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TAXING
<p>Fiona Katauskas</p>

Fiona Katauskas

Tax Dodgers Sans Frontières

The companies robbing the world, and why it finally matters.


It is more truly global than the “global war on terrorism”, more quixotic than the global war on the drug trade, and vastly more costly than either of these.

We’re talking about the global struggle between governments and multinational corporate tax dodgers.

Would you call it a war? There are no bullets, but the conflict bears other hallmarks of war. It involves a threat to national sovereignty. And it is fought at huge human cost – in lives impoverished or cut short by lack of access to food, health services and infrastructure that governments cannot provide for their citizenry because they have been cheated of trillions of dollars.

Trillions? With a “T”, as in millions of millions? Perhaps you think I exaggerate.

Then hear this, from Edward Kleinbard, a Professor of Law at the University of Southern California (USC), and former Chief of Staff of the US Congress’s Joint Committee on Taxation.

Because of an anomaly in US tax law, which requires that companies report their holdings in offshore tax havens, says Kleinbard, “we can say with some precision that US firms have about $2 trillion today in offshore, unrepatriated, low-tax earnings.

“Now, not all that $2 trillion is cash; some is invested in real subsidiaries doing real things, but about 40 per cent is cash,” Kleinbard told The Global Mail.

To give some idea of the magnitude of this corporate stash of money, consider that the gross domestic product of Australia is only about $1.5 trillion.

“All the multinationals are doing it,” says Kleinbard, who later corrects himself, saying maybe 70 per cent of the biggest US corporations do it. “The other 30 should fire their tax directors.”

And Australia is the 12th largest national economy in the world.

Furthermore, says Kleinbard: “Other [non-US] multinationals would have proportionately just as much super-low-taxed or untaxed income. It’s just that because of US tax rules, the extent to which US firms do it is more visible.”

Given that the US economy these days makes up about one-quarter of the global economy, you might well multiply that number by four. Given that the US has one of the more meticulous tax regimes, you might well multiply it by much more. Some estimates place the global total that multinationals have stashed away in tax havens at around US$20 trillion.

But no one knows for sure. “I think [calculating it] is an impossible exercise,” says Professor Jason Sharman of Griffith University, who, over a decade of studying the subject, has seen a wide spread of estimates of the scope of corporate tax avoidance.

Whatever the true number, though, it’s huge and growing fast. It’s big enough that the Organisation for Economic Co-operation and Development (OECD), in a recent report on the subject (page 8), warned: “What is at stake is the integrity of the corporate income tax.”

“All the multinationals are doing it,” says Kleinbard, who later corrects himself, saying maybe 70 per cent of the biggest US corporations do it.

“The other 30 should fire their tax directors.”

Kleinbard is not an expert on Australia’s biggest corporations, but if he’s right and it’s a universal problem, one might expect them to similarly make use of tax havens – perhaps even to a greater degree, given that Australia is proportionately a bigger trading economy.

And sure enough, most of them do have subsidiaries in tax havens or, as they are more precisely called by people who look into these things, “secrecy jurisdictions”.

In all, 61 of Australia’s top 100 companies have active subsidiaries in secrecy jurisdictions, according to a comprehensive recent investigation by the Justice and International Mission of the Uniting Church.

The Justice and International Mission is, as their name implies, concerned with social justice. If the Australian Treasury is being diddled of several billion dollars a year in corporate tax – which is their best guess – then that means the tax burden falls more heavily on others less able to pay. It means less for government to spend meeting the needs of its citizens.

So, which companies have subsidiaries in secrecy jurisdictions?

All of Australia’s big four banks have them, in varying measure. The Commonwealth Bank has eight, Westpac five, ANZ four and National Australia Bank just one.

Other big companies have many more. AMP has 15, Computershare, 18. Telstra has 19, Downer EDI, 32; Toll Holdings, 64; Goodman group, 67 – and way out ahead of the pack is Rupert Murdoch’s News Corp, which has 146.

Before we go any further, perhaps we should define what is meant by the term “secrecy jurisdictions”.

It refers to countries, dependencies of bigger countries, or even states within countries which provide to companies and wealthy individuals varying degrees of protection against the tax authorities, financial regulation, inheritance laws, rules of litigation and in some cases even the criminal laws of their home countries.

The Tax Justice Network, an international coalition of researchers and activists with whom the Uniting Church’s Justice and International Mission collaborate, identifies more than 70 such jurisdictions offering varying degrees of … shall we say … discretion. The TJN has developed an index which scores these places on a range, from the moderately secretive, such as Spain, to almost-anything-goes places, such as Nauru and the Maldives.

As the network notes: “Most jurisdictions assessed are clustered towards the murkier end of the secrecy spectrum.”

Now, we should say that the fact that a company has a subsidiary in a secrecy jurisdiction is not of itself evidence of any illegality.

In fact, the nub of the problem is the legality of such practices. The rules governing international trade and taxation, established the better part of a century ago, focused on making sure corporations were not taxed twice when they dealt with two countries. The rules did not envisage companies using aggressive means of moving money around in order to avoid being properly taxed anywhere.

