Multinational tax avoiders and the OECD have won a reprieve from the Albanese government which has delayed legislation aimed at shining the light on tax avoidance. Jason Ward explains why the backdown is bad news.
The Labor government made an election promise, a budget promise, a legislative promise and held two consultations on landmark legislation to implement global tax transparency for multinationals. Now it has bent to corporate pressure. Landmark legislation for public country by country reporting was set to be implemented as of 1 July.
Late last week, it was announced that implementation will be pushed back for at least a year.
The question remains whether this is a genuine delay for further consultation or whether this is the beginning of a more complete capitulation to corporate interests. One might ask why the Labor government continues to heed the advice of PwC, Meta (Facebook), Microsoft and the Corporate Tax Association (whose members include Accenture, ALDI, Amazon, Brookfield, Chevron, Coca-Cola, Exxon, Glencore, Google, Lendlease and News Corp, just to mention a few upstanding corporate taxpayers)?
Sunshine is best disinfectant
This measure was not directly raising taxes. But it was mandated tax transparency for all large multinationals operating in Australia. It would have required all multinationals with operations in Australia to provide basic public financial information for every country where it has a presence.
It could lead to increased revenues desperately needed to fund our underpaid and overworked, teachers, nurses, aged care workers and many other public service workers. It would level the playing field for the vast majority of businesses that don’t create complex corporate structures to shift profits to tax havens and avoid domestic obligations.
It would have let the sunlight into the murky world of multinational transfer pricing which now makes up the bulk of global trade.
However, there are powerful advocates to keep us all in the dark and sadly it seems the Labor government has listened. As Mark Zirnsak, from the Tax Justice Network Australia says, there has been significant blow-back by the business lobby over the ambition or scope of country by country reforms. “Our understanding is that there was robust lobbying against it. There is disappointment on our side that it might be walked back to something more acceptable for business – but I think the reform is very much in play.”
Others are not so sure. Successive governments have delayed money-laundering laws for 16 years, under pressure from the property, lawyers and accountants lobby (AML-CTF Tranche II).
Push for transparency gathers pace
Earlier this month, one-third of independent shareholders at Brookfield – the global giant asset manager that is poised for a $19 billion takeover of Origin Energy, to add to its existing stable of Australian assets, including AusNet, Healthscope, Aveo, Multiplex and more – voted to require the company to implement public country-by-country reporting.
If shareholders, including some of the world’s largest investors, are asking for transparency, how is it that the Australian government would bend to the will of corporate executives and their lobby groups? Increasingly, many multinationals are voluntarily providing public country-by-country reporting following the GRI (Global Reporting Initiative) Tax Standard, upon which the Australian legislation is based.
A similar version of this information is already provided confidentially to tax authorities in OECD (Organisation for Economic Co-operation & Development) member states. Some tax authorities may use this information effectively, but some may not; we don’t know.
Tax authorities in the global south, most reliant on corporate income tax and least able to collect, have no access to this information. Australia’s legislation would make the data public for all to see and use to hold multinationals to account or make them be less dodgy.
Is Mathias Cormann still in government?
The OECD, now led by Australia’s former Finance Minister Mathias Cormann, is known to prefer multilateral approaches to combating tax avoidance. His organisation’s opposition to corporate tax transparency is also well known. Is Mr Cormann, an ex-Liberal minister, now advising the ALP on tax policy?
Corporate interest already lobbied hard and succeeded in watering down the European Union’s (EU) effort at country-by-country reporting. The forthcoming EU rules, not yet implemented, only require reporting on tax and other financial information in EU member states.
The rest of the world – including Australia, the US, the UK, China and India (to name a few) – would be reported as a lump sum. There would be no way to see where else in the world profits may have been shifted.
In fact, the EU effort might create perverse incentives to shift tax dodging schemes from Ireland and Luxembourg to Bermuda, the Cayman Islands, Switzerland, Singapore or many others. The small Pacific Island nations of American Samoa, Fiji, Guam, Marshall Islands, Palau, Samoa & Vanuatu – with limited lobbying power in the EU – are 7 of the 16 jurisdictions in the EU’s deeply flawed ‘tax haven blacklist’ for which disclosure would actually be required.
This information should be public so that shareholders, academics, civil society, and the general public – if they care to look – could see how complex corporate structures are used to shift profits to avoid tax obligations.
Nothing happening, nothing to hide, right?
In Australia, we already have limited data on tax payments by large companies, but this does not show us what profits might be shifted where. When this data has been available, as it has been for banks in Europe since 2014 (who, by the way, are still doing pretty well) it reveals that profits are being booked in Bermuda, Puerto Rico, Luxembourg and Singapore, where there is little, if any, genuine economic activity and little to no taxes paid.
That’s the recipe for the ‘special sauce’ that multinationals don’t want revealed. Let’s hope the Labor government does live up to its promise of mandating transparency and lets the sunshine in, otherwise we will all continue to be in the dark.
Capitulation Complete: Government caves in to multinational tax avoiders
Jason Ward is Principal Analyst at the Centre for International Corporate Tax Accountability & Research (CICTAR). Ward has been a frequent commentator on corporate tax issues as an analyst and spokesperson for the Tax Justice Network – Australia (TJN-Aus). He is currently an adjunct senior researcher with the University of Tasmania’s Institute for the Study of Social Change.