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Issue #1680      April 15, 2015

Corporate tax rorts

Offshore parasites

As the saying goes, there are two certainties in an uncertain world: death and taxes. The corporate world, while unable to eliminate the former, is doing everything in its considerable power to eliminate the latter. As recent developments over the past couple of years show, transnationals are determined to not only dodge paying tax, but to pay none at all. The current ructions over the likes of Rio Tinto and BHP Billiton channelling billions through shell companies set up in places such as Singapore and Ireland are the tip of the iceberg.

As professor Pietro Guj of the University of Western Australia, who has been an advisor to that state’s government, puts it, “A company has the right to conduct business wherever it chooses.” Big business knows no borders, recognises no sovereignty. It was in 2005 that the Singapore government registered a new company called BHP Billiton AG Singapore Branch. It was given a special Pioneer Service Company status, which meant it would pay no income tax until 2020. Its Singapore tax-free profit is then sent to Switzerland. BHP Switzerland then pays 2.5% tax. The remaining profit is then paid as dividends to BHP Netherlands and considered tax free. This ruse is called duel-listed companies which function as two separate companies subject to two different tax authorities.

That’s just one of the methods they use.

Of course, the system is there for them. As the big audit firm KPMG put it, the tech giants’ tax structures are perfectly legal. That observation came as three of them faced a Senate inquiry this month. Representatives from Microsoft, Google and Apple made clear the class nature of the system: “The tax paid is in full compliance with Australian tax law” – Microsoft; “We are not opposed to paying tax. We are opposed to being uncompetitive” – Google; “We do not avoid tax, we pay all taxes that are due in the Australian market” – Apple.

Politically, it should be recalled that the mining companies spent tens of millions of dollars on advertising against Labor’s 2010 Resources Super Profits Tax. The outcome: both Labor leader and PM Kevin Rudd and Liberal leader Malcolm Turnbull, who also supported the tax, were toppled in coups.

As has been reported in the Guardian, eight of the top 200 companies publicly listed on the Australian stock exchange (ASX 200) paid no taxes on profits averaging $50 million and more than half a billion dollars over the decade to 2013! More than 20 (10 percent) of the top 200 corporations paid an average tax rate of five percent or less. Instead of rectifying the situation the government keeps, telling the people of Australia that there is a “budget crisis”, sacking thousands of public servants and slashing spending on social security, health, education, community, Indigenous and other services.

As a report released in September last year by the Tax Justice Network and the trade union United Voice reveals, “Almost a third of Australia’s largest companies are paying less than 10 cents in the dollar in corporate tax, which has created a gaping hole in government revenues over the past decade.”

The report found that overall the effective tax rate of ASX 200 companies over the last decade is 23%, compared with the official statutory rate of 30%. “If the ASX 200 companies had paid at the statutory rate it would have produced an additional $8.4 billion in annual revenues” or more than $80 billion over those ten years.”

Tax havens

Fifty-seven percent reported having subsidiaries in secrecy jurisdictions (most likely zero or very low tax havens), between them a total of 1,078 subsidiaries. How many others there are is anyone’s guess. Subsidiaries “overcharge” parents for goods and services, transferring profits offshore to low tax havens.

Singapore, Hong Kong, Malaysia, British Virgin Islands, Mauritius, Luxembourg, Switzerland and the Channel Islands of Jersey and Guernsey are amongst the most common tax havens. Bermuda and Jersey are home to at least 119 entities belonging to the ASX 200. Their tax rate is zero.

The report also revealed that 60% of the ASX 200 companies reported debt levels in excess of 75%, which is suggestive of tax avoidance set-ups. Otherwise why would they continue running at a “loss”! They also borrow from offshore subsidiaries and between subsidiaries, so the tax deductible interest payments are in countries like Australia and the interest is in a tax haven with zero or close to zero tax rates.

United Voice national secretary David O’Byrne said, “The community will be shocked to learn that many of Australia’s largest corporations can legally eliminate the need to pay tax at all or reduce their tax bill to 10% or less.”

Corporate welfare

At the same time as the government is losing tens of billions of dollars in potential income it is handing out billions of dollars in corporate welfare.