Furthermore – let’s be brutally frank here – for decades, centuries even, the big countries of the world didn’t care a whole lot about the offshore behaviour of their big corporations.

National interest dictated that they shouldn’t care. After all, the rip-off of the developing world brought the developed countries cheap resources to fuel their growth. It brought their corporations healthy profits, which flowed to their shareholders. It produced stuff for their consumers to buy. So what if these companies exploited unsophisticated people and governments in little busted-arse countries – to use the famous phrase of Australia’s egregious former Foreign Affairs Minister Alexander Downer? No skin off their rich noses.

Secrecy jurisdictions: countries, dependencies of bigger countries, or even states within countries which provide to companies and wealthy individuals varying degrees of protection against the tax authorities, financial regulation, inheritance laws, rules of litigation and in some cases even the criminal laws of their home countries.

But globalisation has changed all that. For a start, the big western economies are not nearly as dominant as they used to be. As recently as the early 1990s, the world’s developing nations accounted for just 20 per cent of the global economy. In 2013, according to the European Central Bank, it’s more than 50 per cent.

More important than that has been the phenomenal growth in international trade. Its value has increased close to 50-fold, having grown since 1970 at twice the rate of the world economy, driven by neo-liberal theories of greater productivity through specialisation, by growing demand for goods and services, and of course by communications advances.

And more important still has been a change in the pattern of trade. International trade has grown fast, but intra-firm trade has grown even faster, as the OECD noted in a 2011 paper on the subject.

“The organisation of multinational firms has dramatically changed over the last two decades with the emergence of ‘global value chains’ which has increased the importance of intra-firm trade flows,” it says.

In simple terms, what that means is that instead of company A in Australia (or the US or Britain, or anywhere) selling something to company B overseas, it now is increasingly likely that company A in Australia is selling to a subsidiary of itself overseas.

More than half the trade of many developed countries is now intra-company. Australia is one of those countries.

The OECD report noted: “This transformation has already thrown into question the ‘national identity’ of MNEs [multi-national enterprises].”

That seems something of an understatement. Multinational corporations – some of them financial entities larger than middle-sized nation states – now move production to where labour and other input costs are cheaper, claim research costs where the R&D incentives are greatest, and declare their profits where the corporate taxes are lowest.

Like we said before, for a long time policy-makers in developed nations didn’t care much about what “their” multinationals did overseas. Quite suddenly, though, they are coming to realise these companies are not theirs anymore.

They are citizens of the world, generating ever-increasing amounts of what USC’s Prof. Edward Kleinbard calls “stateless income”, laundered through some secrecy jurisdiction or other.

Of course, there can be legitimate business reasons for a multinational company to have a presence in, say, Singapore, even though Singapore rates well up on the secrecy scale. It is, afterall, a major regional financial centre.

And 40 of Australia’s top 100 companies have, between them, 174 subsidiaries located in Singapore. Likewise Hong Kong, where 32 of the Top 100 have 114 subsidiaries.

But that doesn’t change the fact that these places are widely used by high-wealth people and corporations as a means to dodge tax.

Indeed, says Mark Zimsak, director of the Uniting Church’s Justice and International mission, Singapore in particular is a big growth centre for tax dodgers, especially now that Switzerland – once a by-word for financial secrecy – is becoming more willing to share financial information with other governments.

“The latest information shows there has been a massive shift to Singapore. The numbers I’ve seen suggest Singapore is home to between $100 billion and $1 trillion of stashed money,” Zimsak says.

But when a multinational operates subsidiaries in some of the more obscure and egregious of the secrecy jurisdictions, it can, on the face of it, look more suspicious. I mean, what legitimate reason could a multinational corporation have for operating in a flyspeck place such as Nauru – unless it were somehow involved in the business of bunging up asylum seekers on behalf of the Australian government?

<p>Fiona Katauskas</p>

Fiona Katauskas

In their survey of Australia’s top 100 companies, the Uniting Church’s investigators wrote to all of them, seeking to establish if they had legitimate reasons for operating subsidiaries in tax havens. Then the investigators removed from the list any subsidiaries that were no longer operating or were shown to be operating proper businesses. That left a total of 692 subsidiaries whose purpose was unexplained. (The numbers we cite throughout this story come from that amended list.)

To cite one example of a subsidiary which was explained and removed, the Fosters Group has a subsidiary in Western Samoa, one of the more secretive countries. But as it turned out Fosters is the main brewer in Samoa, where it employs 160 people. Thus that subsidiary was removed from the list of questionable entities in the report.

But only 31 of the 100 companies responded to the church’s enquiries, and many of those responses were vague or dismissive. The rest of the companies didn’t bother replying at all.

In most cases, the report’s authors got their information from corporate annual reports. But in some cases even those were no help.

For example, in the case of that champion user of secrecy jurisdictions, Rupert Murdoch’s News Corp, the report’s authors had to glean their information on its 146 offshoots from a 2008 report by the United States Government Accountability Office, on companies which used tax havens.

In the absence of any explanation from News Corp, we can only wonder what media business it conducts through its 62 subsidiaries in the British Virgin Islands, 33 in the Cayman Islands, 15 in Mauritius and others in Panama, Belize, Bermuda, Hong Kong, Luxembourg, Marshall Islands, Singapore and Switzerland.

