s flag carrier.
Despite generating a pre-tax profit of last financial year of more than $1 billion, the flying kangaroo has paid no corporate tax since 2009, thanks to Australia’s generous depreciation provisions and the ability to offset massive historical losses made by the company against past and future profits.
Analysis by the ABC reveals Qantas is not alone — about 380, or one in five, of Australia’s largest companies have paid no tax for at least the past three years.
In the cutthroat aviation industry, not one of Australia’s major airlines has paid corporate tax since at least 2013, including Virgin and its subsidiary Tigerair.
Despite selling billions of dollars worth of tickets in Australia, historical losses and the entirely legitimate use of Australia’s tax laws allow them to offset those losses against future profits indefinitely.
Both Qantas and Virgin companies emphasised to the ABC that, notwithstanding their zero corporate tax liabilities, they had continued to collect and pay departure taxes, fuel and alcohol excises, payroll tax, GST and FBT.
The airlines are typical of highly competitive industries where losses are frequent and capital investment is hugely expensive.
While the debate over corporate tax cuts is likely to dominate the political debate over the next year, Australia is actually unusually dependent on personal income tax and the burden of corporate tax rests disproportionately on a small number of large Australian-based companies.
In 2015/16, among the top 50 companies, 17 paid no corporate tax, leaving just 33 to shoulder the burden. Between them, they provided just under $20 billion. This includes the big four banks and our two big miners and retailers, Woolworths and Wesfarmers.
So why do so many companies, some with significant operating profits, pay little or no tax?
Apart from operating losses and depreciation, the declining value of assets is another key reason. The troubled energy industry is a good example.
EnergyAustralia’s tax-free decade
At a time when Australian households have seen their electricity prices soar, the country’s leading energy retailer, EnergyAustralia, hasn’t been paying corporate tax. EnergyAustralia paid no corporate tax for the decade to 2016.
That’s despite EnergyAustralia’s 1.7 million electricity and gas customers across eastern Australia helping it record $24 billion worth of revenue for the three years to June 2016, and an operating profit of about $200m last year.
An EnergyAustralia spokesperson said the company’s performance, “reflects how the power-generation sector is underpinned by assets that were built last century”.
“Since 2006, EnergyAustralia has written down the value of its assets by $1.9 billion.”
How much tax do the foreign banks pay?
What about the big international banks that generate multi-million-dollar advisory fees and turnover billions in lending and trading in Australia?
Ten years after the global financial crisis — which they helped create — some of the world’s most prominent investment banks are collecting tidy sums of revenue in Australia and not paying corporate tax.
Among them is Malcolm Turnbull’s old employer, Goldman Sachs, which recently won a lucrative contract with the NSW Government. Goldman will be paid $16.5 million as the state’s financial adviser on the sale of the $16.8 billion WestConnex motorway in NSW.
The underlying profitability of these banks is obscure but Goldman Sachs generated revenue of $1.84 billion over three years and reported operating profits in each year but paid zero corporate tax.
Ditto for JPMorgan Chase which collected $2.2 billion in revenue and hasn’t paid corporate tax since at least 2013.
In explanations advanced to the ABC for the non-payment of corporate tax, a spokesman for America’s biggest bank said JPMorgan was still suffering the aftershocks of the financial crisis which meant its Australian operations continued to operate at a loss.
Late last year, it emerged JPMorgan Chase agreed to pay a record $13 billion fine to US federal and state authorities in 2013.
The purpose of this fine was to settle claims it had misled investors in the years leading up to 2008.
French bank BNP Paribas also appeared to have made some bad investments taxpayers were having to compensate it for.
It hasn’t paid corporate tax for at least three years — like Goldman, JPMorgan Chase, American Express, Barclays Bank and the Royal Bank of Scotland.
The oldest foreign bank in Australia (resident here since 1881) told the ABC that despite attracting close to $10 billion in revenue since 2013, BNP failed to make any profits.
BNP said its losses, “included the write off of bad debts from lending to certain Australian domiciled companies”.
