Unitary taxation one way to tackle multinationals
KATIE WALSH
Members of the federal government’s latest tax review say there are no easy answers to the global phenomenon of multinationals paying little tax, and a solution could take years.
Assistant Treasurer David Bradbury appointed the 14 members of the panel on Monday, part of his offensive against multinationals – including Google and Apple – that do not pay their “fair share” of tax.
“To address this problem is going to require a long and sustained effort,” said the Tax Justice Network’s Mark Zirnsak, one of the 14 members of the tax panel.
“I don’t have expectations that we’ll do work over the next year and all of a sudden this problem of companies shifting profits across borders is going to be fixed.”
Dr Zirnsak will argue for a switch to unitary taxation: allocating global profits of a business based on their economic presence in each country – the number of staff, physical assets and sales made.
“[It] makes it harder for a company to set up a headquarters in Bermuda and say all the profits are made in Bermuda,” said Dr Zirnsak, who is also Uniting Church director of the justice and international mission.
The Tax Justice Network – whose Australian members include unions and charities – released its blueprint for such a global tax model on Sunday, calling on the OECD to abandon outdated transfer pricing methods that apportion tax based on arm’s length transactions.
A similar system operates in the United States, between the states.
He said he would also table ideas to increase exchanges of information between countries and introduce whistleblowing laws to help staff to dob in tax-evading companies.
Fellow panellist Clayton Utz partner Niv Tadmore said that the group could explore an option to charge a withholding tax on sales made in Australia, where companies could lodge final year-end returns.
Corporate Tax Association executive director Frank Drenth said that a withholding tax would probably be passed on to consumers and businesses. Another option was a minimum tax, like that in the US which applies to companies that report tax income dramatically lower than their accounting income.
But unlike in the US, there were few “rorts and concessions” left in Australia that needed a minimum tax fix, Mr Drenth said.
The panel’s response might involve a mix of measures, he said, including longer-term bilateral agreements. “I’ve genuinely got an open mind on it, but we’d want any solution to be practical and workable rather than just theoretical,” he said.
Digital companies like Google that are causing governments around the globe grief over lost revenue are not on the panel. But their advisers are, says panellist Tim Lyons, Australian Council of Trade Unions assistant secretary. That includes partners from PwC, Deloitte, Ernst & Young and Clayton Utz.
Mr Lyons applauded the wide selection of people on the panel and said it was important to have an open mind.
“Short term fixes are okay in one sense, but the issues of the potential for there to be profitable arbitrage are not going away,” he said.
“What I’m interested in contributing to is something where we actually get our domestic settings right, and hopefully we have a few allies overseas [for a longer-term solution],” he said.
Low tax-paying multinationals are facing heat worldwide. Last week, Starbucks announced it would voluntarily pay £20 million ($30 million) in tax, as protesters prepared UK-wide action.
“It reminds me of [US presidential candidate] Mitt Romney offering to pay a little bit more tax so that his underlying rate looked a bit better,” said Mr Lyons. “Tax isn’t charity. The fact that you’ve got somebody saying ‘I’m going to volunteer to pay more tax’ shows you there’s something wrong with the tax system.”
Mr Drenth said Starbucks’ move was unprecedented on the tax front, but was in some ways similar to payments made by mining companies to aggrieved landholders.
Members of the specialist reference group:
■ Rob Heferen (Chairman), Executive Director, Revenue Group, The Treasury
■ Michael Bersten, Partner, PwC
■ Michael D’Ascenzo AO Commissioner of Taxation (2006 – 2012)
■ Frank Drenth, Executive Director, Corporate Tax Association of Australia
■ Serena Lillywhite, Mining Advocacy Coordinator, OxFam Australia
■ Ross Lyons, General Manager – Tax, Asia Pacific, Rio Tinto
■ Tim Lyons, Assistant Secretary, ACTU
■ Peter Madden, Partner, Deloitte
■ Jason Sharman, Director, Centre for Governance and Public Policy, Griffith University
■ Greg Smith, Adjunct Professor, Australian Catholic University, Senior Fellow, The Melbourne Law Masters
■ Tony Stolarek, Partner, Ernst & Young
■ Niv Tadmore, Partner, Clayton Utz
■ Brian Wilson, Chairman, Foreign Investment Review Board
■ Mark Zirnsak, Director, Justice and International Mission Unit, Uniting Church
The Australian Financial Review