Of the 692 subsidiaries the ASX Top 100 companies operate in secrecy jurisdictions, about 40 per cent – or 288 – were in Singapore and Hong Kong, which, like we said before, are financial hubs. The other 60 per cent were in rather more questionable places. There were, for example 97 in Jersey, 83 in the British Virgin Islands, 55 in the Cayman Islands, and others in places which seem even less likely to host legitimate businesses. You can see the whole list, and read the rationales of the companies who bothered to explain themselves, in the church report.

Let us stress again, we’re not suggesting these arrangements are illegal. But the locales of many of these subsidiaries do give rise to suspicion about the corporate motives for locating there.

Let’s have a look at just one of those secrecy jurisdictions, the British Virgin Islands, selected both because it was one of the most popular among Australia’s multinationals and because it was used as a case study for a landmark report published this year by the Organisation for Economic Cooperation and Development.

The rules governing international trade and taxation focused on making sure corporations were not taxed twice when they dealt with two countries. The rules did not envisage companies using aggressive means of moving money around in order to avoid being properly taxed anywhere.

The report Addressing Base Erosion and Profit Shifting, examined the “serious threat to tax revenues, tax sovereignty and tax fairness” posed to rich and poor countries alike by corporate tax dodging.

The British Virgin Islands is a tiny place of white-sand beaches and lush vegetation; population a little over 31,000; total land area, 153 sq km; and without natural resources or obvious attraction except as a tourist destination.

But if you look at the tiny local paper, you get some idea of what really drives the place. Among the hyperlocal headlines like “Trash to be collected at some houses” and “Fruit fans flock to Mango Array” in the July 16, 2013 edition is this: “Incorporation stats show 6.7 per cent drop.”

The story records the fact that in the first three months of the year, Virgin Islands trust firms formed only 16,666 new companies, compared with 17,865 formed in the corresponding period for the previous year.

It goes on to recite a bunch of other statistics, like the number of local investment houses (up to 530), and to express hope that new investment regulations, lately passed by the Islands’ House of Assembly, will “lure business away from the Cayman Islands”.

What sort of business? Well, tourism, of a sort. The Virgin Islands is one of the favourite places for multinational companies – and high-wealth individuals – to send their money for a holiday.

In 2010, the OECD report says, BVI, along with its two nearby island tax havens, Bermuda and Barbados, accounted for more than five per cent of world capital inflows. That’s more than went into Germany or Japan.

Among the Australian companies with subsidiaries in BVI are BHP, Computershare, Ramsey Health, Amcor and Downer EDI. Oil Search has five subsidiaries there. Toll Holdings has five. Telstra has 10. News Corp, as mentioned earlier, has 62.

Yes, money flows into BVI in spectacular measure, but it also flows out in equally spectacular measure. In 2010, BVI was the nominal source of 14 per cent of all foreign direct investment into the world’s second-largest economy, China. (The largest source country was Hong Kong – which also rates high on the secrecy scale – with 45 per cent. The United States, in comparison, provided just four per cent.)

In the same year, BVI along with three other tax havens – Cyprus, Bermuda and the Bahamas – accounted for 53 per cent of direct foreign investment in Russia.

Highly-secretive Mauritius is a dot in the Indian Ocean 1,000 km east of Madagascar. It has a population of about 1.25 million, but it was the top source of investment into India, which has a population 1,000 times greater.

The OECD report cited other examples too, but you get the picture. Vast, vast amounts of money are being channelled through these secrecy jurisdictions.

And lest the examples given so far give the impression that it is mostly happening in tiny renegade states, it is not. The OECD report went on to cite examples of so-called “special purpose entities” set up by multinationals in otherwise respectable nations, such as the Netherlands.

These SPEs, it defined as “entities with no or few employees, little or no physical presence in the host economy, whose assets and liabilities represent investments in or from other countries and whose core business consists of group financing or holding activities”. In plain language, the “special purpose” of those entities is dodging tax.

In 2011, the report reckoned, more than US$2.6 trillion flowed into SPEs in the Netherlands – which amounted to some 82 per cent of all inward flows – and about $3 trillion flowed out.

<p>TIMOTHY A. CLARY/AFP/Getty Images</p>

TIMOTHY A. CLARY/AFP/Getty Images

Other estimates come up with even more startling numbers. The Dutch Central Bank said that in 2010 multinational companies routed 10.2 trillion euros through 14,300 Dutch “special financial units”, according to a Bloomberg report earlier this year.

For a more detailed account of how the Netherlands lends itself out to multinationals seeking to minimise their tax, see The Global Mail story from 2012, on the means by which Google Australia used the so-called “double Irish Dutch sandwich” stratagem to pay just $75,000 in Australian tax on estimated revenue of $900 million.

A bunch of other surprising countries make the list of tax havens. Lovely little Luxembourg, a favourite of Australia’s top 100 companies (11 companies have 50 subsidiaries there), saw about US$2 trillion flow in, and a similar amount flow out of special-purpose entities in 2011.

