Profit-shifting: Tax office settles for patting the elephant in the room

Illustration: Michael Mucci. Photo:

The House of Representatives was consumed for much of the week on the vexing matter of whether Human Rights Commission president Gillian Triggs had been subject to an “offer” of an actual “job” by the government or had merely been party to “discussions” over a new “role”.

As the business of politics carried on in the lower house to the usual guffaws and heckles, the business of government proceeded in a committee room along the corridor.

Heavyweights from the Australian Tax Office were up before a Senate estimates hearing. These are the one chance our elected representatives get to question our government agencies in public.

As far as we could see there was only one news story that covered this stuff; that was in these pages. The media did its bit to promote the lively diversion of Triggsgate, and naturally devoted the word-weight of a Dickens tome to leadership speculation.

It was just what the big tax avoiders ordered; though it may not be entirely the fault of our brothers and sisters in the Fourth Estate – the top ATO news story on Google yesterday was about a tortuous compensation case over “hot-desking”.

We are moved to quote this. It is gold: “The Australian Taxation Office has been involved in a long legal battle after a former employee’s desk and chair heights were adjusted without her knowledge or permission.

“Adjustments were made to the woman’s work station in spite of the sign she had placed on her desk which read ‘do not adjust or sit at this desk’.” This has been going 18 months.

Meanwhile, the tax office has begun to acknowledge the presence of the elephant in the room that is the billions lost to the nation’s budget by multinational profit shifting. Albeit, they are still patting this elephant rather than proactively shooing it out of the room.

The very funding of our hospitals and schools is at stake here, our children’s future, but the committee’s modus operandi was more of a fireside chat than a grilling. It was apparently a matter for pride for the ATO that only one suspect was left on its “high-risk” list of corporate taxpayers (from 14 earlier).

We could point them to hundreds. All you have to do is look in the cash-flow statements to find the actual amount of income tax paid, often zero, versus billions in cash raked in and the billions in loans to related parties offshore. There are culprits everywhere.

Despite the licence of parliamentary privilege though, the commissioner declined to proffer the identity of this “one high-risk” and the senators didn’t push him hard.

Courtesy to public officials and multinationals it seems ranks ahead of the threat to the very funding of our hospitals and schools, our children’s future; as does the debate about whether the Triggs offer, or “discussion”, amounted to an inducement, or not.

Tax headwinds loom

We hear a lot about the government’s spending problem and who’s to blame, but precious little about the more pressing issue. The government has a revenue problem.

A snapshot of some of our biggest taxpayers (and small taxpayers who are big) does not augur well.

Profit reporting is in full swing and reflecting the sharp decline in company receipts was the BHP report out this week, which showed tax paid of $2.85 billion for the half year, down from $3.7 billion previously. For 2014, BHP paid $6.4 billion in tax so, on rough estimates, it looks as though Canberra will have a $2 billion hole to fill this year from one company alone.

The Tax Commissioner is talking about possibly clawing back $1 billion by prosecuting avoiders. Mere tinkering at the edges.

Rio Tinto, which has first-rate tax disclosure, posted tax paid of $3.6 billion, more or less flat. Unless commodity prices rebound, that will fall.

Westfield enshrines another challenge to revenue. It has restructured and shifted its tax base offshore and pays no tax here. Besides its $US2.3 billion in related party loans, loans to itself offshore that is, it lumped in income tax in the same line in the cash-flow statement as withholding tax, in apparent contravention to AASB107.

Its spin-off Scentre Group, which is domiciled here, enshrines yet another problem – as a trust it is incumbent upon its investors to pay the tax. Same deal for the rest of the property trust sector.

Meanwhile, AGL, which had a big year thanks to rising power prices, reported tax paid had fallen from $138 million to $68 million despite net operating cash of $588 million. Rail group Aurizon paid $9 million on net cash inflows of $686 million and AMP pulled a refund of $117 million despite net cash flows of more than $1 billion.

This is an unscientific study mind you. The good taxpayers – the banks and grocery giants – are tipping in their fair share as usual. Though, as a barometer of the broader economy, Woolies is a worry. Analysts were tipping growth of 4.4 per cent and it came in at just 1.8 per cent.

Worse, many unlisted multinationals that don’t file with the ASX will as usual pay next to nothing, and the old guard of multinationals are ever mimicking their aggressive tax practices. Were the government to move decisively, it could lower the corporate tax rate and level the playing field for all business, by getting the big avoiders to pay their fair share. Taxing revenue rather than profit would be one way.

Alas, politics comes before government.