The Corporate Tax Association has vehemently rejected the claim big business tries to inappropriately minimise tax but some of its own executives work for companies that have had legal clashes with the Australian Tax Office.
In its submission to the Senate inquiry into tax avoidance the association “objects to views that paint a picture that the Australian corporate tax system is fundamentally flawed and that corporate taxpayers in Australia are inappropriately minimising their tax bills”.
And it said those groups claiming big business tries to dodge tax could be themselves “damaging Australia’s revenue base” because “ordinary Australians” might try to do the same when they are “misled” into losing faith in the tax system.
“Harming the confidence the community has in the integrity of our tax system without any sound basis seriously risks damaging our revenue base. When ordinary Australians are misled into thinking that large business plays fast and loose with the rules to avoid meeting their legitimate tax obligations, this is bound to have a negative impact on the high levels of voluntary compliance which have been a feature of our tax system for many years,” the association said in its submission.
But the tax practices of key corporate members of the association have been targeted in legal action by the ATO.
The vice-president of the association, Michael Fenner, works for Chevron Australia. The tax office has alleged Chevron used a series of loans and related party payments to reduce its tax bill by up to $258m. The landmark test case, still before the federal court, alleges Chevron benefited from the tax-free interest on intercompany loans from a US-based entity in the tax haven state of Delaware.
The treasurer of the association, Chris Vanderkley, works for GE Corporate. GE capital, the company’s financial services arm, settled a legal dispute with the tax office in January over $144m of tax deductions before it reached court.
While neither the vice-president nor the treasurer are known to have been directly involved in the tax disputes, the United Voice union questioned how the association could insist Australian businesses were “highly compliant with the tax laws” and that the “vast majority are transparent in their management of their tax affairs” when the tax practices of its own members had been challenged by the ATO.
“Rather than attacking those who raise concerns about the tax practices of large corporations and the impact that those practices have on ordinary people, perhaps the CTA should ensure that its own members are following the principles it has stated,” the national secretary of United Voice, David O’Byrne, said.
“Their membership is like a who’s who of aggressive tax minimisers,” he said.
A spokesman for the CTA said that having a dispute with the ATO was not a sign that companies were inappropriately minimising their tax bills.
“Disagreements that end up before the courts are in fact a critical means to obtain clarity around the operation of the law to the benefit of all taxpayers and the ATO,” he said.
The tax practices of major companies, and the advice from big accounting firms, will be in the spotlight this week as the Senate inquiry starts hearing evidence from executives from companies including News Corp Australia, Google, Microsoft, Apple, BHP Billiton, Rio Tinto and Fortescue Metals.
The Greens leader, Christine Milne, who pushed for the inquiry to be established, said she hoped it would expose “the extent to which the big end of town is not paying its way ... and the extent to which Australia is being ripped off”.
She criticised the ATO practice of negotiating settlements with big corporate taxpayers, saying similar leeway was not given to small taxpayers or welfare recipients who may have failed to declare some income.
United Voice worked on a report by the Tax Justice Network that helped prompt the Senate inquiry. Many of the corporations giving evidence are highly critical of its findings, saying they present a misleading picture and do not take into account legitimate tax deductions and procedures.
But the treasurer, Joe Hockey, has warned Australia is “losing control of our destiny from a taxation perspective” because of “holes” in the tax treatment of multinational corporations. He has flagged a so-called “Google tax” in the budget similar to the new “diverted profits tax” in the UK, which requires multinationals to pay a rate higher than the company tax rate on profits sent offshore.
The association insisted that would be a mistake. It said: “Taking unilateral action invites reprisals and risks double tax outcomes, which is highly inimical for investment and jobs.
“We note the UK’s recent announcement of a 25% diverted profits tax (DPT). However, it is difficult to see that as anything other than an assault on the tax base of another country, with the taxpayer caught in the middle. It remains to be seen precisely how other countries will react to unilateral action like the DPT.”
“Changing the source/residency rules in a more coordinated way would be far preferable, albeit challenging as it would essentially involve a negotiation between nation states over taxing rights. Australia in particular would need to tread very carefully in case it jeopardises its revenue base relating to our huge volumes of commodity exports.
“Although we recognise there are potentially significant challenges ahead in the source/residency debate, it is crucial that Australia actively participates in the OECD deliberations and avoids taking unilateral action, or it could be risking a lot to gain only a little.”
In its submission the Business Council of Australia also warned against any new law in Australia ahead of global moves in the Organisation for Economic Cooperation and Development.
It said: “Changes to the corporate tax system, ahead of the outcomes of the OECD project and the tax white paper in Australia, could undermine these processes. Unilateral action ... may encourage other countries to act alone and splinter international taxation norms, risking unintended consequences including double taxation and distortion of genuine commercial activity.
“Similarly, if the global community does not see positive actions ... there may be increased pressure in some countries to go it alone despite the risks.”