And several states in the US, are extraordinarily opaque to authorities and obliging to tax avoiders.

France and Canada are considered “moderately secretive” by the Tax Justice Network. And while the UK itself is pretty open, it should not be forgotten that a lot of the more secretive little jurisdictions, including Bermuda, the British Virgin Islands, Cayman Islands, Gibraltar, Anguilla, Montserrat, Turks and Caicos Islands, Jersey, Guernsey and Isle of Man, are semi-autonomous British-crown dependencies or overseas territories.

Only earlier this year, British Prime Minister David Cameron moved to force these 10 territories to set up a register of companies using their services, and to be more transparent in sharing information. And they have agreed to be more open about revealing the true owners of shell companies.

However, there is a fair degree of scepticism about whether it will change much.

The BVI Beacon’s story about its efforts to make its regulatory regime more competitive with the Caymans for the tax-avoidance dollar does not bode well.

Still, this development might give pause to the tax planners of Australia’s top 100, among other multinationals. For it happens that, between them, they have 264 subsidiaries in the British territories David Cameron is trying, in his half-hearted Tory way, to make more transparent.

Cameron is far from alone. The governments of most western countries – at least those not sheltering corporate tax dodgers – are fretting, individually and collectively, through groups such as the OECD, G8 and G20, about the whole subject they call BEPS – the acronym for Base Erosion and Profit Shifting.

Why the sudden concern? It’s only been in the past few years that the issue has come on to these policy makers’ agendas, although academics and other tax experts have been warning about it for decades.

The thing that really concentrated their minds, says Mark Zimsak, was the global financial crisis. “Suddenly you’ve got OECD countries having suffered huge hits to the revenue bases, looking for every dollar they can claw back. That made them suddenly focus on the kind of dodging that’s going on.”

For the previous 15 years, the so-called “great moderation”, a period of relative economic stability, sustained increases in asset prices, corporate profits and government revenue had masked such dodging.The prophets of globalism were congratulating themselves on the success of their model of deregulation, lower corporate tax rates and trade liberalisation.

Then, in 2007-08, it all went to hell.

Multinational corporations now move production to where labour and other input costs are cheaper, claim research costs where the R&D incentives are greatest, and declare their profits where the corporate taxes are lowest.

Corporate tax payments as a share of GDP, across OECD countries, dropped about 20 per cent between 2007 and 2011.

No doubt much of the decrease was due to declining company profits during the great recession. But the OECD suspected a lot was not. And the Australian Treasury, in its own investigation of possible tax dodging, released in May this year, provides support for that suspicion.

The Treasury noted that receipts from company taxes declined sharply, as might be expected, immediately after the GFC. By 2011-12, business profits had recovered to their previous level, “however, company tax collections remained well below the level expected in the 2008-09 Budget,” says the report.

It continued, “Conceptually, everything else being equal, a decline in the aggregate effective tax would be consistent with an increase in BEPS activity.”

Furthermore, it noted, “In comparison with other countries, Australia’s corporate tax collections have fallen by more and recovered less since the onset of the GFC.”

But Australia is only guessing. The US has a much better idea. And boy, are some US lawmakers ticked off by what they see.

This was never clearer than in a confrontation in May this year, between a US Senate subcommittee looking into tax dodging and the senior executives of computer company Apple.

Apple CEO Tim Cook indignantly told the committee: “We pay all the taxes we owe, every single dollar. We not only comply with the laws, but we comply with the spirit of the laws. We don't depend on tax gimmicks.”

Senators saw it differently.

As Senator John McCain summed up: “Today, Apple has over $100 billion dollars, more than two-thirds of its total profits, stashed away in an offshore account.”

Said Democrat Senator Carl Levin: “Apple successfully sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere.”

Yes, that’s right. Parts of Apple’s complex web of international subsidiaries pay no tax, anywhere. For a more comprehensive account of how they arranged it, read this, from The New York Times.

Levin, a long-time campaigner against corporate tax dodging, said he had never seen anything like it.

Even Kleinbard, the expert in the various ways companies move money around the world, was impressed by the “brutally simple structure” by which Apple avoided tax on its income outside the Americas.

Lots of companies get big, and then look for ways to dodge tax, says Kleinbard; Apple’s “genius” was to set up its shell operation in Ireland way back at its very beginning, in 1980.

“It claims this Irish shell company – without any brains, without people, without any independent resources – nonetheless agreed to absorb the development costs of all the intangibles attributable to Apple business outside the Americas. And therefore it owns 60 per cent of the income stream of the entirety of Apple’s intangible assets,” says Kleinbard.

<p>JUSTIN TALLIS/AFP/Getty Images</p>

JUSTIN TALLIS/AFP/Getty Images

Protestors dressed as businessmen, in London on June 14, 2013, ahead of the G8 summit that was held in Northern Ireland a few days later.

Kleinbard often jokes about “stateless income, sailing the seas until it finds a welcoming harbour”, but Apple’s arrangements literally went beyond the joke.

“Here the company itself is stateless and never comes to rest anywhere in the world and never pays tax anywhere in the world,” he explains.

