Cockroach-fighting multinational SC Johnson of Raid fame fronted the Senate to decry Labor’s corporate tax reforms but, as Michael West reports, it is likely the laws will pass despite the cries from the Big Business lobbyists.
Cockroaches and tax lawyers? It was poetic that, at the Senate hearings this week into Labor’s multinational tax reform proposals, one of the business lobby’s advocates against reform was the head of tax for SC Johnson, Tom Howard.
SC Johnson is an American family company which makes the Raid cockroach killer products; Windex sprays and Duck toilet flush liquid sachets too – you know, that blue stuff. And Tom the company treasurer was quick to point out the SC Johnson was merely a small family company, a private company and therefore deserved relief from the proposed new laws.
As is routine for the business lobby, Howard decried the impending legislation proposed by Assistant Minister for Treasury Andrew Leigh because it would hit jobs, prices and investors. It is always these three, the three big moans: if you make us pay more tax, it will cost jobs, our prices will go up, and it means “sovereign risk” – good old “sovereign risk”, that is, that the flow of foreign capital into Australia would be imperilled by your laws!
Peak lobby group Business Council of Australia invariably runs the same script: jobs, prices and sovereign risk. As does the Minerals Council of Australia and every other business lobby.
As the American tax counsel whined about the gross injustice being meted out to his “family company”, our contact at the hearing, Jason Ward, also on the call with the Senate’s Economic References Committee, made haste to the ASIC database to check out SC Johnson. It turns out they paid just $1.4m tax anyway, and their “small company” revenue was $76m.
And they had the cheek to rip out $25m last year in a ‘return of capital’. This capital not invested in Australia where they pay a pittance in tax, was just secreted away cockroach-like to another dark destination.
Get the Duck out
But Tom Howard, the treasurer, had told the story to the senators that Australia represented just 1% of global revenue for SC Johnson. If this is the case, then global revenue must be $7.6B; hardly a small company, one of the richest families in America, in fact, though technically its Australian entity is classified as a small company as revenues are below $100m.
It is no small irony either that one of their best-known brands, Raid, sells cockroach sprays and baits, and just like cockroaches, tax lawyers love to burrow about in dark spaces for feed. Similarly tax lawyers love darkness, they shy from the sunlight and transparency because transparency draws attention to their cockroaching activities – chiefly hunting for ways to suck money out of Australian companies into tax havens.
Spraying on the Windex
For instance, as Ward discovered via ASIC searches, the immediate parent company of this Australian outpost of SC Johnson & Son Pty Ltd in Australia is S.C. JOHNSON NL HOLDINGS, B.V.
Why would this company in Australia not be immediately owned by its American parent group but rather by an obscure mob in the Netherlands at the address Groot Mijdrechstraat 81 3641 Rv Mijdrech?
It also made a $24m loan from Australia to what probably equates as a Post Office box in Groot Mijdrechstraat. Why?
Tax, of course. The explanation could hardly be that this “family company” as Tom describes it, was feeling benevolent towards a Dutch associate so simply decided to Ziplock them a $24m loan. SC Johnson in Australia would of course be charging interest on that family loan … as you do because interest is tax deductible so it helps to drag the taxable profits lower in Australia so the Australian government doesn’t get as much money from you in tax.
And SC Johnson has form. They were busted for Mr Muscle grade tax dodging by MWM friend David Cay Johnston in the US.
The global skive
When you think about it, if you can skive out of paying 30c in every dollar you make which is the corporate tax rate, or a good deal of that, you are doing well as the company tax guy … along with, in this instance, the auditing cockroaches from EY Australia.
The $600B or so syphoned into tax havens each year, sucked out by tax lawyers and the Big 4 tax and audit partnerships, makes multinational tax avoidance the biggest racket in the world. Ultimately, there will be little choice but to tax the Big End of Town; it makes no sense slugging a shrinking workforce with PAYG to finance Australia’s future needs – pensions, welfare, defence, infrastructure and so forth.
In any case, we will go into detail on the Labor Leigh reforms in the coming days. They are not done yet. There will be more politics and lobbying before they are due for a vote sometime in August; and they have already been watered down since the election and delayed for a year while Andrew Leigh batted off the business lobby’s artillery of complaints and sob stories.
World first
In fact, if they don’t get watered down further, some of the measures may catapult the Labor government to the forefront of world corporate tax reform. Yes, we will believe it when we see it. However, the Country-by-Country transparency measures are excellent and a vindication of the campaign by Tax Justice Australia.
The others, in quick order, are the proposed 15% minimum global tax rate, proper subsidiary disclosures and measures for professional firms in response to the PWC case. Oh, and tweaks to the PRRT, which is the failed attempt to tax the fabulous profits of fossil fuel exporters.
The minimum global tax proposal is good, not huge in revenue terms but may bring in a couple of hundred million (corporations will have to pay 15% somewhere in the world).
The ‘tightening’ of the PRRT regime is a complete dud and just goes to further kowtowing to the foreign gas lobby. As Ward notes, it looks like it was written by the gas lobby and even makes tinkering around the edges look robust. We will also cover the ‘PwC’ measures on professional firms later.
Country by Country
The point of the Country-by-Country (CbC) measures is transparency. Transparency works as it allows civil society group (like us) a window into the operations of multinational tax avoiders.
An example of disclosure which would be accessible under CbC is blood multinational CSL which makes 10 times the profit per employee in Switzerland than it makes in Australia. This is not because the Swiss consume a lot of blood but because CSL funnels money there as the corporate tax rate is lower.
As Jason Ward, who operates the Centre for International Corporate Tax Accountability & Research (CICTAR), says, if the government does as promised push ahead with CbC reforms next month it will be a world first, benefitting not only tax authorities in this country but elsewhere too.
“Legislation introduced into the Australian Parliament will require multinationals to publicly report on tax payments and profits in a broad list of tax haven jurisdictions. Stakeholders will be able to determine if genuine business operations align with where profits are booked and taxes are paid, or not.
“Corporations that have created artificial structures to dodge paying tax in Australia – and elsewhere – will be exposed.”
Under the proposal, large multinational corporations with an annual Australian turnover of $10 million or more will be required to report tax payments, number of employees and other key financial information on a country-by-country basis for specified jurisdictions that are widely regarded as tax havens.
Says Ward: “Multinationals are encouraged to report financial data for every country with operations, which is essential for full transparency. For now, mandatory public reporting for all jurisdictions remains an unfinished reform. Large multinationals already report similar information on a confidential basis to OECD tax authorities, including the Australian Taxation Office (ATO), but is not available to civil society [groups], investors, academics, other government bodies or most global tax authorities.
“Requiring this information to be made public is a huge increase in tax transparency and public exposure will be a strong incentive for multinationals to stop shifting profits offshore. Without changes to corporate practices, increased transparency will expose the current scale of profit shifting and inform debates on further reforms needed to close loopholes and increase funding for essential public services.”
The problem with PWC and the Big 4 – treason is the business model
Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.