Facts first to fall at Senate’s corporate tax avoidance inquiry

by | Nov 20, 2015 | Business, The Economy

The festival of equivocation and prevarication, otherwise known as the Senate Inquiry into Corporate Tax Avoidance, threw up some wonderful moments this week, moments which serve as a worthy entrée for the coming week.

For it is on Monday that debate is slated in parliament for the government’s rather lame multinational tax reform bill. At the centre of this looming fracas will be two amendments brought by the Senate last week which would make this lame bill a good bill.

The first is the Senate’s move to axe the grotesque “Rich Mates Amendment”, a government gimme which shields billionaires from having to disclose how much tax their companies pay because they might be kidnapped.

Grant Wardell-Johnson, leader of the Australian Tax Centre at KPMG (left) and David Linke, national managing partner of tax and legal at KMPG, at the Corporate Tax Avoidance inquiry in Sydney. Photo: Dominic Lorrimer

The second is an amendment to compel multinational companies to file, as do their Australian-listed peers, proper financial statements, and not the niggardly “Special Purpose” reports with which they disguise vital information about their tax affairs.

While plumping for the GST, the government is expected to heroically defend the rights of the super-rich to conceal their financial information thanks to special “grandfathering” exemptions wrought in a sly mates’ deal many years ago.

So a Fact Check on this week’s proceedings is in order.

Not happy, Sam: Senator Sam Dastyari asks the tough questions. Photo: Dominic Lorrimer

Were it to be a Waffle & Blabber Check it would consume this entire publication, so we shall keep to some of the finer moments.

Maritime safety a furphy

Representatives for the Gandalf of Global Tax Wizards, Chevron, were at pains to explain to the Senate how their prolific presence on the island of Bermuda, including the entity Chevron Australia Transport Bermuda, was due to Bermuda’s superlative “maritime safety” record.

Research director of the Australian Accounting Standards Board Angus Thomson. Photo: Dominic Lorrimer

The crew of the SS El Faro, whose vessel sank two months ago in the Bermuda Triangle only to be found a month later 15,000 feet beneath the surface, might have begged to disagree, were they alive.

FACT: no Australian LNG goes anywhere near Bermuda. The tax rate in Bermuda is zero, ship registration fees are cheap and oil giants can hire cheap Filipino labour on their ships rather than Australians.

Chevron, which also attested it was “open and transparent with the ATO”, took the brunt of the senatorial grilling, clearly to the relief of BP and Shell executives. The latter somehow managed to pay no income tax in the past three years despite $60 billion in revenue from Shell’s 870 service stations.

Illustration: Michael Mucci.

Earlier, Caltex was unable to tell whether it pays the headline tax rate of 17 per cent in Singapore or the 5 per cent tax haven rate.

You could steer an oil tanker through that gap, but it was a better showing than Woodside which imperiously declined to disclose to the Senate its tax rate altogether; above the riff-raff of government, clearly.

Starting-up spin

Chevron’s vice president and general tax counsel, Sandy Macfarlane (left) and Chevron managing director Australia Roy Krzywosinski. Photo: Edwina Pickles

A fact check on the testimony of digital players Uber and Airbnb is akin to shooting ducks in a pond. Compared with their silky-slick oil company counterparts, these blokes are half-pint PR merchants.

Uber wailed that it was being picked on by the demon Tax Office. This was no way for authorities to treat a “start-up” they said.

FACT: Uber has a share market value of $50 billion and a presence in 54 countries. It deems its revenue made in Australia selling Australian services to Australian customers is really a Dutch business or, as Senator Sean Edwards put it, in “the Nether-Netherlands”.

Ernst and Young’s Rob Mcleod. Photo: Dominic Lorrimer

Both Uber and Airbnb parroted the inevitable tax inquiry line that they were good corporate citizens and meticulously obeyed the law.

FACT: the law requires you to file your financial statements within four months of year-end. Uber was 22 months late filing its June 2013 accounts with ASIC. (The auditor was Ernst & Young).

The guys from Uber were asked how much tax they paid. They didn’t know, at which point they were reminded of their geographic location: “You know this is a corporate tax inquiry?”

Airbnb was asked why it booked its Australian revenue in Ireland.

The response was thus: “The reason we have located ourselves in Ireland is for the great talent”.

We invite readers to conduct their own Fact Check on this proposition. Suffice to say the Irish are talented, not merely at drinking and telling great gags, but also in striking sweetheart tax deals with some of the world’s most egregious multinational tax dodgers.

Big four setting standard

The Big Four audit firms, Ernst & Young, PwC, Deloitte and KPMG, also fronted the hearing, as did the Australian Accounting Standards Board, the standards-setter.

The latter, incidentally, reveals in its own 2015 financial statements that it had overpaid $90,000 in long-service and maternity leave and that the payments were unrecoverable.

It seems the standards-setters must have forgotten that they were government employees, not private-sector. As this outfit is stacked with Big Four types this is understandable.

Confronted with evidence of a serious decline in audit standards which essentially allows multinationals and their Big Four facilitators to hide tax stuff, the Big Four reps – with the song-sheet precision of the Vienna Boys Choir – all claimed it wasn’t their thing. They were tax guys, not audit.

PwC claimed it was okay for Australian subsidiaries not to file General Purpose accounts because the likes of their client Johnson & Johnson Inc filed full financial statements in the US.

FACT: The J&J Inc accounts, like those of all multinationals, reveal little or nothing about the Australian business, let alone detail about related party transactions designed to funnel out pre-tax profits.

E&Y claimed that filing General Purpose reports (full financial statements) in Australia could be “misleading”.

This assumes, firstly, that Australians are dumbos who don’t deserve access to information (Quick, slap them with a GST!).

Secondly, if proper reporting is misleading, why do it for your large publicly-listed clients on the ASX? Why, moreover, do you keep signing them “true and fair”?

The piece de resistance was this from PwC: “To quote John Lennon, give voluntary disclosure a chance”.

It is a pity Senator Jacqui Lambie is not on the Senate’s Economics References Committee as she would have advocated the inquiry’s respondents be fitted with mandatory electronic tracking devices like the Grand Mufti.


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.

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