It would be funny if it weren’t so serious. Richard Denniss, of the progressive Australian think tank, the Australia Institute, captures the absurdity well.

“Imagine if individuals could do what multinationals can do. Imagine if I could incorporate myself in Ireland, and rent my human capital off myself,” he riffs. “If I could tell them that degree I possess lives in Ireland now, and I’m just physically here in Australia. This is not Richard, this is just Richard’s body. Richard’s intellectual property lives elsewhere.”

In essence, this is exactly what these companies do.

They structure themselves in such a way that the parts of the company in high-tax jurisdictions make large payments to subsidiaries in low-tax jurisdictions, particularly for intangible “services”.

Apple may be the most egregious example, but all the big tech companies – Google, Amazon, Microsoft, Facebook et cetera – do it. Pharmaceutical companies are also among the worst tax avoiders, says Sharman. Which is easy to grasp, because the value of their output is in intellectual property rather than in physical goods.

But there is pretty much infinite scope to dodge tax, no matter what your line of business, as Kleinbard pointed out in a recent paper: Through a Latte, Darkly: Starbucks's Stateless Income Planning.

His subject was the coffee chain, which, writes Kleinbard, “follows a “classic brick-and-mortar retail business model”, with thousands of outlets in high-tax countries around the world.

Really, Starbucks differed from your average coffee shop only in its tax arrangements. It minimised its liabilities by making large, deductible intragroup payments to Dutch, Swiss, and US affiliates – for example, it made royalty payments for its brand to a subsidiary in Amsterdam, and sourced its coffee beans through a Swiss subsidiary. In the 14 years since 1998, when it established itself in the UK, Starbucks made sales of more than £3 billion, but paid just £8.6 million in company tax.

What the coffee-chain example shows, says Kleinbard, is that, “...if Starbucks can organise itself as a successful stateless income generator, any multinational company can.”

The prophets of globalism were congratulating themselves on the success of their model of deregulation, lower corporate tax rates and trade liberalisation. Then, in 2007-08, it all went to hell.

He writes, “...the Starbucks story demonstrates the fundamental opacity of international tax planning, in which neither investors in a public company nor the tax authorities in any particular jurisdiction have a clear picture of what the company is up to.”

This situation is made all the more frustrating by the fact that even in countries that are not secrecy jurisdictions, multinationals get cover via the privacy provisions of tax laws.

To illustrate this point, consider what Australia’s assistant Treasurer, David Bradbury, said when, some months ago, The Global Mail asked him about the scope of tax dodging.

“The scale is very difficult to determine, because of a lack of transparency around what is actually paid by multinational corporations both here in Australia and abroad.

“I sit here as the assistant Treasurer, having no visibility over what tax is being paid by companies.”

Bradbury has since overseen the passage of legislation requiring the Australian Taxation Office to report total income, taxable income and income tax payable in Australia for corporate tax entities with total incomes of $100m or more.

(It should be noted that Tony Abbott’s Opposition did not support the move. This is odd, given that the Liberal-National coalition’s putative core constituency is small business, and small businesses also suffer when big corporations dodge tax, because it gives them an unfair price advantage.)

The current government has also taken a number of other small steps to tighten its general anti-avoidance provisions and transfer pricing laws.

But as recently as this week, in releasing a “scoping paper” he commissioned from the Treasury, Bradbury conceded neither he nor the department had much idea about what was going on.

As he said: “... the paper highlights that data limitations make it difficult to accurately assess the extent to which Australia's corporate tax base is currently being impacted by base erosion and profit shifting.”

Mark Zimsak calls the Australian response “pathetic” and says expert advice to the TJN suggests Australia loses several billions of dollars in revenue each year.

“Apple successfully sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere.”

The Australia Institute cites tax-office figures showing that in 2010-11, companies in Australia claimed $5,959 million in royalty expenses overseas.

It also points to official Balance of Payments data showing some $14,734 million in service debits (imported services) that, in the words of the Australia Institute’s Dave Richardson, “appear to cover the types of avoidance schemes we know of in Australia”.

But, as ever in this area, it’s impossible to know what portion of these deductions is legitimate.

So, what’s to be done?

Well, in theory, it’s simple. Impose a level of transparency such that these companies pay their taxes in the countries where they earn their income.

In practice, though, it’s complicated, because there is only so much individual countries can do.

There are some hopeful signs. For instance, at the just-concluded meeting of the G20, finance ministers threw their support behind an “Action Plan to Address Base Erosion and Profit Shifting”, proposed by the OECD.

The details are necessarily complex, but the 15-point plan proposes to substantially rework the existing international rules on transfer pricing – the major means by which multinationals shift profits to low-tax jurisdictions and costs to high-tax jurisdictions. It also proposes to rejig the regime for tax treaties between countries, to impose new standards for data collection and mandatory disclosure by companies – all within two or three years.

An ambitious timetable, but it has to be; what we have here is a fundamental threat to the notion of national sovereignty.

It’s a war alright – between governments, whose duty is the welfare of all the people within their borders, and corporations whose duty is only to their owners, wherever they may live.

Today, stateless corporations, not stateless people, are the real threat to “border security” in the world.