The federal government pays a fossil fuel subsidy of more than $10 billion per annum. The private health insurance companies receive a direct subsidy of more than $6 billion per annum in the form of the PHI (private health insurance) rebate (30-40%) of cost of premiums. This indirectly subsidises the private hospitals and other private health services.

The only corporate subsidies being axed are the ones that seek to address climate change.

The report notes that “over the last five years, the proportion of tax on profits raised by the government from business shrank from 23% to 19%, while the proportion from individuals rose from 37% to 39%.”

The “budget emergency” is a myth. But there is a tax emergency – which needs urgent addressing before the whole taxation base collapses.

Workers are not only carrying an increased income tax burden, but paying the GST which has been rising as a proportion of national income. On top of that, the government is using the short-fall in taxation as an excuse for its austerity measures and continuing to cut the company tax rate.

Instead of spending cuts which have such devastating consequences for the most vulnerable people, the government should focus on progressive reforms to the tax system so that the corporate sector pay a larger share. This would overnight result in a large budget surplus, and not a shortage of funds for people’s needs.

These reforms should include repeal of the fossil fuel rebate, phasing out of the PHI rebate, an increase in company tax rates and marginal rates on higher incomes. It is time mining companies funded their own infrastructure. Huge savings could be made by slashing the military budget which is headed towards $40 billion and Australia pulling out of the Middle East. Both measures would strengthen our security.

The government should be taking strong and serious measures to close tax loopholes and the use of offshore tax havens.

GST increase push

The public is being softened up to accept the unacceptable as the unavoidable or inevitable. This is particularly so with the GST mentioned above which is a regressive tax that hits those on the lowest incomes the hardest.

The Hawke-Keating Labor government had attempted to introduce a goods and services tax in the 1980s but, not wishing to commit political suicide, backed off under considerable pressure from the public and within its own ranks.

It took the Howard government with the support of Australian Democrats leader Meg Lees in the Senate to get the highly unpopular GST up and running. It came into force in July 2000. The never-to-be-increased GST was set in concrete with a requirement that there be unanimous support of the federal and all state governments for it to be increased.

Some goods and services were exempt from the GST, a concession gained by the Democrats from the Howard government before agreeing to the tax. It was the beginning of the end of the Democrats.

Unlike a progressive tax system, where those on higher incomes pay at a higher (marginal) rate in the dollar, the GST is a flat tax. Everyone pays 10 percent, regardless of whether they are on unemployment payments of $259.60 a week or a business person on $25,000 a week. Those on lower incomes also spend a far higher proportion of their income on GST taxable goods and services.

The personal income tax system, despite its shortcomings, is more progressive, with those on higher incomes paying a higher rate in the dollar once their income reaches certain thresholds. It is an unfair tax that shifts the tax burden onto those least able to pay and lets the corporate sector completely off the hook. Not surprisingly big business is keen to slash company tax rates and increase the GST.

Lifting the present exemptions on fresh food, education, health, community care and residential services, childcare, water, sewerage and drainage, financial related exemptions could raise more than $20 billion in additional GST revenue – the equivalent of almost $1,000 extra per person. (Treasury’s Tax Expenditures Statement 2013)

If the federal and state governments agreed to lift the exemptions and increase the rate, then the amount collected might rise from just over $50 billion to $85 billion (12% rate) or $95 billion (15%). That’s more than the corporate sector presently pays on its profits!

These estimates fail to take into account the impact of a higher GST on people’s pockets. For the millions of Australians who are already financially stretched, it would be disastrous. It would result in increased hardship and the purchase of fewer goods and services and have a serious contractionary effect on the economy. As demand declined, more businesses would go belly up, and more workers would be sacked.

The tax system needs reform. The GST should be abolished. Company tax and the marginal rates on higher incomes should be increased. At the same time billions could be raised to meet social needs by slashing corporate welfare and closing the loopholes that allow highly profitable transnational corporations to pay peanuts or no tax at all. There is absolutely no economic justification for balancing budgets and swelling corporate profits at the expense of the people.

Next article – Editorial – Superannuation: Hands off workers’ retirement funds

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