How much tax does big business in Australia pay?
The UK Parliament’s Public Affairs Committee has found that companies like Starbucks, Google and Amazon pay no or little tax in the UK and they haven’t for years.
Starbucks for example, despite being ‘highly profitable’ according to its managers, has paid no tax in the UK since 2009. Google and Amazon appear to have used tax treaty countries like Ireland to divert income via Holland to tax havens tax free, or at very very low rates.
In Australia the situation is not much different.
Google for example has sales sourced in Australia of somewhere between $1 and $2 billion a year, but last year paid either $74,00 in tax or $740,000 depending on who you read. Either way the amount is derisory, and is a result of new technology outwitting old tax treaty models and concepts.
Google’s Chairman Eric Schmidt has defended its tax avoidance activities around the globe, activities which have seen it funnel almost $10 billion into Bermuda, saving $2 billion in taxes. Here’s what Schmidt told Bloomberg:
“I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate.”
The company isn’t about to turn down big savings in taxes, he said.
“It’s called capitalism,” he said. “We are proudly capitalistic. I’m not confused about this.”
I won’t go into the structure but if you are interested google ‘Dutch sandwich’ and ‘Double Irish’.
It looks as if Starbucks didn’t use these arrangements but instead paid subsidiaries in other countries above the odds for goods and services, thus shifting the profits to Switzerland and the Netherlands, two ‘respectable’ tax havens. From there the money can find its way into tax havens like Bermuda with no or little tax being levied on the way there. Bermuda of course like most other tax havens has no income tax.
It would be a mistake to think that tax avoidance is just a few bad apples. As Eric Schmidt made clear, tax avoidance is at the heart of capitalism. It is of utmost importance for capitalism to reduce costs. Business views tax not as a contribution to society but as a cost to be cut, much like their wages bill.
In Australia for example, in a speech in February 2010, Deputy Commissioner of Taxation Jim Killaly said that 40 percent of big business (those with a turnover greater than $250 million) had paid no income tax in the income years between 2005 and 2008. He also said twenty percent of those companies were actually making accounting profits.
Let’s individualise it a bit. Twiggy Forrest is one of Australia’s wealthiest men, a mining company owner and executive. His net worth is over $5 billion. Here is what the Australian Financial Review said on 17 June last year:
Forrest has never signed a corporate income tax cheque for any of the listed companies he has run in the past 16 years.
And FMG has another $700 million in tax losses still to bring to account before he will have to do so.
The global financial crisis is likely to have increased the number of big businesses not paying income tax from the Killaly 40% figure to perhaps 50 percent or more. Unfortunately the ATO no longer has the guts to tell us what sort of non-contribution some big businesses are making to our wellbeing.
Maybe an updated list of the percentage of big businesses paying income tax should be one of the first things the new Commissioner, former KPMG partner Chris Jordan, makes public when he starts on 2 January. Or maybe the Senate Economics Legislation Committee could grill him, much as the Public Accounts Committee in the UK has being doing, about just how much big business does contribute in the way of income tax.
Why, left wing Labor Senator Doug Cameron, who is on the Committee, might even like to ask the Commissioner to name the big business tax avoiders.
The tax law prevents the Commissioner from revealing taxpayer details but it is also possible the Senate could jail a public servant who refuses to answer their questions. That’d be a good way for the new Commissioner to start his term. Over to you Doug.
If Doug isn’t keen, perhaps because his Labor Party might be embarrassed by what the questions find, then maybe Greens’ Senator Lee Rhiannon might like to take up the challenge. Senate Estimates might be a place to begin really examining the nature of the tax contribution big business make. Over to you Lee.
One way around this might be for the Commissioner to provide the general figures much as Killaly did almost two years ago, and perhaps give us industry break downs.
Alternatively why don’t the committees call some big companies before them and ask those businesses about their tax situation in Australia. Gee, I dunno, Google, Amazon and Starbucks are 3 that come to mind. Some big Pharma companies might profitably be called too, along with some of the mining companies like BHP, Xstrata and Rio Tinto. Twiggy, Clive, Nathan and Gina might also be in the mix.
And how about the banks? What with their 16% return on investment you’d hope they’d be paying lots of tax. As you’d hope for the mining companies too with a 20% return on investment. But we all know that for the mining companies it doesn’t look like their super profits are producing super income revenues. Surely it wouldn’t be the same for our patriotic Big 4 banks would it?
Some other oligopolists spring to mind too. Coles and Woolworths anyone?
It would be interesting and enlightening to see how much the big mining companies paid, how much the big pharmaceutical companies paid, how much the big banks paid, as a percentage of their accounting income, and also how many were taxable and how many non-taxable.
The ATO statistics show that for 2008/09 59.8% of all business (not just big business) paid no income tax. The figures for a break up for big business were not available.