35 comments on this story
by Roxee

Brilliant, thanks.

July 26, 2013 @ 10:26pm
by James Trevelyan

Congratulations on a well written piece of investigative journalism. All too few of these appear on this site, unlike the earlier days of this magazine.
Cameron may be complaining in London, but his predecessors made it easy for wealthy non-residents who pay £30,000 tax, I believe, in return for not having to declare the details of their offshore income. Without this concession, large numbers of wealthy people, who pay value added tax and other charges on their spending, would depart permanently for sunnier climates and take away their not inconsiderable business that keeps London humming as the predominant centre of world finance.
Possibly the first steps needed are towards greater transparency: however, it is not going to be easy for many tiny tax haven states who administer hundreds of thousands of entities.
And Mauritius, by the way, was the only place where Indians were able to send profits for quiet conversion into foreign currency when the Indian economy was isolated from the world system until the 1990s. Now Indians are able and willing to repatriate their money. That's not necessarily a bad thing. It does reveal, however, the underlying weakness of real foreign investment into India.

July 27, 2013 @ 8:42am
by sandra ridgewell

Thanks Mike! This should be given the widest circulation.

July 27, 2013 @ 9:03am
by MEB

With a bit of luck global climate change will take out some of this tax havens who said there were no silver linings!!!

July 27, 2013 @ 9:07am
by 81dvl

Wow; this is the biggest hijack in history
So THAT'S the problem......

Big Brother AND the Holding Company

July 27, 2013 @ 1:51pm
by cajan

Thank you Mike, an expose of the incapacity and weakness of our politicians. It is time we reacted to this evasion. Perhaps we should consider Taxable income = Gross income and do away with all deductions, 'commercial in confidence' should never apply where the dealings are with the government, give the Tax Commissioner deeming powers over gross income, kick Tax Havens embassies out of the country and out of the United Nations, declare them pariah states. then we should expose the corporate thieves who use these services.
These activities make terrorism seem a childs game.

July 27, 2013 @ 4:07pm
by Peter Wildblood

Another great well researched article. Thanks Mike. This has been on the horizon for a year or so now and well done it trying to put a more precise handle on the abuse. Is that answer to introduce (an old chestnut I agree) a flat rate taxation scheme for corporates (over a certain total revenue or only multinationals or both) in which all revenue attracts a 10% say tax with no permissible deductions.

July 27, 2013 @ 4:27pm
by Glenda Ellis

I am pleased to see and read a well researched and clearly constructed article such as this. As a citizen who has always believed that income tax was an unavoidable part of life, but necessary if one wanted to have services supplied to all, it is surely criminal in the extreme to have businesses and individuals who can afford to pay their share not doing so. Small businesses,as you say, should be rightly outraged - I am afraid, however, that they are probably looking for someone to help them onto the taxhaven gravy train.

July 27, 2013 @ 4:39pm
by Walter P Komarnicki

if only a fraction of this evaded tax were invested toward solving real human problems, perhaps poverty would have been history long ago!

It just goes to show how little power elected govts have, and how much multinationals have.

July 27, 2013 @ 6:31pm
by C Bradford

It's time we ordinary tax payers who can't get good treatment in our public health systems and whose roads are sadly run down got Our Money back. This is money to keep our nation running that these corporations used to make their profits. Time to make this an election issue.

July 27, 2013 @ 6:53pm
by johnno

Very illuminating report. I have only one criticism. You say 'Really, Starbucks differed from your average coffee shop only in its tax arrangements'. In fact, as you were perhaps too polite to say, Starbucks also differs from your average coffee shop in that it provides consistently bad coffee.

July 27, 2013 @ 8:24pm
by Steve Carey

Great piece. What chance the Mad Monk or Kevvy doing something about these rorts?? One response would be for Government not to deal with companies based in offshore tax havens. I seem to recall that he considered any company that shifted its money around different jurisdictions are difficult to invest in but are likely to be acting unethically.

July 27, 2013 @ 9:16pm
by Steve Carey

Oops--the "he" was Warren Buffett.

July 27, 2013 @ 9:17pm
by Frenzal

I heard someone mention that Gina Reinhart's taxable yearly income is AU $24,000.
If this is true then these people are avoiding tax (it seems), on all levels, to the point where the Australian people will end up owing them money?

July 27, 2013 @ 9:24pm
by TEZA.

To comment as this does, on the "assumed" tax position in Australia is misleading. Take the time to research the facts. Any person, who owns a company, and earns as a total of salary, dividends grouped, pays over 60% to the federal government fro every cent in excess of $150,000 PA. on top of that, the micro payments of federal impost on the way to this payment would add another 5%, and this is on top of the 6% payroll tax paid to state governments for the pleasure of taking the risk, investing their money and employing people. And those who stand on the side and make these partially educated and poorly researched comments are as bad as the politicians with their noses in the trough. They are expecting to be paid vast sums for these leaps of guesstimating and expecting others to believe them.

July 28, 2013 @ 6:19am
by G Burrows

Great piece of investigative journalism Mike. This issue of unethical/immoral tax avoidance should be put to all parties contesting the forthcoming election because whatever tax these companies don't pay in Australia has to be either paid by the rest of us "soft targets" or ends up in reduced services from government.

