Investigating multinational tax abuses and shoddy compliance by the world’s biggest companies is like shooting gill-bearing aquatic craniate animals in a fish-tank; there is a good chance you are going to hit one.
Take sportswear giant Adidas, a company which follows its own counsel to the T; “Nothing is Impossible”.
“I’m not just any footballer,” proclaim the slick TV commercials, featuring Lionel Messi and a bevy of the world’s soccer stars. “Mark my words. I’ll be one of the best. I’ll have it all. I’ll be a beast, a creator, uncontrollable, untouchable, legendary …”
Indeed. An analysis of 17 years of financial statements for Adidas Australia by University of NSW accounting expert Jeff Knapp shows that when it comes to side-stepping tax – nutmegging the regulators if you like – this is a corporation which is true to its word; untouchable and uncontrollable, a creator, a beast.
Adidas’ revenues and gross profits have more than doubled in 17 years but, fleet of foot, they managed to pay less income tax last year than they did in 1999.
The usual tricks are in evidence, transfer pricing, royalties and bulking up costs in Australia to eliminate as much profit as they can while ripping it out to sunnier tax climes offshore with the trusty assistance of auditor KPMG.
ASIC funds the government
Before we get to the breathtaking tax feats of Adidas though, we’d like to address a common misconception much in evidence of late. Amid all the talk of corporate regulation in the news, it is often said the government has taken the axe to the funding of the Australian Securities & Investments Commission (ASIC).
This is true. The commission has been left with less, until the budget this week that is when Canberra capitulated to commit to higher funding. It is not true, however, that the government funds ASIC. In fact, ASIC funds the government. The regulator is rolling in it.
The true picture is that, thanks to a whopping $725 million in fees last year (up from $673 million in 2014), and $98 million in fines (up from $89 million), ASIC’s “own-source income” has surpassed $1 billion for the first time.
Alas, the government is hogging most of it and the corporate regulator has therefore been left with less to combat the pandemic of corporate malfeasance.
Last year they were left with $324 million in cash to work with, down from $356 million, as the government snaffled a mighty $491 million for itself, up from $301 million. This brings us to the fees and fines.
If you are a struggling small business type out the back of Burke, you can expect a fine for breaching the Corporations Act. If, however, you are a multinational, or the Business Council of Australia, you can breach the laws with impunity.
Adidas filed late
Take Adidas. No evidence of penalties here but this multinational giant and its auditors managed to file their accounts late for 16 years on the trot; 2,527 days of lateness, a “legendary” performance, as Jeff Knapp puts it.
It is the humble view of this reporter that the Australian public is charged the highest search fees in the world to access public information, information crucial to democracy, information for which the public has already paid. Perhaps more effort can be put into enforcing the existing laws on penalties.
Interestingly, Adidas auditor KPMG charges for both audit and for “assistance with financial statements”. If this big-four firm is both compiling and auditing the Adidas accounts, is it not akin to the ref in a soccer game getting behind the winning team and having a couple of quiet shots at goal?
Ten years ago, with nary a word of explanation, Adidas switched from preparing General Purpose financial statements to the Special Purpose variety; less disclosure, no transparency on deals with the group’s offshore entities.
For a 10-year period, from 2001 to 2010, Adidas managed to pay just $550,000 tax. In fact, at $1.8 million, the money it received from “grants”, presumably public grants, was three times the tax it paid. In the words of Adidas: “A beast!”
They have paid a smidgen more in recent years but less last year than they did when the entity came into being in 1999. Back then Adidas filed proper accounts, showed sales of $124 million and paid $5.2 million income tax. Last year sales were $266 million and tax was $4.9 million.