PART 6 (final) of "The Tax Reform Bill and the Constitutional
The head of the Australian Tax Office's (ATO's) international tax division, Mr Jim Killaly, told the Herald (Paul Cleary, Economics Correspondent, Sydney Morning Herald, October 28, 1996) that in 1993-94, 60 per cent of foreign-owned and Australian multinationals claimed to be in loss and paid no tax, while the "great bulk" of the remaining 40 per cent claimed to be marginally profitable and paid only a small amount of tax. Multinationals, numbering just 7000, claimed $30.5 billion in interest expenses, or 60 per cent of total interest expenses claimed by all Australian-based companies. Mr Killaly also revealed that this taxpayer group generated transactions with related companies, including financial transactions, of $60.4 billion in 1993-94. The group is defined as companies that have "related-party international transactions," which meant they traded with or shifted funds to related companies overseas.
Mr Greg Crough of the Australian National University, a leading authority on transfer pricing who has been engaged by the ATO as a consultant for several years, says that profit shifting costs Australia well over $1 billion a year. In an interview earlier this year , Mr Killaly said a "conservative" several hundred million dollars a year was being lost and that it posed a "significant risk to revenue". But this estimate was based on a sample audit of only 120 companies. Mr Killaly declined to make public his estimate of the revenue loss.
When such a startling revelation comes from the head of the ATO's international tax division, there is reason for concern. Let us therefore examine in more detail the true nature of Australia's policy of taxing internationals.
What is the true level of foreign ownership in Australia? The Australian Bureau of Statistics (ABS) publishes an all-over figure of 42.6% (ABS Code No 5306) foreign ownership, not accounting for equity. This figure is clearly misleading, as it makes no allowance for nominee shareholders. There seems to be a cover-up of the extent of the foreign ownership figures. Treasury has stopped the publication of vital information, in particular foreign ownership figures in the corporate sector from 1986-87.
A Treasury informant has advised John Cumming of Austand that the true figure of foreign ownership in Australia is 90%. There is hard copy to back this information, but it won't be published. ATO has further advised (according to John Cumming) "We have the largest foreign ownership in the developed world". If this is true, there is an enormous cover-up by Treasury. ATO is the only organisation other than Treasury, privy to the degree of foreign ownership in Australia, and of course the tax paid by foreigners. Jim Cairns states that foreign ownership in his time was not far off $200 billion, and Clyde Cameron confirms this figure. It is vital that the full degree of foreign ownership be disclosed to the public, providing full sources for statistics, and including details about nominee shareholders.
What are comparable foreign ownership figures for other OECD nations? The latest available figures, now five years old, from Infotech, indicate UK - 10.5%, USA - 10.3%, Japan - 2.1%, EU - 3.5%. And our contact in Treasury has confirmed: Australia - 90%. Why are we told by Treasury that high foreign ownership is good for us?
How many companies are claiming multinational status in Australia? In the Murdoch Press throughout Australia, in an article by journalist Michael McKinnon, Courier Mail, 14th January 1998, it was stated that in 1996, more than 7,700 companies claimed multinational status. The Commonwealth Auditor-General as far back as 1989 (The Australian, February 16th, 1989), revealed that as many as 40,000 companies may be avoiding tax by shifting profits offshore. The Department for the Auditor-General was not able to disclose more information. It is vital that the true figures be made publicly available.
How much tax do foreigners pay? This is highly secret information. But a document from ABS (document No 5506.0, 1995-96) has escaped the secrecy net. In this year the total tax revenue for Australia stood at $115 billion of which foreigners paid only $10 billion. That is, Australians paid 91% and foreigners just 9%. There is clearly massive tax avoidance involved here. In Japan multinationals pay 52% tax on profit (KPMG, chartered accountants and business advisers). Why are foreigners, owning 90% of Australia, permitted to pay so little tax?
How much money goes out of Australia annually? A Treasury informant advised John Cumming of Austand, that in 1986, $80 to $100 billion had gone out of the country tax free. This research was carried out by ABS personnel. Hard copy evidence was available but remains secret. The figure of $80 to $100 billion has been verified, with several chapters providing information, in the book Lucky be Damned, by John Cumming, published in 1992-93. Projecting these figures taking into account assets sales, leads to a figure today of approximately $200 billion. In 1996 Austand received conclusive proof from the Taxation Office to verify the current $200 billion figure. It is vital that this information be publicly released.
