AUSTRALIAN TAX STRUCTURE TO BLAME

NOT THE MULTINATIONALS!

The world has changed significantly over the last 15 years and unfortunately Australia’s tax structure is not well suited to the global economy. I’m talking about the big multinational companies that people believe aren’t paying their fair share.

The media and some of our politicians are saying we should “name and shame” these companies and that the ATO and the Government should release the details of who they have investigated. The media and these very politicians need to understand what they are talking about before they comment. If these companies were doing something illegal I’m sure they would be named, but the fact is they are acting within the current tax law.

It’s not just Australia that is dealing with these issues, but most of the western world. The biggest issue is that technology allows us to do business anywhere in the world, so who has the right to tax that income? I could be providing you taxation services from Singapore, hence paying a much lower rate of tax. It’s the same for Google, Facebook and many other companies that provide services to Australians, but have no need to be based in the country to do so.

You also need to remember that countries compete based on tax rates. What would Singapore be without its low corporate tax rates? Monaco, Switzerland, etc.? They would lose their main attraction. Australia’s relatively high company tax rate and transaction duties need to be reformed to incentivise multinationals to do business with Australia.

There are calls for Australians to boycott doing business with those companies which engage in tax minimization strategies. Companies like Apple, Amazon, IKEA, Newscorp, all our big miners and nearly every multinational you can think of. Can you imagine the economic impact if we stopped doing business with them? I think we are better off with them than without!

Going forward the OECD has introduced the new transfer pricing documentation standards which the Australian government, along with other members of the OECD, will begin to implement from the start of 2016. This will give the ATO “a global picture of how multinational companies operate”. The penalty regime for tax avoidance has also been doubled.

So the Government, along with other Governments in the OECD and G20, are taking action to get their fair share, but it’s going to take some time for them to firstly work out “how they operate” and then subsequently introduce a law to tax profits in line with sales per country using a method that all countries are happy with.

I’m sure the big multinationals will work out another tax minimization strategy by the time these laws are enacted!

PHIL CARULLI

DIRECTOR – OPTIMA PARTNERS