23/06/23

TAX AVOIDANCE: Despite the PwC scandal, multinationals have fought off laws to boost tax transparency

As published on: abc.net.au, Friday 23 June, 2023.

For those who are hopeful that the aftermath of the PwC tax leaks scandal will usher in a new era of tax transparency, there's a reason to pause.

The Albanese government on July 1 was supposed to pass a law that would have made all companies with global revenues over $1 billion that operate in Australia list the tangible and intangible assets they hold in each jurisdiction with book values.

This information is already being collected by tax authorities privately.

The country-by-country reporting rules first came into effect in 2016-17 endorsed by the then-Liberal prime minister Tony Abbott and treasurer Joe Hockey.

The country-by-country reporting rules first came into effect in 2016-17 endorsed by the then-Liberal prime minister Tony Abbott and treasurer Joe Hockey.

It was one of many proposals put out by the OECD to fight multinational profit shifting and adopted by Australia at the time, which we know now, is around the same time that PwC was leaking confidential tax information to multinationals designed to help the companies avoid tax.

There was much fanfare at the time about fighting multinational tax avoidance through closer information sharing. Country-by-country reporting was even described by some as a "game changer" in helping expose multinational tax avoiders.

But there was just one problem. No one, except tax revenue authorities would see what was bing reported.

Major multinationals like Apple, Microsoft, Google and others had managed to convince Australia's government, as well as other governments around the world, that making this information public would be costly and unnecessary.

But groups such as Transparency International and others have for years been putting pressure on the OECD and G20 leaders that this information should be made public, so that multinationals can be held accountable for taxes they pay (or don't' pay).

Fast forward to 2023, Labor is in power, and now they are the ones who business has managed to convince that going public with the information is a bad idea.

So, what will we get instead? No one knows for sure, but what's being flagged is a watered-down version already adopted by the EU, which NGOs worry won't publicly reveal much at all.

Labor Assistant Minister for Competition Andrew Leigh says the government will engage with stakeholders its public country-by-country reporting regime.

"Over the coming months, we will further engage on the appropriate level of disaggregated reporting," he said.

"This will build on refinements we have already made to align more closely with the European Union's public country-by country regime."

Treasury had spent much time consulting on the proposal of making country-by-country reporting public. It was a Labor election commitment. It was flagged in the federal budget.

According to the material explaining the proposed laws, disclosures would be made publicly available within the company's annual financial report.

"The intent is that increased public disclosures will lead to enhanced scrutiny on companies' arrangements, including how they structure their subsidiaries and operate in different jurisdictions, including for tax purposes," the material explaining the now-killed off laws said.

"From a tax perspective, the expectation is that more information in the public domain will help to encourage behavioural change in terms of how companies view their tax obligations."

But business successfully argued it would be a major cost impost and put Australia — which it argues already has the strongest laws globally to tax multinationals — out of step with the rest of the world.

"Business welcomes the government's commitment to continued consultation on measures that risked undermining Australia's international competitiveness and ability to attract investment," Business Council of Australia (BCA) chief executive Jennifer Westacott said.

The BCA's Jennifer Westacott is pleased the laws won't pass. (The Business)

She said the BCA would now consult with government on how to ensure "commercial confidentiality is maintained, compliance costs are minimised and consistency with international reporting obligations is preserved".

The Corporate Tax Association's Michelle de Niese said they were lobbying for a country by country reporting regime that aligns with global reporting obligations.

"To introduce a regime that doesn't seek such alignment would directly work against the government's objective of delivering improvements in the quality and comparability of tax disclosures and improving the flow of useful information to the community," she said.

She said the government was removing four specific disclosure labels – "all of which went beyond existing regimes and would present genuine confidentiality issues for corporates".

She said new measure's now being consulted on, will bring Australia's proposed regime closer to the EU Directive, which is what Australia should be aiming to align with.

"Business is very keen to sit down with other interested stakeholders and co-design a world leading corporate tax transparency regime that allows a better assessment of corporate activities while keeping compliance costs to a minimum," she said.

Tax Justice Network's Mark Zirnsak worries that the watered-down version of the laws won't be useful. 

"What you want to catch is has a company set up an artificial business where profits aren't being taxed in Australia but are going into places like the Cayman islands," he said.

"If you walk away from that then what's the purpose, what are we going to achieve? The government has been under pressure from business groups and they've decide to walk back. They're trying to put up something else that's inadequate. Either do it properly or don't do it at all."

PwC tax leak scandal shines light on consulting industry practices.(Kathryn Robinson)

He says some companies already have chosen to report the information publicly in line with the Global Reporting Initiative, which aims to boost transparency across all areas of company reporting including tax.

"My biggest fear is that some people making the biggest noise is they don't want exposed exactly what's going on," Mr Zirnsak says.

Jason Ward, principal analyst at the Centre for International Corporate Tax Accountability and Research, said arguments by business that this would be a major cost impost were over exaggerated given all companies were already reporting this information to the Australian Taxation Office (ATO).

"At Brookfield 27 per cent of shareholders voted for public country-by-country reporting," he said, noting 18 per cent of stock is held by the company or their directors, which if taken into account would mean one-third of its shareholders support public reporting.

"If you're invested in a company like Amazon or Microsoft you're facing huge risks because there's changes in the global tax system and you don't know what risks there are."

He said a watered-down EU version would be "problematic and is absolutely not the model to follow".

"You want to see what profits are booked in Bermuda — that's what we don't see – how much of the profit is artificially shifted offshore. If you go down the EU model, we will never get that data and the games that multinationals play will continue."

The Australian Federal Police  launched a criminal investigation into the PWC tax leak matter, and on Friday Labor senator Deborah O'Neill told the AFR that a new parliamentary inquiry triggered by the scandal will examine the partnership models of the big four consulting firms, and their lack of disclosure obligations.

The laws that Labor had proposed, and has now back-tracked from, would have ensured much greater disclosure for PwC's and other firms' corporate clients. But for now, we won't know for sure where multinational profits are being really booked.