Australia’s Top 40 Tax Dodgers 2020: fossil fuels dominate once more

by | Jan 31, 2020 | Tax

It’s Top 40 Tax Dodgers time and Exxon has topped the charts again. This year, we are announcing all 40 in one go. ExxonMobil Australia has racked up total income of $42.3 billion over the past five years of available Tax Office data. Yet it paid not one cent in income tax in this country.

This means that every worker on the minimum wage in Australia, and plenty who earn less, pays more income tax than this US oil juggernaut. In the “lifters and leaners” parlance of Joe Hockey – he of the $45,000 taxpayer funded barbecue – these humble PAYG Australians are the lifters, while many of the biggest companies in the world the leaners.

Exxon’s peer Chevron too paid zero tax over five years, notwithstanding its $15.8 billion in total income. Michael West reports on the big “leaners”.

Once again, the annual Top 40 Chart is veritably bristling with multinational fossil fuel companies. Five of Australia’s top coal companies – Peabody, Yancoal Sumitomo, Citic and Whitehaven – racked up $54 billion between them in total income over the past five years and paid zero income tax in Australia.

“The window is getting longer and these same names keep bobbing up,” says Jeffrey Knapp, retired accounting academic from the University of NSW, referring to the now five years of transparency data from the Tax Office.

“They just keep getting bigger and bigger, but will the taxman ever see a dollar from these fossil fuel companies … particularly the foreign multinationals?”

It begs the question, as bushfires rage across this drought-ravaged land, and as throngs of individual taxpayers make their personal donations, are these corporations pulling their weight? Should there be a fossil fuel levy?

Thirteen of the 40 companies on the list are involved in either coal, oil and gas or energy networks. There is Exxon at number 1, Santos at 5, Peabody 7, Chevron 9, QGC Upstream Holdings (Shell’s fracking business) 12, Puma Energy (Australia) Holdings 14, Yancoal 16, Australia Pacific LNG at 18, Sumitomo Australia 25, Citic Resources Australia at 26, Whitehaven Coal 29, Victoria Power Networks 23 and International Power (Australia) Holdings – trading as Engie (gas) at 37.

The Top 40 is based on the annual corporate tax transparency report from the Australian Tax Office. Its methodology relies not only the sheer size of revenue and the sheer absence of tax but also a metric which indicates aggressive “offshoring” of pre-tax profits.

How do Exxon and Chevron pull this off? “Debt-loading” is a large part of it. Their Australian businesses accept billions of dollars in loans from their overseas companies – often from tax havens – and the interest on these loans is siphoned out of the country tax free.

As UTS associate professor and tax expert Roman Lanis puts it, “Many of these multinationals are anti-businesses, they are here not to make a profit, they are set up to make a loss. (When you look at the accounts) all you see are losses, negative equity. Yet the auditors sign off as a ‘going concern'”.

Lanis is talking as much about the US tech giants, Google, Facebook, Amazon, as the fossil fuel producers.

The aim of the multinational tax avoider is to wipe out its profit in Australia, a high-tax jurisdiction, and somehow get that profit to a tax haven. This may be done by debt-loading, returns of capital, assorted “service agreements” to pay offshore companies a fee, complex derivatives such as “swaps” and intellectual property payments, or royalties.

Transfer pricing too. That is, paying often inflated prices for products from a sister company overseas.

In their defence

There are mitigating factors to explain the exceptional presence of fossil fuel companies among Australia’s top tax dodgers, at least on this list which is based on ATO metrics.

Thanks to the rise of renewables, thermal coal is in serious decline as a source of energy. Coal producers are battling falling prices and rising costs; and income tax is levied on profits, not revenues.

Nonetheless, they have long been accomplished tax avoiders, in good times and bad, particularly those who are foreign controlled. Those mining companies which are domiciled in Australia such as BHP and Rio are vastly better taxpayers.

BHP and Rio Tinto are both in coal mining too. They may well have had their run-ins with the ATO over the Singapore “marketing hub” scam yet they paid $13.8 billion and $11.8 billion respectively in tax over the five years of available ATO data.

Glencore, the other mining major and an infamous global tax cheat, won the Top 40 gong in 2017 but has since begun to pay just enough tax to get itself off the list.

The gas cartel has some defence as well, in light of its bona fide losses from the LNG and fracking debacles. While gas supply tripled since 2014, so did domestic gas prices, as LNG export contracts were locked in at high prices. The price of gas has since collapsed globally, leaving the cartel nursing enormous losses from its LNG escapade.

While the gas industry promised much in the way of taxes and royalties, tax revenue has been pitiful, says gas analyst with IEEFA Bruce Robertson. “Far from the $1 billion in tax that BG chief (now EnergyAustralia boss) Catherine Tanna said her company would pay, in 2016-17 BG still paid no tax. BG has been taken over by Shell and it too paid no tax in 2016-17.