In 2009/10 that non-taxable company figure had risen to 61.2%, with the break up of taxable and non-taxable for big business still not available. However between 2008/09 and 2009/10 the number of taxable very large businesses dropped from 640 to 627 and the amount of income tax paid from $35.9 billion to $29.3 billion.
The Taxation Statistics for 2009/10 also say:
In the 2009–10 income year, the number of non-taxable companies increased by 5.1% from the previous year. Those companies that reported a positive trading profit which was fully offset by reconciliation items, recorded the largest increase in number at 10.7%.
Reconciliation items include accelerated depreciation and other excess deductions. Again there was no big business etc break up. Which industry was the worst performer?
The mining industry had the highest proportion of non-taxable companies to total companies within its industry at 73.2%.
Some of this is due to the high risk nature of mining but some is also due to the large and accelerated capital deductions the capital intensive mining industry receives. As the AFR report above of Twiggy’s mining company tax non-payment shows it looks like a revolving door with new expenditure on new mines cancelling out previous income as it comes on stream.
While not necessarily a guide to big business tax compliance per se, it is interesting that those industries with few companies relative to other industries and hence more likely to be domnated by big business – mining, utilities, telecommunications, agriculture and education – have in general a much higher percentage of non-taxable companies than the rest.
Business income fell between 2009 and 2010 income years. As the Taxation Statistics say:
For the 2009–10 income year, companies reported total income of $2,212 billion, a decrease of 2.6% from 2008–09. The mining industry, recorded the largest decrease in income with a $49.6 billion or 26.2% fall.
Now this mining company fall could be because of the GFC, falling overseas demand, the higher Australian dollar and so on. However it could also in part be because of tax avoidance.
The effective tax rate is another interesting comparison. The headline tax rate in Australia is 30% on taxable income. Yet because of various tax breaks companies pay much less that that as a percentage of their accounting income.
Analysis by Adele Ferguson and Stuart Washington in the Sydney Morning Herald a year or so ago showed that most industries actually pay much less than the headline 30 percent company tax rate. For the finance sector for example they found the figure was 20 percent. For mining companies it is between 13 and 17 percent.
My educated guess is that almost half of all big business now pays no income tax and those that do mostly pay much less than the nominal 30 percent headline rate.
Now the Australian Tax Office has begun doing some tax gap analysis which compares economic activity to revenue collected. And the figures might be showing big business is rorting the system.
Michael D’Ascenzo, the Commissioner of Taxation until 2 January, has in the past talked about possible ”fragility” in the company tax system. Profits have gone up but company tax has gone down in the years after the GFC. We may hear more of the tax gap – the difference between profit in the economy and tax paid on it, a difference that appears to be widening as profits increase and the amount paid as company tax falls.
Part of that widening gap could be because of the mining boom. There could be bigger profits but huge capital deductions offsetting them for many years. But tax avoidance is I believe also a big part of the explanation, as are generous deductions to business which could be abolished and still business would invest.
Of late too the ATO has been losing tax avoidance case after tax avoidance case. The High Court judges have a free market world view and any restrictions on the market see them searching for gaps in the anti-avoidance legislation. They find them and the revenue loses billions.
Company collections between 2007 and 2011 in billions were as follows – $61.7 bn, $60.3 bn, $52.2 bn and $56.2 bn. The estimates for 2012 are billions below predictions.
Again there is no large business and other business break up but I am confident that the fall in revenue since the GFC from big business has in part been because of tax avoidance (eg big business shifting losses into Australia) and that a government with the will to tackle it could address the issue.
We shouldn’t imagine government will tax business on moral or equity grounds. All the major parties see big business as the real engine room of the economy, the job creators and so forth. So to tax them, they think, will have an adverse effect on investment, the economy and jobs.
Actually we workers create the wealth of society and the bosses purloin it, but that is another story. We are the wealth creators not capitalists.
As the mining industry response to a fairly moderate Rudd Government Resource Super Profits Tax shows, the mining maggots aren’t going to give up their extra profits to anyone, least of all other capital in the form of company tax cuts.
The mining companies destroyed a Labor Prime Minister and saw the new one, Julia Gillard, develop a pathetic Minerals Resource Rent Tax that applies not to all resources but only to coal and iron ore and at a much lower rate than the RSPT. Starting on 1 July it looks as if it is raising hundreds of millions, if not billions, below predictions.
So there would need to be a mass movement to force government to make business to pay more tax. But that is only the first part of the equation. That movement would also need to be able to force business to bear the increases in tax, rather than pass them on in price increases, wage cuts and job losses.
Only a mass working class movement can do that. Only a broad cross section of unions, militant unions, could turn around the class collaboration of the last 30 years that has seen inequality, including tax inequality, increase markedly, and the share of national income going to capital rise to its highest level ever and that to labour its lowest.
Without a mass working class movement demanding and winning better wages, more jobs and price controls as well as more tax paid by the rich and big business, the rich and big business will continue to get richer and pay less and less tax.