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Crikey
Crikey
Comment
Jason Ward

Albanese promised to enact multinational tax measures. Nothing’s happened

Governments worldwide could lose an estimated US$5 billion ($7.8 billion) in revenue to tax havens over a decade, equivalent to a year of global public health budgets — a problem that urgently needs fixing.

The Albanese Labor government was elected on a platform that included world-leading tax transparency measures, including a simple but little-known provision to mandate public country-by-country reporting (pCbCR). This would require multinationals operating in Australia to publicly report basic financial data, including the number of workers, taxes paid, revenues and profits (or losses) in each country in which it operates.

If Australia implements full pCbCR, as proposed, it will set a new global standard and be a huge benefit to stakeholders worldwide, including investors and tax authorities in the global south, both with no access to this basic financial data at the country level. While not directly raising revenue, it would also encourage multinationals to stop shifting profits and would expose current schemes.

Greater transparency would inform further reforms to increase revenues and restore fairness and integrity in the national and global tax systems.

Delayed or damaged?

However, after releasing draft legislation and conducting two rounds of public consultation, the measures have been delayed by a year. Corporate lobbying threatens to significantly weaken the transparency measure by adding exemptions and loopholes, potentially restricting the geographic scope of global coverage. Full global coverage is essential to expose profit-shifting schemes which deprive Australia and other nations of much-needed funding for essential public services, including health and education.  

Labor has been under intense lobbying from global corporations, PwC and other facilitators and enablers of tax avoidance to weaken this important transparency measure.

The lobby group, Corporate Tax Association (CTA), argues the reforms would impose too heavy a compliance burden and force sensitive information to be revealed. CTA includes in its members Amazon, Brookfield, Chevron, Exxon, Glencore, Google, News Corp as well as other multinationals with a well-documented track record of domestic and global tax dodging.

If CTA is to be believed, multinationals operating across hundreds of jurisdictions and managing untold numbers of tangled subsidiaries cannot compile basic financial data at the country level without several years’ advance notice.

But multinationals already report this data in a similar format confidentially to tax authorities in OECD countries. No evidence of how basic country-level data would affect competitiveness or reveal trade secrets (beyond tax avoidance) has been provided. European banks have been reporting this information publicly for a decade with no apparent impact on competitiveness, and Australian corporations such as BHP, Rio and Wesfarmers already report the information voluntarily in a similar standard proposed in Australia.

The delayed implementation may not be an end in itself, but clears the path for multinationals and tax advisers to lobby for a far weaker and ineffective proposal as already happened in the European Union (EU).

Corporate lobbying created EU’s flawed approach

The EU originally proposed a full pCbCR regime. However, after intense corporate lobbying, the regime was significantly watered down. Indeed its final language was written by a French corporate lobby group.

The final directive requires reporting only in member states and only from a bizarre tax haven “blacklist” that excludes the most abused jurisdictions, such as Bermuda and the Cayman Islands. The rest of the world is treated as one lump sum.

This global aggregation is, by definition, not country-by-country reporting and will not expose multinational profit shifting. The EU model may encourage multinationals to move current schemes from Ireland and Luxembourg… to Switzerland and Singapore.

While the geographic scope of the EU directive is flawed for Europe, it is absurd for Australia.

Who stands to win and lose?

The beneficiaries of reducing transparency are multinationals with something to hide, as well as the tax consultants and advisers who sell, facilitate and defend aggressive tax avoidance schemes. The weakening of tax transparency will harm all other stakeholders.

Recent controversies around PwC have turned a spotlight on tax advisers. These “big four” auditing firms dominate consultations over tax reform due to supposed technical expertise, while also facilitating the very types of tax minimisation schemes that prompt the need for reform.

The far-reaching influence is evidenced by the composition of the government’s board of taxation (BoT), which advises on tax policy. Until recently, its CEO and director came from none other than PwC, and its meetings were held at PwC offices. The BoT is also the purveyor of the much-maligned, largely ignored and ineffective voluntary tax transparency code.

Unsurprisingly, CTA’s submissions to the government on tax transparency proposals suggest that any changes affecting multinational tax should be reviewed by the BoT. However, the BoT’s advisory panel, stacked with big four accounting firm tax and corporate executives responsible for tax, was recently disbanded due to the scandals around conflicts of interest with government contracts.

There are now positive signs that this is the beginning of broader changes in limiting the role of external consultants, with other motivations, in designing critical government policies.

If corporations want to continue to pay for the services of PwC, that’s fine; however, the time for governments to ignore these facilitators and enablers of tax dodging is long overdue. The Australian government must act in the broader community’s interests and implement full public country-by-country reporting, as it has already proposed.

It’s time to shine a bright light into the dark practices (and harmful consequences) of rampant multinational tax avoidance.

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