G20 Leaders Must Act on Tax Avoidance

G20 leaders have an opportunity, indeed a responsibility this weekend to agree on a global tax regime that stamps out rampant tax avoidance by multinationals and high net worth individuals.

The summit’s timing could not be more pertinent with the revelation last week showing Luxembourg’s facilitation of industrial scale tax avoidance by multinational corporations. It found hundreds of companies, including some Australian firms, had funnelled hundreds of billions of dollars into Luxembourg, slashing their tax bills in the process. In some cases, the firms were paying effective tax rates of as little as 1 per cent.

Luxembourg, however, is but one player in the global tax avoidance game with estimates that some 10 per cent of global GDP, that is $US8 trillion, is stashed away in tax havens. Tax Justice Network research findings estimate the figure could be as high as $US32 trillion hidden by the world’s wealthiest people in the world’s tax havens. This estimate does not include the vast amount of wealth held in the form of real estate, super yachts, works of art and race horses that are owned by secretive offshore companies, trusts and foundations.

United Voice, in collaboration with the Tax Justice Network Australia released in September a ground breaking report Who Pays for our Common Wealth? Tax Practices of the ASX 200. It revealed 29% of Australia’s 200 largest listed companies pay an effective corporate tax rate of 10% or less. 14% have an effective tax rate of 0%. This translates into an estimated loss in annual revenue of $8.4 billion. In 2013, 57% of ASX 200 companies disclosed subsidiaries in tax havens. This figure could be higher, as reporting is not mandatory. As Dr Mark Zirnsak, from the Tax Justice Network Australia says:

“The frequent use of subsidiaries in secrecy jurisdictions in combination with the shifting of debt and profits is resulting in lost tax revenue in Australia and overseas where it should be paying for essential services to help lift people out of poverty. Last financial year a massive $47 billion flowed from Australia to secrecy jurisdictions.”

When the Liberal Government was elected Treasurer Hockey said that we all must do the 'heavy lifting’ to return the Budget to surplus. What we got instead was a Budget that disproportionally burdened the poorest members of Australia – the unemployed, students, low income pensioners and foreign aid recipients up to 2017-18, whilst failing to rein in tax concessions for high income earners.

Economists and captains of industry like to argue the world is becoming a better place courtesy of globalisation, but what I see is ever growing inequality, and tax avoidance exacerbates this. This is not about class warfare and tearing down wealth creation, but about ensuring that everyone is paying their fair share in tax. Many Australia companies do pay close to the 30% corporate tax rate.

One key to this is greater disclosure and transparency of corporate tax practices. More needs to be done to ensure Australia leads by example and Australian companies contribute their fair share. The Australian Government should:

• Require large corporations to provide more public disclosure and transparency.
• Increase fines for tax evasion and extend laws to effectively cover the full range of corporate tax avoidance strategies.
• Eliminate or restrict the use of stapled securities for tax arbitrage, according to global norms.
• Ensure that the Australian Tax Office is adequately funded and staffed.
• Lead the G20 to adopt tough and effective global rules to combat corporate tax dodging.

Tax Justice Network Australia recommends the Australian Government:

• Support the OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS) and pressure secrecy jurisdictions to end their status through effective cooperation with other governments to combat tax evasion, tax avoidance and money laundering.
• Support the automatic exchange of information on tax matters between tax authorities of different countries, with appropriate safeguards, and follow through on its commitment to implement automatic exchange of information on tax matters into Australian law.
• Require greater transparency from multinational corporations, including country-by-country reporting. Consolidated annual reports should include revenues, profits, staffing levels and taxes paid in each country in which they operate or have subsidiaries.

For multinational corporations the Tax Justice Network Australia recommends:

 

• Greater transparency on the purpose and function of subsidiaries in secrecy jurisdictions.
• Voluntary reporting of revenue, profits, staff levels and taxes paid in each jurisdiction until such a measure is implemented by law.
• Avoiding setting up subsidiaries in secrecy jurisdictions.

If Treasurer Hockey is serious about balancing the books then he must address corporate tax avoidance. The G20 Summit in Brisbane is the perfect opportunity for the Treasurer to do this, so that ordinary Australians and small businesses are not shouldering an unfair tax burden.