Rumours of the death of multinational tax avoidance are greatly exaggerated


Michael West, University of Sydney

The Australian government took out newspaper ads earlier this month boasting of unequivocal victory in the fight against multinational tax avoidance.

It is no small irony that taxpayers have forked out for this bald-faced lie. “Multinational corporations earning Australian dollars now pay their fair share of Australian tax,” decreed the ad.

The Australian government advertisement falls a long way short of telling the whole truth about multinationals’ tax.
Commonwealth of Australia

Hardly. While it is true that the Australian Tax Office (ATO) and the federal government have reaped more income tax from multinationals this year than they had earlier anticipated, this is a fight that has only just begun.

Were it not for increasing community awareness of multinational tax avoidance – the world’s biggest rort – and rising concern over tax fairness, things would be worse. So the positive perspective is that, yes, inroads are being made via the diverted profits tax, the ATO’s tax avoidance task force and the multinational anti-avoidance law, which was enacted late in 2015.

Tax Office people privately confide, too, that another A$2 billion may drop this year. That’s A$2 billion on top of earlier expectations – A$1 billion from tightened enforcement and another A$1 billion from “behavioural” factors: better behaviour by some multinationals, in other words.

As the swathe of December year reports have flowed through this month and last, it is evident that some companies such as Google and Facebook have been paying more tax, albeit slightly more and still well short of reasonable amounts.

Same old tricks

Others, such as oil giants Exxon, Shell and Chevron, digital players Booking.com, Airbnb, Expedia and eBay, and assorted others such as American Express are up to their same old tricks. We are presently analysing Big Pharma, a sector that is swimming in taxpayer subsidies thanks to the Pharmaceutical Benefits Scheme (PBS) and then has another bite of the cherry via transfer-pricing shenanigans as well.

To a couple of serial offenders, Goldman Sachs and News Corporation. The 2016 financial statements for “Goldies”, as the Giant Vampire Squid is affectionately known in financial markets, are utterly inadequate.

For a start, they are not even consolidated, so don’t provide a true picture of the profitability of Wall Street’s famous, or infamous as many would put it, investment bank. Its head entity in Australia, Goldman Sachs Holdings ANZ Pty Ltd, discloses revenues of just US$24 million, the same as the prior year and well shy of the US$45 million booked in finance costs. Then the profit and loss statement shows an income tax “benefit”, yes benefit, of US$2.4 million, compared with last year’s benefit of US$18.5 million. There was a bottom-line loss in both years.

On this, it would appear that Goldman has paid zero tax in the past three years in Australia. Travelling along to the cash-flow statement, though, they disclose US$286 million was paid in tax last year (down from tax received of US$8.5 million). But when you get to the notes to the accounts it shows an income-tax benefit of US$2.4 million.

All of this is meaningless, of course. As the accounts are not consolidated, they don’t disclose what has been going on in the whole group. Further, tax may have been paid in Hong Kong, the domicile of the immediate parent, or elsewhere.

The usual feature of high finance charges and large related party loans are there, not to mention “service fee expenses” with related parties. Merchant banks such as Goldman Sachs, being banks, get away with a lot on the tax front.

Our very own Macquarie Bank had a keen reputation for tax structuring until it got pinged by authorities three years ago. In 2008, it even recorded a tax rate of 1.7% after a jumbo “tax arb” transaction, a currency swap so successful that it delivered a profit of A$850 million in Asia and a matching loss in Australia.

So a billion-dollar profit bore almost no tax.

At least Macquarie pays homage to financial accounting standards and doesn’t file a pitiable and arguably non-compliant set of accounts like Goldman. ASIC could issue an edict tomorrow, if it had the courage and a burst of energy, decreeing that any multinational company operating in Australia had to file proper “General Purpose” accounts.

Feeling the heat

This brings us to the entity formerly identified as the nation’s number one “tax risk”, Rupert Murdoch’s News Corporation. That mantle has probably gone to Chevron now. After being rapped over the knuckles by the Senate Inquiry into Corporate Tax Avoidance two years ago, News has begun to pay more tax: A$110 million last year.

https://datawrapper.dwcdn.net/kFdQN/2/

The main ruse was to create A$7 billion in “goodwill” in 2004 via a string of related party transactions and then to rip out A$4.5 billion in profits to the US.

News is still deploying this “repatriation of capital” subterfuge to this day. This practice may be legal but it is unethical. The creation of “internally generated goodwill” could be described as suspect in the least. A “magic pudding” was the way former University of NSW accounting academic Jeffrey Knapp labelled it.