July 28, 2013 @ 7:57am
by Michael Wahren

The actions of these companies may well be legal, but without a doubt they are absolutely criminal. Corporations effectively control governments as to what rules are put in place. Corporations are the ultimate tyrannies, the organisational structure is straight from the philosophy of Fascism or Bolshevism. Somehow we have allowed our governments to be hijacked to serve these entities. The US government is the most obvious example. In the corporate world the public pay and subsidise them and they profit. It is well past time that we started to think on how these monstrosities can be torn down before is to late.
The impending arrival of the Trans Pacific Partnership Agreement (TPP) if allowed to pass will cause sovereign nations to loose control to multinational corporations. Laws to protect environment, people etc will be able to be overruled by these corporations. The TPP is the Multi Lateral agreement on Trade (MLT) put on steroids. The TPP is of course discussed in absolute secrecy so that it doesn't suffer the same fate as the MLT, in fact the latest leaks suggest that however a country reacts to the TPP all details remain secret for 4 years. If the TPP is allowed then issues like the tax dodging becomes irrelevant.

July 28, 2013 @ 12:44pm
by David Edwards

Hi Teza! Of course you are correct in what you illustrate but what you say has no relevance to Mike's article and to suggest by your meagre comments that they are "...poorly researched ..." and your use of a nom de plume, would seem to suggest your approach is from a far different angle than your comments may suggest, identify yourself old chap that we may assess your comments from a clearer perspective!

July 29, 2013 @ 9:19am
by mike seccombe

Teza seems to have missed the point. The point is that multinationals have available to them means to dodge tax which are unavailable to domestic businesses. I doubt teza's numbers about what he and other domestic businesses pay, but that is not relevant. What is relevant is that MNCs often pay next to nothing.

July 29, 2013 @ 10:24am
by Stephen Pearson

Only if this is seen as a global issue will action be taken. It is not just Australia's issue. Until the major economies address this leakage and ensure that these tax havens (inc Ireland and the Netherlands) are put out of business the leakage of tax revenue will continue.

It is not the fault of the multi-nationals. They are not criminal in seeking to maximise shareholder return. They will always take advantage of tax avoidance opportunities. They are not required to pay more tax than they have to, just as any individual can change their tax situation. they are just better positioned to take advantage of lax rules.

The LNP as a friend of small business - don't make me laugh. The Liberals are a big end of town party. I run a small business and I see no policies from the LNP for my situation and some will make it worse such as rejecting the very necessary NBN.

Yes it stinks and with the internet it is increasing rapidly but blame politicians not big business.

July 29, 2013 @ 11:37am
by Stephen H

Tax shifting has been a problem for a long time. That it is only now becoming "urgent and important" is itself of concern, but we've all known about it for decades. The only real way of properly addressing it would be through international taxation law - good luck with that. The alternative is to assume that any money funnelled to certain countries is going for the purpose of tax avoidance, and tax it accordingly.

Please bear in mind the difference between avoidance and evasion. Tax avoidance through legal means is unethical but not unlawful - and for a listed entity is probably in fact ethical because your entire purpose is to maximise shareholder return. Tax evasion, which this SHOULD be classified as, is illegally reducing your tax bill.

What has been happening is that the tax burden has gradually shifted from larger corporations to small businesses and individuals. Potentially this could be dealt with by just making sure individuals' taxation arrangements were progressive, and shift tax out of the business arena entirely - but in reality the complexities of areas like FBT and capital gains would make that a nightmare.

As a separate note, it is somewhat ironic that the Uniting Church prepared this report. How much tax did the church pay last year? There is a whole economic subset that manages to stay entirely untaxed while in many cases competing with taxed entities. That in itself warrants another article about tax.

July 29, 2013 @ 11:51am
by udi

Ultra rich persons, whether biological or corporate, have been leeching money from this and any other country, to the extent they can get away with. Isn't it time they were stopped?

July 29, 2013 @ 3:44pm
by Phi Gorman

The Road to Satrapy.
The principle of good governance ensuring the integrity of the common wealth has long been trumped by corporations. Our elected officials are already unable to apply appropriate checks and balances when dealing with powerful vested interests. Much public policy is dictated by private entities to maximise their profits. The coal industry's infamous example in writing Howard Government mining policies is a case in point.

I agree with Michael on the Trans Pacific Partnership Agreement. It will hammer the last nail into the coffin of democracy in signatory countries. American corporations will make us mere satraps of the dominant power. Australia will be a sovereign nation in name only.

July 29, 2013 @ 5:33pm
by Marino Tagliapietra

It is time that corporate tax dodging be treated as treason.

