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John Passant

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August 2013



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My interview Razor Sharp 18 February
Me interviewed by Sharon Firebrace on Razor Sharp on Tuesday 18 February. (0)

My interview Razor Sharp 11 February 2014
Me interviewed by Sharon Firebrace on Razor Sharp this morning. The Royal Commission, car industry and age of entitlement get a lot of the coverage. (0)

Razor Sharp 4 February 2014
Me on 4 February 2014 on Razor Sharp with Sharon Firebrace. (0)

Time for a House Un-Australian Activities Committee?
Tony Abbott thinks the Australian Broadcasting Corporation is Un-Australian. I am looking forward to his government setting up the House Un-Australian Activities Committee. (1)

Make Gina Rinehart work for her dole

Sick kids and paying upfront


Save Medicare

Demonstrate in defence of Medicare at Sydney Town Hall 1 pm Saturday 4 January (0)

Me on Razor Sharp this morning
Me interviewed by Sharon Firebrace this morning for Razor Sharp. It happens every Tuesday. (0)

I am not surprised
I think we are being unfair to this Abbott ‘no surprises’ Government. I am not surprised. (0)

Send Barnaby to Indonesia
It is a pity that Barnaby Joyce, a man of tact, diplomacy, nuance and subtlety, isn’t going to Indonesia to fix things up. I know I am disappointed that Barnaby is missing out on this great opportunity, and I am sure the Indonesians feel the same way. [Sarcasm alert.] (0)



The Northern Territory as a tax haven

As a tax man I have been thinking about Kevin Rudd’s idea to cut company tax in the Northern Territory to 20%.

Let me tell you a story about profit shifting, or transfer pricing as it is known in tax circles. Imagine your company import goods from the US for resale into Australia. You pay the manufacturer $100 for the widgets you import and resell them at $150, making a profit of $50, taxable in Australia.

A clever tax adviser suggests you set up a wholly owned company in Vanuatu, or the Bahamas, of the Caymans. (It doesn’t matter that much where.) Your Vanuatu company now buys the widgets from the US for $100 and sells them to you for $150. It is a competitive market so you can’t sell them for any more than your previous price of $150. So your profit in Australia is zero. But the profit your wholly owned company in Vanuatu makes is $50. So at the stroke of a pen you have shifted the profit from Australia with its 30% tax rate to Vanuatu with its zero company tax rate.

Similar arrangements can be made for exporters from Australia, but here the prices will be below the market price, ie they will be underpriced, to shift the profit to the low or no tax jurisdiction.

There are a whole range of tax rules to address this, but they are complicated and involve lots of work and high powered and expensive experts.

Substitute Northern Territory for Vanuatu and you might get an idea what opportunities open up for domestic profit shifting.
Companies would be tempted to shift some of their back office functions to NT – on paper at least – to provide services to the rest of the Australian group. And they might do so at inflated prices to shift the profit overall to NT.

Apart from profit shifting, where is the economic gain in having differential profit rates if all it does is shift some work from Sydney or Melbourne to Darwin?

Of course it might attract some foreign investment into Australia but they are likely to be lurks and perks men (they are invariably men) doing it for a tax break through a ‘respectable’ tax haven like Australia.

At what cost to the revenue? Billions as the tax advisers structure arrangements through Darwin to pay tax at 20%. Shareholders would receive less dividend imputation too, which would recoup some of the lost revenue through more tax paid by them than if they invested in other Australian companies which paid 30% tax.

Australia has treaties with over 40 mainly major trading countries and those treaties try to not recognise special economic zones. How will Rudd’s proposal work out for our treaty partners as we set up the Holland of the South Pacific?

Australia also taxes some business on a consolidation (or group) basis. How does having some members of your group in the Northern Territory fit in here?

So we’ll need new domestic transfer pricing legislation, hundreds more tax officers to police the new regime and suffer a loss of revenue in the billions. All so the banks and mining companies can move some of their functions to Darwin.


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