When it comes to tax, the G20 is the perfect excuse for political languor. To say that nothing can be done about corporate tax avoidance until some sort policy paper emanates from a chat-fest is preposterous. In truth, nothing will be done. How could 20 nations possibly agree, then execute, when it comes to something as notoriously intricate as tax?
Australia is a sovereign nation, replete with a parliament to make its laws. The G20 doesn’t make laws, it just provides a pretext to do nothing. And when nothing is done, business and government will no doubt wave their fingers in reproach at the G20. Corporations will go on their merry way transfer-pricing and their big-swinging tax lawyers and accountants will keep ripping out huge fees for the most slippery advice on how to skive out of paying tax (while sanctimoniously preaching to government about tax reform and the finer points of budget management).
Fairfax Media has been in contact with a number of former top people from the Australian Taxation Office. They are extremely concerned at the gutting of the ATO, its failure of transparency – which suits the big tax dodgers down to the ground – and a recent change in approach which favours chin-wagging over litigating.
“Morale is down and 3000 of our most senior staff have recently taken redundancy package,” said one former officer. “There was also an absurd clear out of senior transfer pricing staff about two years ago, so there is very little likelihood of the ATO ‘manning-up’ on multinationals any time soon. The best chance of that happening is if the revenue collapses and the government asks the commissioner to explain how that happened.”
Even before the cuts there was a cultural problem thanks to the pay schism between the public service and private law and accounting firms.
“The big firms can afford to attract the best brains while the ATO has to get by on a few well-meaning but outgunned do-gooders,” said the source, who declined to be on record as tax officers, past and present, live in fear of being prosecuted for breaches of tax secrecy.
“It [enforcement] is also much less likely to happen in the current ATO. I worked there for 30 years and we were told our job was to ‘protect the revenue’.”
The sources grumbles that the focus in the ATO is now to to “facilitate business”.
“The general impression among senior ATO officers is that we are supposed to give the big firms what they want and to usher the revenue out the door. The News decision is symptomatic of that and a lot of staff were pissed we caved on that case.”
The source was referring to the decision by the ATO not to appeal a case against Rupert Murdoch’s News Corporation. News, an infamous tax minimiser, won an $880 million rebate last year for a transaction which harked back to 1989.
If it had the political will, the government could enact laws right away to remove the secrecy around tax.
“Lack of transparency of settled disputes with multinationals can, in my opinion, promote questionable back-room tax deals, if not corruption … where litigation is discouraged, settlement encouraged, a ‘light touch’ approach promulgated and where the appointment of senior executive staff (SES) to positions in a handful of large, multinational-specialist, tax advisory firms, and vice versa, has increasingly become a revolving door,” the source said.
Damning stuff, and corroborated by a number of sources. Another cites the ATO’s “Code of Settlement Practice”, which was “ostensibly established to ensure the integrity and the ‘accountability and transparency’ in negotiating tax settlements with taxpayers over disputed current or prospective tax assessments. More settlement and less litigation are being encouraged.”
The substance of the claims of “accountability and transparency”, however, need to be judged against the fact that the code prescribes “confidentiality” of the settlement terms. As paragraph seven of the code states: “[In] accordance with the strict secrecy requirements of the taxation law, the ATO will not disclose the terms of any settlement agreement to third parties, unless authorised by law or by the taxpayer (refer to Corporate Management Practice Statement PS CM 2004/07).
“[In] a settlement agreement, the taxpayer’s identity will become public only if the taxpayer discloses it or agrees to its disclosure, or if the disclosure is a consequence of a hearing before a court, tribunal or as required by law – for example, a parliamentary committee.”
This secrecy plays directly into the hands of the corporations dodging tax, not to mention their advisers at the big four accounting firms and their tax lawyers.
Confidentiality would not necessarily be inconsistent with transparency if the settlement terms and the circumstances of the dispute were published but with the taxpayer’s identity concealed, precisely as happens with private binding rulings. But settlements aren’t published, meaning they are “transparent” only to the disputing parties themselves and perhaps a third party mediator if one is involved.
The government could move to make the tax laws and regulation more transparent tomorrow and the corporate regulator could insist on companies publishing general purpose financial statements. The tools are there to bring in billions in tax, all that is needed is some fair dinkum government.