05/04/22

AUSTRALIA: Labor and Coalition ramp up pressure on multinational tax avoidance ahead of election.

As published on abc.net.au, Tuesday 5 April, 2022.

As part of its election pitch on fighting multinational tax avoidance, Labor announces plans to tighten legal loopholes that allow big companies to shift profits offshore, as well as to introduce steps to increase transparency.

Shadow Assistant Minister for Treasury Andrew Leigh told ABC News the policy details were still being nailed down, but Labor would consider how existing laws could be further tightened and, if elected, introduce a "beneficial ownership register" that would make it harder for secret people behind companies to hide who they are and what they get up to.

Since the Panama Papers and various other tax leaks, there have been calls for governments around the world, including Australia's, to introduce a register that gives the public free access to the names of people behind secret assets and bank accounts.

A public register was something the Labor Party supported in its election pitch and, in 2016, the Liberal minister for revenue and financial services at the time, Kelly O'Dwyer, said the government would look at introducing it.

Treasurer Josh Frydenberg said the "government remains committed to increasing the transparency of the beneficial ownership of companies available to relevant authorities".

Labor's policy focus on multinationals comes as both parties pay attention to multinational tax avoidance — a hot-button issue ahead of the upcoming election.

The Coalition's policy rests largely on extending funding for the Australian Taxation Office (ATO) and ensuring Australia implements the global plan to fight profit shifting by the Organisation for Economic Cooperation and Development (OECD) and G20.

Mr Frydenberg extended budget funding for the Tax Avoidance Taskforce by $652.6 million for a further two years to June 30, 2025.

The measure is estimated to increase tax receipts by $2.1 billion over that period.

The taskforce, established in 2016, was set up at the same time the Coalition introduced tougher laws aimed at multinationals, including the Multinational Anti-Avoidance Law [MAAL] and the Diverted Profits Tax (DPT).

ATO deputy commissioner Hector Thompson told ABC News that, since its inception, the taskforce has helped raise $25.8 billion in tax liabilities and collected $14.6 billion in cash.

"Programs funded by the Tax Avoidance Taskforce have a strong focus on multinational tax avoidance and have been successful in reducing the proliferation of profit shifting and transfer mispricing," Mr Thompson said.

Tax compliance by multinationals was "increasingly underpinning the social license to operate".

"We're seeing a shift in attitudes in the large market as the benefits of demonstrating tax compliance is recognised as a key indicator of a corporation's fiscal health," Mr Thompson said.

More recent tax bills issued against multinationals are under dispute, and some end up being settled rather than making it to court.

The ATO has previously said 122 companies had assessments raised against them during the 2021 financial year, to the value of $3 billion and that of that, $2.5 billion is being disputed by 15 companies.

Some of the $2.5 billion in disputed tax bills for 2021 has already been paid to the ATO under a 50/50 arrangement.

Mr Frydenberg said the Tax Avoidance Taskforce had been very successful in recouping revenue.

"The next phase of our reform agenda is driving international agreement through the G20 and OECD, to establish a global minimum tax of 15 per cent and ensure that large multinationals pay a larger share of tax in the countries where their products or services are sold," he told ABC News.

He said Australia helped lead the charge globally about setting a minimum tax, but it was unclear how much revenue this change would deliver.

"We've actually been front and centre to these efforts," Mr Frydenberg said.

"Some of the details are still being worked out, so it's not clear what actually will be the revenue implications for Australia. But certainly this is a positive move."

Mr Frydenberg indicated that a register would still be implemented if the Coalition is re-elected.

He said the Government had already invested $480 million to modernise and consolidate more than 30 different business registers into the new Australian Business Registry Services.

"This register will hold valuable information with respect to the share capital of companies, their top 20 shareholders and a comprehensive list of current and former company directors and secretaries," Mr Frydenberg said.

"This modernisation will both significantly improve the operability of Australia's existing business registers and enable the development of a beneficial ownership register."

