Billions of dollars are escaping Australia’s tax net. The Department of Defence has revealed it spends one-fifth of its entire budget, the biggest procurement budget in government, with overseas military contractors – even though these contractors have subsidiaries in Australia.

In response to data analysis published here yesterday, the Department of Defence said 20 per cent of contracts awarded since 2004 – a massive 70 per cent of total federal government spending on procurement – had been made with overseas companies.

This is despite the global defence giants such as Boeing, BAE Systems, Raytheon and Lockheed Martin all having companies registered here in Australia, companies with which the government could be transacting, companies which are expected to pay corporate income tax in Australia.

This means the government is effectively forgoing billions of dollars in tax, billions paid elsewhere to shareholders and governments in other countries.

“Defence is the Commonwealth’s largest procurer, with approximately $30 billion of contracts entered into annually,” said a statement from the Department yesterday. “This represents just under 70 per cent of total Commonwealth contracts awarded by value.

“The ABN Exempt component of Defence contracts awarded since 2004 is approximately 20 per cent of the total contract value awarded over that period. This compares to 14 per cent of contracts, awarded annually at the whole of Commonwealth level, identified by entities as primarily or entirely based outside Australia.

Exempt: how Defence dodges the taxman

The statement also said the practice of awarding contracts directly offshore was in line with government rules.

“Defence procurement policies and processes are aligned with the Commonwealth Procurement Rules. They support Defence’s strategic intent in obtaining the best capability possible, whilst achieving value for money outcomes.”

The Australian subsidiaries of the global military contractors are not good taxpayers anyway. An earlier story here found, according to Tax Office transparency data, 15 of the top 21 companies paid zero tax for the three years to 2017, including the biggest of them BAE Systems.

Defence giants: the “Valley of Death” is really a Mountain of Money

The Department also said it sought to maximise value for money in its procurement. Here is the rest of the statement:

“Due to the nature of the defence industry sector, a number of the key suppliers are based overseas. Defence uses a global supply chain to meet its policy and program objectives, including cooperative procurement arrangements with foreign governments. These entities are not required to have an Australian Business Number (ABN), and as such appear as ABN Exempt on AusTender.

“The Australian Government expects that international companies seeking to work with Defence will engage with Australian industry as part of providing their proposed capability solutions. Investment in Australian industry capability is a critical element in assuring Australian sovereignty in the development, operation, and sustainment of Defence capability.

“In all purchasing decisions, Defence also seeks to maximise the value for money participation of Australian defence industry, wherever possible.”

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