Over the ten years to 2015, Rupert Murdoch’s companies paid income tax equivalent to a rate of 4.8% on A$6.8 billion in operating cash flows, or just 10% of operating profits.

The basic numbers for the past two years are: A$110.5 million tax on revenues of A$3.1 billion and profit of A$156 million. In
2015, it was A$109 million tax paid on revenues of A$2.95 billion and profit of A$287 million.

They are still aggressively debt loading, however, or giving themselves loans from overseas so they can rip out interest before paying tax. The critical numbers are A$2.6 billion in related party borrowings on which they paid A$130 million to themselves in related party interest charges offshore. Overall, debt jumped from A$2.4 billion to $4.3 billion.

A A$411 million loan to Foxtel, which News owns with Telstra, remains. The interest rate on this loan is 10.5%, more than double what the average wage earner pays on a mortgage. This is another ruse to avoid tax.

All in all, it’s a better effort from News, but the evidence on multinational tax avoiders is in. There is improvement, but still a very long way to go.


The ConversationThis column, co-published by The Conversation with michaelwest.com.au, is part of the Democracy Futures series, a joint global initiative between The Conversation and the Sydney Democracy Network. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.

Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of Sydney

This article was originally published on The Conversation. Read the original article.

Deadline for re-registration passes; churches face illegal status


Oppressive new laws in Azerbaijan and Tajikistan required religious communities to re-register with the government by January 1, 2010 or face illegal status. As of December 16, only about 100 of Azerbaijan’s 534 religious communities had been able to do so. Fewer than half of Tajikistan’s religious communities re-registered, reports MNN.

According to Joel Griffith of Slavic Gospel Association, officials place obstructions in the paths of churches trying to re-register.

"They will find some technicality or basically any reason to deny registration. So even if some of the groups actually follow the law to the letter and meet the requirements, it just seems very arbitrary and capricious as to whether the officials will agree to register to not," he explained.

It’s unclear how strictly the governments of the two nations will enforce their laws.

"In the worst case scenario…they could basically close congregations down and impose pretty stiff penalties," Griffith said. "In the best case scenario…unless they agree to fully repeal these statues or amend these laws, I think we need to just hope and pray that even though they’re on the books, these things won’t be enforced."

That’s often the case in countries that have similar laws. The new laws include other burdensome requirements in addition to the re-registration mandate. Azerbaijan’s law requires religious communities to provide more information for registration and to obtain approval to build or rebuild places of worship. It also prohibits the sale of religious literature in unapproved locations and religious activity outside registered addresses.

Tajikistan’s religion law censors religious literature, bans state officials from founding religious communities, requires state approval to invite foreigners for religious visits or to travel abroad for religious events, and restricts children’s religious activity and education.

Christians in Azerbaijan are especially concerned about how courts might interpret unclear provisions in the law. They fear a loose interpretation could penalize "peaceful religious activity." Griffith quoted a passage from the law and explained the issue.

"‘The community formulates its relations with other religious confessions on the basis of religious toleration (tolerance), respect and the avoidance of conflict,’ and the community cannot use violence or the threat of violence in proclaiming its faith. Well, if you don’t define those terms, such as ‘respect and the avoidance of conflict’…you could almost say that Christian evangelism could even be illegal under a formulation like that."

Since Christians believe in only one means of salvation — Jesus Christ — it would be entirely possible for disagreement with other religious groups to be interpreted as "conflict." However, Christians are not the only people worried about the potential impact of the law.

"It’s not just Christians that are concerned; we’ve got Muslim groups that are concerned. These are largely Muslim nations," Griffith said. "I think there are a number of people that are concerned about what this will possibly do down the road."

No matter what does happen, the Christian church will remain committed to the Gospel.

"Regardless of what happens in these countries, the churches still have their marching orders from the Lord: to proclaim the Gospel," Griffith said. "And no matter what man does, they’re going to continue to proclaim the Gospel."

Christians in Tajikistan and Azerbaijan need the prayers and support of their fellow believers. SGA has been supporting churches in the former Soviet Union for 75 years, and it continues to support churches in these two countries.

"It’s important to help them take advantage of every open door they can find to share the Gospel," Griffith said. "It might be through supporting a church-planting missionary; it might be through providing Russian-language Bibles and literature; it may be through helping to support in-country training, and sometimes that training has to take place quietly…. But for churches here in the West that have the resources, it’s important to support our brothers and sisters there who don’t have the resources that we do."

Report from the Christian Telegraph