What is the national turnover? The national GDP [Gross Domestic Product] is nearing $500 billion, but this should not be confused with the national turnover. The GDP appears to be a manufactured figure, and the ABS refuses to identify the source of their information for the GDP report. Recently, this report has been less frequently published. The true figure may be more closely reflected by the Australian Financial Report of 1996. This put the nation's turnover at $27 trillion. This figure increased to $32.5 trillion according to ABC [Australian Broadcasting Corporation] News, 24 November 1997. These figures seem to indicate that the $200 billion figure for money leaving Australia each year is an underestimate. It is vital that ABS release full and accurate information about national turnover, including identification of sources.
Why is it so easy for multinationals to take money out of the country tax free? The simple and direct answer to this is that the government and Treasury policy is to let this happen and hide the truth from the Australian public. Their purpose was to encourage transnationals into the service industries. Moreover, to facilitate this, they have enacted special legislation which gives multinationals a free ride, that is it permits them to pay little or no tax in Australia. The Double Tax Agreement Act was passed in 1953 following a Bill introduced to parliament by Sir Arthur Fadden. This Bill was vigorously opposed by the Hon. Clyde Cameron (read Hansard, page 601, 26/November/1953), though it was otherwise little publicised. In effect, this Act allows foreigners to avoid paying tax on their earnings in Australia.
They avoid tax easily through price transfer (which involves minimising taxation by artificially charging high prices or operating costs to subsidiaries in Australia), royalties, tax havens and such like. In addition, Treasury regularly gives many advantages to foreign corporations --- tax holidays, tariffs and other benefits --- the Treasury code words being 'bestowing naturalising status'.
What is the effect on Australia of this policy? Multinationals are given an open welcome to come into Australia to compete on our markets and take their profits overseas, while paying little or no tax. This in turn creates unfair competition which forces Australian-owned (tax-paying) companies out of business and a loss of income for the Australian Government. Nearly all major accountancy firms, legal organisations, brokers, PR [public relations] organisations, advertising agencies, media and many others are now controlled by multinationals. The lack of money staying in the country results in lack of money for development, and therefore leads to unemployment. Government runs short of money, and so the simplistic solution is to sell our assets and "privatise". We have the situation now in Victoria where the Kennett government has sold most of their utilities, such as water, power, gas and others to foreigners, and they are going to be in big trouble soon.
It is claimed by Treasury that multinational investment provides employment, but in fact the reverse is true. Let anyone make a study of all the countries around the world where multinationals have taken over large proportions of the country's economy, and they will see a comparative rise in unemployment. This is because the multinationals keep staff down and profit up. In Australia, one only has to compare the escalation of foreign investment with the downturn in employment. If we did not give so many favours to internationals, if we were to do our own development, then the money would stay in the country and so would the profit, which would create more employment.
What are the remedies to Australia's economic problems?
(1) It is vital that comprehensive information from ATO, Treasury and ABS be publicly revealed. This will include degree and amount of foreign ownership, amounts of money and profits shifted overseas, amounts and details of tax paid by foreign and Australian ownership, details of interest expenses and transfer pricing, analysis regarding nominee shareholders, national turnover, and comparative impact of the Double Tax Agreement Act. We cannot expect such reform to be initiated by the Commonwealth government. This is not a Liberal-Labor issue. We can recall that it was the Hawke-Keating Labor government that initiated the non-publication of foreign ownership figures and the policy to sell off our national utilities and icons to foreigners. It is a State-Commonwealth issue.
Constitutionally, the States have every right to economic equity, and that means a right to have access to all confidential information from Commonwealth Treasury, ABS and ATO, to audit and investigate this information, and publish whatever from it that they deem fit. It is the States that are hurting the most, and if the Commonwealth does not respond, then the States can take action to enforce economic equity by other means as described in this article.
(2) The Double Tax Agreement Act needs to be repealed. The entire philosophy behind it is leading Australia deeper and deeper into the mire. In 1996 representatives of Austand met at Austand headquarters with Mr David Lewis, Assistant Commissioner International Tax Division, who explained that they were having difficulty in reaching their tax targets, largely because they were not able to overcome the problem of price transfer. It was suggested by Austand that if the Double Tax Agreement Act was rescinded, there would be no trouble in reaching the target, many times over. Such a move must be enacted however by Parliament. John Cumming noted that Mr Lewis "left the meeting on an optimistic note".
Information on this section about taxation of multinationals has been supplied with permission by Austand. For more information contact Austand, PO Box 173, Noosa Heads, Queensland 4567, phone/FAX John Cumming (07) 5447 2943. __THE END__
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