But Dr Leigh said Labor "has long been committed to putting in place a beneficial ownership register" that outs the people behind shell companies.

"Labor has long been of the view that we need more transparency to crack down on multinational tax dodging," he said.

"A beneficial ownership register would show who really owns Australian firms.

"A beneficial ownership register right now would ensure that Putin's cronies aren't stashing their cash in the Australian share market."

In its 2019 election pitch, Labor also said it would stop multinationals from getting a tax deduction when they send royalty payments to arms of their own company that pose a multinational tax risk.

When asked about whether the policy would be revived, Dr Leigh said the OECD and G20 "have estimated that there are billions of dollars at stake in the multinational tax avoidance game".

The Greens also propose to establish a public register of beneficial owners to see who really owns what.

But they also want to publish basic information on the tax paid by companies earning over $50 million and require the ATO to publish the details of the settlement of tax disputes with companies.

Tax Institute executive director Andrew Mills, who was previously a second commissioner at the ATO, agreed that a beneficial ownership register was an "important plank" in increasing transparency.

"It's not an easy task … but other countries are doing it, and they will be looking to Australia and expecting us to have done it as well," Mr Mills said.

In October, 136 countries signed up to a global deal to ensure big companies pay more tax.

One part seeks to implement the minimum tax rate of 15 per cent to make it harder for them to avoid taxation.

Another part looks at specifically capturing the intangible digital revenue of multinationals. It seeks to reallocate taxing rights over a prescribed portion of their profits.

But there are fears it could take years for governments worldwide to implement the OECD plan.

Dr Leigh told ABC News: "We will look – if we're fortunate enough to win government — whether it's possible to move more quickly on this OECD-G20 agenda."

Jason Ward, principal analyst at the Centre for International Corporate Tax Accountability & Research (CICTAR), said he welcomes any moves to speed up the implementation of the OECD plan but said that alone was not enough.

He pointed out US President Joe Biden, who was instrumental in moving the 15 per cent minimum tax rate deal forward, was having a tough time getting much of the plan passed through his own congress.

Mr Ward also argued the 15 per cent rate was too low, and companies may still be able to exploit loopholes.

"It should be at least 25 per cent, which is the OECD average tax rate," he said.

He said even with the global minimum tax, multinationals may still be able to minimise their tax by using related party transactions where they pay themselves money offshore and reduce the taxable income in Australia.

While the practice used by companies such as Uber and McDonalds is legal, Mr Ward said the "huge ability for companies to pay themselves money for the use of royalties, and lots of other kinds of transactions" was unfair.

"Right now, it's incredibly easy for companies to shift the revenue to places where it's taxed the least, or in many cases not taxed at all," Mr Ward said.

But Mr Mills said Australia already had very tough laws and the OECD plan could generate about $1 billion in extra revenue for Australia.

"The idea is to say 'some of this extra profit that you're making really should go to the place with consumers are'. Well, we're 25 million people out of 7 billion. We're not a big market in the scheme of things.

"It's not surprising that we're not expecting billions and billions of dollars. This isn't something that's going to fix our budget deficit."

Even so, he said the OECD plan, when implemented, would largely stop most of the money going to low-tax jurisdictions.

"It's really important to appreciate the impact of this will be quite large," he said.

"Ensuring that there's a minimum rate of tax that's paid means that there's no longer a race to the bottom where countries are competing with each other for business to come to them by having lower and lower taxes."

For Melbourne hairdresser and small business owner Joey Scandizzo, election policies aimed at stopping multinational tax avoidance will be a factor he considers when he decides which party to vote for.

"It will come into account once I'm making my judgement, but it would be one part [of election policies] that I'd love to see fixed and adjusted," he said.

"We really want to see governments tackle these multinationals.

"They're getting away with it when we've been working so hard and we're doing everything right — we're paying all our taxes, whether it's GST, payroll tax.

"We work so hard to keep our business afloat, keep our staff in jobs and keep our clients happy.

"Our governments really need to step in and do something about it. To make sure it's fair across the board."