John Menadue. Tax dodging may be legal, but is it fair and ethical.

Senior executives of companies like Google, Microsoft and Apple have all admitted to the Senate in the last week that they have avoided billions of dollars of Australian tax by a range of devices such as transfer pricing and earnings made in Australia being diverted to Singapore which has a lower tax rate. In every case they have told us that it is all perfectly legal. And apparently it is. Other companies such as Westfield and News Corp have also received earlier publicity because of their massive tax avoidance. But it’s all been legal!

Michael West in the SMH on April 6, 2015 told us that Rupert Murdoch’s US Empire siphoned $4.5 billion from its Australian business, tax free. The Murdoch media complained to the rooftops about this report. It plays hard ball with all its opponents but really squeals when it is under attack.

Heath Aston  in the SMH on 1 April 2015   reported that according to the Australian Taxation Office ‘Australia’s biggest 900 companies claimed deductions and exemptions worth $25 billion last year – enough to wipe out two thirds of the entire Federal deficit.’  Yet many of these companies have been leading the charge that the government needs to show some backbone and fix the budget deficit. The Abbott government seems to prefer fixing the budget at the expense of the sick and unemployed.

Michael West in the SMH, who has been so persistent and effective in revealing tax dodging, told us on Feb. 13 2015 that documents obtained from the ATO under FOI show that ‘Australian corporation taxes are in crisis because of the explosion of tax haven dealings of multinational companies.. one of the most telling FOI finds is a comparison between trade and international-related party dealings. Together Singapore and Switzerland account for 40% of related party trade. That level of related party dealings bears little relationship to real trade’. As Michael West put it ‘In laymen’s terms the purpose of these related party deals is often to siphon profits out of Australia to avoid paying tax’.  Is this fair?

In the SMH on Feb.9 2015 Michael West estimated that Google ‘is making off with at least $130 million a year that belongs to the Australian taxpayer and rising’. Does that sound ethical?

Peter Martin in the SMH on May 13 last year revealed that 75 ‘ultra high earning Australians paid no tax at all in 2011-12’. Is that fair?

Michael West again in the SMH on 20 December 2014 reported that Glencore which has recorded revenues in excess of $10 billion p.a. paid only $400 million in tax over three years.

According to Roman Lanis of UTS the Westfield Empire paid an effective tax rate of only 8% over the last decade. With its chorus of lawyers and accountants, it was apparently able to make this legal. But was it right?

We hear a lot about dole-bludgers and welfare cheats but is all this tax minimisation fair and right?

The Tax Justice Network, in collaboration with United Voice, reported that 29% of Australia’s top 200 companies had effective tax rates of 10% or less. Even worse, 14% of these 200 top companies paid no tax at all. It estimated that these top 200 companies are avoiding tax per annum of $8.4 billion. These figures have not been seriously challenged.

These massive tax avoiders say that is all legal.  They have the benefit of expensive legal and accounting advice that ordinary tax payers cannot afford. Is that fair?

These major tax avoiders in collaboration with the Australian Taxation Office refused to have their affairs disclosed for public scrutiny. We are told it is ‘commercial in confidence’. Apparently the ATO thinks it should cosy up to wealthy companies and they will then hopefully cooperate. Does that same concern for taxpayers extend to ‘ordinary’ taxpayers?   There is a lot of unethical behaviour allowed for the powerful and wealthy which is not permitted for ordinary people and Australian companies, large and small.

We now also know that our four big audit firms are advising these tax-dodgers on how to minimise their tax. It is noteworthy that the European Union has recently enacted legislation curtailing the activities of audit firms who have been giving tax advice. Our ATO is apparently moving in the opposite direction by employing staff from the big four audit firms to replace the loss of experienced ATO staff. Talk about Dracula in charge of the blood bank! Michael West in SMH on 15 December 2014 described this quite bizarre action as follows “The ATO is running a pilot scheme whereby it outsources the duty of tax compliance for Australia’s largest companies to none other than the company auditor….The large taxpayers are to pay their own external audit firms.. read the Big Four… to conduct their compliance work as well as doing the audit’. It is hard to think of a more obvious conflict of interest than this.

The tax dodgers have clearly got many powerful friends amongst the political, business and professional elites. But they are friendless in the community. In March this year, Essential Research asked respondents how they felt about the tax being paid by various groups. They indicated that the following did not pay enough tax.

Large businesses- 60% did not pay enough tax.
People on high incomes- 59% did not pay enough tax
Mining companies- 67% did not pay enough tax
Companies- such as Google and Apple 73% did not pay enough tax.

In a panel of over 1400 readers of the SMH, 83 % agreed that the ATO should be free to name and shame companies suspected of not paying their fair share of tax. (SMH April 11-12 2015)

The same newspaper also reported that in a survey of marginal seats 90 % of people believe that the government has failed to tackle tax dodgers.

The Swinburne Leadership Institute Survey released today said that business leaders ‘are perceived to disregard .. the wider public good’.

The boards and CEOs of these companies have a heavy ethical and moral responsibility and dodging the issue by claiming confidentiality and that it is all legal will just not wash.

Corporations don’t make decisions. It is individuals who make decisions – and those decisions should not only be legal but they should also be fair and ethical.  That responsibility to act fairly and ethically cannot be avoided by individuals or deflected to someone else. Joe Hockey likes to infer that his business chums are ‘lifters’ but is it true of these tax dodgers!

There is difficulty in getting international cooperation to address this tax avoidance. A good start however  would be full disclosure including full disclosure of all subsidiaries, full disclosure of all related party transactions and balances and a breakdown of taxes paid in Australia and other countries. Jeffrey Knapp has outlined this in today’s The Conversation.

How can Tony Abbott seriously expect public support on necessary budged repair when we see such massive tax avoidance by large and wealthy corporations many of which are foreign owned.

Corporations have been given a privileged position in our society. It is called ‘limited liability’ in that shareholders can only be liable for the money they invest in a corporation and no more. That is an enormous advantage that has been conveyed by the community.  If and when a company goes bankrupt, the community, employees and creditors have to pick up a lot of the debts and consequences. But the advantage that we give to companies is obviously not reciprocated by many companies.

Business people should act in an ethical manner and not inflict damage on the nation for the sake of short-term commercial or personal gain.

These companies that are avoiding billions of dollars in tax in Australia take advantage of the infrastructure and services that have been paid for by the Australian taxpayer. They rely on highly trained and skilled Australian staff. Those staff have been educated and supported by Australian taxpayers.  In some instances, these companies have taken advantage of research grants – funded by the Australian government (and taxpayers).

There is also a matter of trust. As a community we need to have trust in our major institutions including corporations. In recent years the media has been full of comment about our loss of trust in politicians, parliament and political parties. But commercial institutions are also critical in our society and a major loss of trust in them has very serious consequences.

Many of our corporations are forfeiting our trust. We are getting into dangerous territory both for themselves and for ourselves.

 

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One Response to John Menadue. Tax dodging may be legal, but is it fair and ethical.

  1. andrusha says:

    I wonder why Part IVA of the Income Tax Assessment Act hasn’t been more successful in achieving its intent, ie to counter schemes that comply with the technical requirements of tax law but have a dominant purpose of avoiding tax?

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