International investment banks are a good example of how large international companies with Australian subsidiaries can effectively, and legally, shift revenue to affiliates or parent groups offshore in the guise of payments for services.
This can all work to render the Australian business loss-making, and therefore not required to pay corporate tax.
Old and new media
The focus on the tax affairs of foreign technology and media companies like Google, Facebook and Microsoft has diverted our gaze from the taxpaying habits of some of their home-grown rivals.
While those media businesses operating in the virtual world can minimise tax because it’s not clear where their businesses are situated, the old world media isn’t paying much tax either as their profits dwindle and they write-off the value of their mastheads.
The most obvious one is Rupert Murdoch’s News Corp., It has long arranged its affairs to pay little tax but because the value of its newspapers is collapsing, it hasn’t paid corporate tax in Australia for at least four years.
The media colossus reported total revenue of $8.5 billion and boasted a $71 million profit in 2014/15 but no corporate tax was paid.
The company’s corporate affairs boss, Liz Deegan, wrote to the ABC to clarify that: “News Corp Australia has deductible operating costs and certain tax incentives and allowable credits, like R&D and franking credits, that offset the revenue disclosed.”
Fairfax, News Corp’s newspaper rival in Australia, paid $53.1 million in corporate tax over the same period.
In the fast-growing tech industry, research and development is a major business expense.
Software giant Atlassian, which reported operating losses for the last two years, also pointed to R&D tax concessions when explaining why it too hasn’t paid corporate tax in the period on accumulated revenue of about $1 billion.
Naming and shaming
Thanks to legislation passed in 2013, the Australian Tax Office now publishes an annual record of total revenue received, taxable income and tax payable for the roughly 2,000 Australian companies with annual turnovers of more than $100 million.
It’s called The Corporate Tax Transparency Data but it still only provides a very partial view of what’s going on — the numbers say nothing about how businesses use deductions and concessions to reduce their taxable incomes.
A tally of the three years’ available data reveals some of this country’s most recognised names haven’t paid corporate tax since at least 2013.
They include Broadspectrum (formerly Transfield Services), which collected $8.6 billion in revenue over three years. An estimated 30 per cent of that revenue ($2.5 billion) was paid directly by the Federal Government for running Australia’s offshore detention facilities. Broadspectrum was taken over by Spanish conglomerate Ferrovial in 2016.
Among the others who’ve escaped paying any corporate tax for three years because of large accumulated losses or high debt are Bluescope Steel, Amcor, Billabong International and Transurban Holdings.
Not going down without a fight
The Turnbull Government knows well that forensic tax audits are an expensive and resource-sapping exercise, especially when they involve the complex interpretation of other countries’ tax codes and their intersection with ours.
Federal Treasurer Scott Morrison has committed $679 million over four years to a new Tax Avoidance Taskforce.
New laws to combat complicated corporate structures whose core purpose is to avoid tax have also been passed.
In their sights are the likes of Apple, Google and Facebook, who make millions phones and advertising in Australia while paying minimal tax. The allegation them is that they’re shifting their profits overseas to low tax jurisdictions.
And it’s not only foreign companies under the spotlight.
Both of Australia’s biggest miners are currently in dispute with the ATO over their Singaporean marketing operations (corporate tax rate of 17 per cent).
Corporate arrangements see BHP and Rio sell commodities they’ve mined in Australia to their Singapore businesses, which on-sell the iron ore et al in to export markets (predominantly China) often with a hefty mark-up.
Former treasurer Wayne Swan has accused the miners of lying and labelled their marketing strategy “tax evasion”.
The ATO rejects the legitimacy of the tax structure and is seeking $1 billion in tax, interest and penalties from BHP and about half that ($500 million) from Rio.
A BHP spokesman told the ABC, “The primary tax in dispute represents less than 2 per cent of the $66 billion in taxes and royalties paid in Australia over that 11-year period … BHP does not agree with the ATO’s position.
“Consequently, we have objected to all the amended assessments and intend to continue to defend our position, including by initiating court action if necessary.”