Sonia Hickey, journalist, draws attention to the problems in the tax regime as big businesses are still able to pay minimal tax, despite the ATO settling its disputes with several global tech giants over paying insufficient Australian tax.
As the ATO announces settlements with tech giants such as Google, Apple, Microsoft and Facebook, other company tax data highlights systemic problems in the tax regime which means big businesses pay minimal tax, and it’s all perfectly legal.
As thousands of small business owners put their feet up after a long and fairly arduous year, the Australian Tax Office announced that it has settled its decade-long dispute with Google, and several other global tech giants who haven’t been paying enough Australian tax.
As a result of settlements with Google, Microsoft, Apple and Facebook, the ATO has netted $1.25 billion. And this is welcome news. It means that the ATO is putting to good use the extra $1 billion funding it received from the federal government in the past couple of years.
The financial boost provided a lot more technology and resources, as well as funding for a special ATO taskforce charged with scrutinising the top 1000 corporations in Australia, along with 320 private groups and wealthy individuals.
But while the ATO is crowing about its settlements with the tech giants, corporate transparency data shows a wider problem with Australia’s tax regime. Hundreds of companies, through the use of clever accounting and financial strategizing, have been able to reduce their tax bills to zero. And it’s all perfectly legal.
Of 2,214 entities covered by the Australian Taxation Office (ATO) data for 2017-18, 710 did not pay any tax. It has been reported that of the 2,214 corporate entities covered in the data, 1,197 are foreign-owned companies with an income of $100 million or more. Of the 1,017 Australian public or private entities, 594 have an income of $100 million or more, and 423 have an income of $200 million or more.
Netflix pays minimal tax
Netflix is one example. While the corporate tax rate in Australia is 30 cents per dollar, it has been revealed that Netflix pays an effective tax rate of around 0.5% here. On an estimated $600 million – $1 billion in revenue, the streaming service paid just over $340,000.
The tax arrangement is well within the Australia tax guidelines because Australian users are charged by the company’s Dutch subsidiary. The only tax Netflix is believed to pay in Australia is on the $12.1 million service fee it pays its local arm here.
This is the reality of corporate financial structuring. Of course, these companies have an ability to use legitimate deductions and concessions too.
Companies need to be more transparent
While the ATO certainly has its eyes peeled for tax avoidance, the problem is that company financial information does not always give the full picture of tax positions. Added to this, is the fact that Australia has one of the most complicated tax systems in the world.
The ATO introduced new multinational anti-avoidance laws in late 2016, but still many companies manage to avoid paying what they legitimately owe in tax. In some cases, the ATO alleges, they
create endless delays by hiding behind ‘legal client privilege’ rather than disclose important documents, where documents were provided to a lawyer for the purpose of obtaining legal advice.
ATO pushed for changes to client legal privilege
As a result, earlier this year the Australian Taxation Office (ATO) began working with the Law Council on Australia to create exceptions to client legal privilege to make it easier for them to prosecute those it suspects of tax evasion. These laws would essentially force lawyers to disclose financial information about their clients.
Given that it can be a long and meticulous process putting a case together, it’s probably no surprise that even though the ATO may serve a company a tax bill, it has a history of settling out of court with more companies than it litigates.
None of this means though, that the focus has shifted away from small business.
Small business remains under the ATO spotlight
This year alone the ATO has brought in phase two of STP reporting, warned of further crackdowns on employee-superannuation payments, and announced it has the power and the systems to extensively cross-match data and check anomalies in tax returns, and it is not afraid to use them.
The Federal Government is also currently debating legislation which will make it illegal to pay cash in any transaction of $10,000 or more. Each of these measures is part of the crackdown on the black economy which costs multi-millions of dollars each year. And while we all want the tax cheats to be caught, and for the loopholes to be tightened, this new regime of ATO compliance has cost small business significantly this year – in time, effort and money.
But it is important to do the right thing. Tax evasion is taken seriously in Australia. Payment of taxes is regulated by the Excise Act 1901, Taxation Administration Act 1953 and Criminal Code Act 1995 – all of which are Commonwealth laws which apply across Australia.
The main offences for prosecuting tax fraud, also known as tax evasion, are contained in sections 134.1(1), 134.2(1) and 135.4(3) of the Criminal Code Act (the Act), all of which carry maximum penalties of 10 years in prison.