A few days ago, US drug giant Pfizer quietly filed its Australian company accounts with the corporate regulator.
Tax fairness has finally emerged as critical to government in this country. The cat is out of the bag.
Here was yet another multinational company, yet again, getting away with blue murder on the tax front. Last year they forked out a paltry $1.5 million in income tax despite operating cash-flows of $1.4 billion. It was a flaccid effort from the maker of Viagra, especially when you consider how heavily the PBS (Pharmaceutical Benefits Scheme) is subsidised by Australian taxpayers
On the eve of the federal budget Treasurer Joe Hockey announced a crackdown. Taxpayers can only pray this is more than another rhetorical crackdown.
Detail is scant as yet but the first initiative delivers further anti-avoidance powers to the Tax Office to recover unpaid taxes from multinationals and issue fines. The second is the so-called “Netflix Tax” through which GST will be extended to digital downloads from overseas.
The rich paradox in this Netflix Tax is that it was urged upon the government by Rupert Murdoch’s News Corporation, whose Foxtel pay-TV business stands to lose from digital competitors offshore. As previously revealed though, News Corp has now been identified as the Tax Office’s number one tax avoidance risk in Australia.
As for the other initiative, details are due after the budget is handed down. The devil will be in the detail. Even if the measures are strong and well targeted, any revenue raised is still contingent on how well the law is executed by the Australian Taxation Office, whose staff has been gutted.
Ramping up the rhetoric
For its part, the ATO also ramped up its rhetoric of late and has proposed better transparency measures. These need to be enhanced and enforced. Disclosure is critical to tax enforcement. If you can’t see it, you can’t tax it.
The government ought to embrace the opposition policy too. Like its own, it is too little – raising $1.9 billion over three years – but it is funded, and it makes sense. Most of the savings are in tightening up the “thin capitalisation” rules, reducing the amount of debt a multinational can stuff into its Australian subsidiary, thereby eliminating profits which can be taxed by re-routing them offshore in loans.
As revealed here on the weekend, oil major Chevron has gearing of just 8 per cent in its US mother-ship but 60 per cent in its Australian holding company. Its $15 billion in related party loans is beyond the pale.
It is good to see the initiatives begin to flow from the major parties and the Tax Office on multinational tax avoidance; although too little as yet, but they really should be working together on this to avoid being wedged by the business lobby.
Tax fairness has finally emerged as critical to government in this country. The cat is out of the bag. People understand now the magnitude of the multinational skulduggery and it will be hard to sell the likes of pension cuts and cuts to stay-at-home mums without taxing those who can most afford to pay.