“The other two consortia that own plants at Gladstone are led by Santos and Origin, neither of which paid tax in 2016-17 according to the ATO,” says Robertson. “There simply has not been the billions of dollars for the Queensland economy that were promised”.

Another perspective 

This brings us to methodology. Instead of evaluating tax avoiders from the perspective of revenue, which captures traditional companies, particularly the fossil fuel giants, what if the size of assets was the key metric? Clearly, the value of the global monopoly assets of a Google or Apple is high, which would dwarf their tax contribution compared with revenue.

As Roman Lanis points out, a lot of the tech giants, who are coining it in their Australian markets, are just as bad as the energy giants but many are not captured by the ATO transparency data because they simply book their revenue directly offshore.

The MAAL tax law reforms of 2017 have since forced Google and Facebook and a few others to “onshore” their income, or recognise that their sales in Australia actually belong in Australia rather than Singapore. Still, they manage to “offshore” much of it.

“It depends on your methodology, how you evaluate it,” says Lanis. “If you were to look at the size of assets, rather than revenue, the total income of the tech companies doesn’t reflect their size.

“If the ATO was a bit more transparent, we could probably work out who are the worst,” he told Michael West Media, citing the need for greater transparency, and specifically, the refusal to make “country-by-country” reporting public. The ATO can see it but the public can’t.

Indeed, investigations by Jeff Knapp and this writer into both Big Pharma and Big Tech companies such as Google, eBay and Booking.com bear out the assertion that the fossil fuel giants may often be neck-and-neck with, rather than head-and-shoulders above, other multinational tax avoiders.

Yet to claim, as they do, that they pull their weight is clearly a risible proposition.

“Ironically, the fossil fuel companies that pay the least tax are the same companies claim to pay the most,” says Rod Campbell, Director of Research at The Australia Institute.

“ExxonMobil, Santos, Peabody, Chevron, Yancoal, Whitehaven, have all commissioned economic modelling to give the impression that their projects will make huge payments to governments and bring wider economic benefits, yet here they are paying almost no tax. Again.

“Economists at the big consultancies like Deloitte and ACIL Allen prostitute themselves to these companies, putting out estimates of future tax payments that they must know will never be paid.

“For example, ACIL Allen estimated Chevron would pay $338 billion in federal taxes between 2009 and 2040. Ten years in they don’t seem to have paid a cent from what the data shows.

“So it’s not just these non-taxpaying companies that need to be brought into line, but their facilitators like the economic and tax consultants they use.

The other myth propagated by the fossil fuels lobby and its spin factory, Minerals Council of Australia, is that they pay their fair share because of royalties. Yet royalties are not taxes, they are a payment to the states for the commodity which they dig out of the ground, or drill out of the seabed, commodities which belong to the people of Australia. It is a nonsense claim to conflate royalties with taxes.

Smoking

One stark example of how much tax can be captured is the tobacco giants Philip Morris and BAT. Despite their enormous state and federal excise and despite sales pressure from ailing demand for cigarettes, these two companies are among the best taxpayers in Australia.

Philip Morris booked revenues of $15.9 billion over the five years, declared taxable income of $2.5 billion and income tax of $764 million.

In contrast to the fossil fuel companies – who despite large subsidies complain about their tax burden while funnelling profits to their tax havens – this company recorded profit margins of 16 per cent over the five years. That is, it did not pipe huge chunks of its profit offshore in devious tax schemes. Then, on top of all the other cigarette excise, it paid tax at the statutory 30 per cent corporate rate.

Same deal for British American Tobacco, which recorded $14 billion in sales, almost $4 billion in taxable income and $1.2 billion in tax – a profit margin of 28 per cent in a mature, even declining, industry.

These comments are no reflection of the virtue of the tobacco industry. They are simply obeying the law. Their taxpaying perhaps reflects how much they have to pay for their social licence to operate.

Social licence

Like ordinary taxpayers, giant fossil fuel companies are protected by firefighters. They too enjoy access to and the protection of the law. They are big users of this country’s legal system.

Their executives drive on Australia’s roads, their children go to school here, their plants consume huge amounts of water, they enjoy the diesel fuel subsidy. They, like ordinary taxpayers, are protected by Australia’s armed forces and police.

They are effectively subsidised, heavily subsidised by ordinary taxpayers although they return little or nothing by way of income tax.

“It is crucially important as the function of our society,” says Tax Justice Network Australia’s Mark Zirnzak of corporate tax. “It pays for the schools, the universities, the court system, all the functions of government and the things in our society from which these companies benefit”.

“They need to pay their contribution. These things benefit their businesses, they help them to do business here.

“Also globally, under global tax rules, the poorest people are the most affected. Multinational mining companies in particular, they are the worst offenders”.

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ABOUT THE AUTHOR

Michael West

Michael West

Michael West established michaelwest.com.au to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences. You can follow Michael on Twitter @MichaelWestBiz.

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