July 31, 2013 @ 2:11am
by Rob Marstrand

The real problem is governments spend too much (ie waste too much), and so taxes are too high. With no corporate taxation economies would grow much more quickly (faster compounding of reinvested profits leading to more and higher paid jobs). Plus if companies paid more tax then prices they charge would rise, so they still made adequate returns. ie consumers (you and I) would get whacked. I read this recently and it gives a different viewpoint on the whole issue... http://www.ofwealth.com/why-its-good-news-when-the-rich-pay-less-tax/#.UfghKGRUO5I

July 31, 2013 @ 6:28am
by June

Stephen H mentions the Uniting Church. Could research be done into the richest organisation of all - the Catholic Church with its wealth and power. Why do they not pay Rates, Land Tax, Income Tax, etc., and when they are bequeathed valuable land and property and then sell it, do they pay Capital Gains Tax? (Even our Queen now pays income tax). I realise they have schools, Universities and Hospitals to maintain, but why should the non believers have to subsidise the believers?

August 1, 2013 @ 7:11pm
by Mick

So whats the point of this story? If you want to flatten the reporting of companies to real individual beneficiaries then you better be digging deeper than just "nominee directors" in tax jurisdictions. The real beneficiaries are the Rosthchilds, Rockerfellers, Soros's etc who have final ownership of these multinationals via their nominees and shelf companies. There is NO way the ATO or any other government jurisdication is getting that information. So what's the point?

August 4, 2013 @ 3:46pm
by Gail Morgan

Ethical standards could be enforced by government advertising campaigns similar to the 'buy Australian'. Possible infrastructure projects could be costed out on the basis of tax avoided and good corporate citizens could be promoted and contrasted to their less rigorous competitors. Congratulations on this article. The consequences of inaction will be almost as expensive as the avoidance itself.

August 9, 2013 @ 8:37pm
by Sara

Having watched this issue play out in Britain, with fingers being pointed by the media at some of the big names like Amazon it was notable that not one newspaper, radio station or TV news program mentioned any media companies as being tax dodgers Are we meant to think that the media were squeaky clean on this one? Except HERE. Finally, one company is named. Thanks!

August 12, 2013 @ 2:23pm
by Jon

Great Article. A global problem which needs a global solution. Interesting to consider how different our world would be if this finance was circulating instead of being locked away. These corporations have removed a substantial percentage of the worlds worth. I can think of few things more abhorrent.

October 7, 2013 @ 9:43pm
by Michael Edwards

I would like to hear something from the experts on a possible re-jig of the whole system of revenue collection by governments. There are alternatives to the current primary sources of revenue, Company tax and Personal income tax, which are so easily finessed in a world where money, and its equivalents, is so mobile.
Mobility is a key issue but so too is the problem of making things happen globally.
Consumption taxes have potential and the big one is land tax. For a country such as Australia tax on mineral resources extracted should be more of a major source than it is. Amidst the current political struggles over previous attempts to levy a tax on the extractive industries it may seem too much to hope for but in the context of a total overhaul whereby Company taxes are largely replaced it should be possible.
Sin taxes are another possibility. We tax liquor and tobacco and we should. Should we also tax transport fuels more? Compare Australia with most of Europe. There are many advantages; improved terms of trade, the revenue harvest, pressure towards public passenger transport, pressure towards freight on rails, pressure towards more economical use. Environmental and safety issues also feature.
We also need to be conscious of the huge amount of corruptly sourced money moving around our economy aside from the tax evasion/avoidance issues. It would be good to skim some of that as it’s spent.
The recent Henry tax review had a few things to say about all this but I wonder how much emphasis Dr. Henry put on the “base erosion and profit shifting” issue addressed here. I also wonder how much we have been constrained by what’s saleable politically and concerns about upsetting multinational corporations and their governments. Extraordinary leadership is necessary to overcome these problems but it’s all possible.
Clearly it cries out for more focus and the solution has to be one that an individual Sovereign entity like Australia can implement within its own jurisdiction.
Finally, this should not be characterised as a grab for more tax overall. It’s not a small Vs big government argument. We just need to collect what we collect now via different channels.

November 18, 2013 @ 3:48pm
by JohnC

The G20 fifteen point plan looks formidable, delayable and avoidable. I doubt if it will achieve many of the objectives set. It's time for a review of the Henry report and see if in fact sufficient weight was given to BEPS. I would be keen to see if a transaction tax could be effectively introduced with the hope it would make BEPS a pointless practice. The noise made by the big companies any time this approach (transaction tax) is raised indicates that it is something they don't want, but I don't know why.

December 28, 2013 @ 11:20am
Show previous 32 comments
by David Arthur

Great article. If avoidance of Australian Company Tax could be eliminated, then the Company Tax rate (presently ~30%) could be decreased, thereby automatically making it easier for small mum-and-dad companies to compete with multinationals.

December 29, 2013 @ 5:08pm
by PeterM

A nascent idea (don't be too harsh on me); Tax all international funds transfers. Better still, as I think was proposed in South Africa at the time of transition from white government to democracy, tax all transactions. To facilitate this, become a cashless nation. All transactions to be by card, banks passing the tax proceeds to the government. With a transaction tax in place we could then drop all other taxes. Trouble is all tax advisers and accountants, and almost all ATO staff will be out of jobs.

January 2, 2014 @ 7:44pm
by dee

I can't see Hockey doing anything at all to improve the tax dodging. Abbott's support for small business should be seen for what it is - just empty rhetoric. The Tories are doing anything and this government won't either

January 30, 2014 @ 7:20pm
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