Should companies using tax havens receive pandemic stimulus funds?

Denmark and France are blocking pandemic financial assistance to any firms registered in tax havens.

Meanwhile, in Australia the CEO of EnergyAustralia – a company with a parent company based in the Caribbean – has been appointed to the Reserve Bank of Australia Board of Directors; and, a third of large Australian companies are paying no tax at all with no suggestion by the Morrison Government that any of them will be excluded from pandemic stimulus funds in the way casual and part time workers have been.

Three years ago the Australian Government claimed it was “ leading the global fight against multinational tax avoidance and is cracking-down on taxpayer tax evasion with a number of reforms announced as part of the 2016-17 Budget.” It also claimed that it’s Diverted Profit Tax legislation closed “loopholes to prevent the exploitation of cross-country tax differences.”

Yet there is a stack of evidence that they have not been that successful quite just yet – with the EnergyAustralia case being a good example.

Michael West (1 March 2020) investigated an AFR attack on Centre Alliance Senator ,Rex Patrick, who said Catherine Tanna, the EnergyAustralia CEO, should be removed from the Reserve Bank Board because she was head of “an international corporate tax dodger”. The AFR said Patrick had used parliamentary privilege to “wildly denounce, with little evidence, a leading Australian corporate head.”

Patrick claimed that EnergyAustralia paid $69 million in tax on nearly $8 billion of income in one recent year and that in the previous four years it had paid just $69 million on $30 billion in income.

As Michael West said: “Patrick was correct on both cases”. But, the AFR claimed this was confusing income with tax. West also pointed out, however, that Patrick was actually reporting the ATO’S publicly reported total income, taxable income and tax payable numbers.

“Moreover, much of the $7.8 billion income or revenue EnergyAustralia collects from its customers was passed on to its parent company in the Caribbean, thence its Hong Kong parent company and the billionaire Michael Kadoorie who controls that,” West said.

In 2018 EnergyAustralia paid $136.9 million in tax on its $8 billion of income a fact which the AFR claimed showed Ms Tanna had turned around a non-tax paying company to a tax-paying one.

However, given that the $136.9 million is only a very small percentage of $8 billion there must have been some very heavy expenses that year; some sophisticated tax planning; or, perhaps the ATO is starting to have some small success in trying to extract some tax from large companies.

This last possibility seems unlikely given that of the 2214 large company entities covered by the ATO data for 2017-2018 fully one third paid no tax at all.

The ABC (2 January 2020) reported that the “the ATO’s corporate tax transparency data again shows that hundreds of companies have been able to reduce their tax bills to zero. ATO deputy commissioner Rebecca Saint said the agency was still seeing some companies avoid tax by shifting profits offshore.” The full list of companies is included in the ABC report.

The ATO also said that company financial accounts do not always give the full picture of tax positions and that the ATO wanted companies to be more transparent.

Needless to say the bean counters who reap hundreds of millions of dollars in consulting fees from the Federal Government, plus making tens of thousands of dollars of political donations, are also on hand to defend their corporate clients in that pesky transparency business.

The ABC reported that big business was fighting back on the tax haven front. It reported (4 September 2019) that a “submission by KPMG, one of the big four accounting firms which advises Australian companies and multinationals on their tax structures, also suggests that a proposal to divulge whether a company is at the top of the Australian Taxation Office (ATO) list of the nation’s most risky taxpayers, would serve no useful purpose.”

“KPMG said the Government must first define what it constitutes as a ‘no- or low-tax’ jurisdiction, before requiring companies to disclose details about their subsidiaries and where taxes ultimately flow.”

Well disclosure might also be inconvenient because some of the flow would include various Caribbean islands, Ireland, the Netherlands and possibly Liechtenstein.

Billing through Singapore is another favoured ploy although the ATO has had some success with Facebook and Google on that front.

“In its submission to the Board of Tax, KPMG said its corporate clients had raised concerns about changes to the code, including the disclosure of Australian Taxation Office (ATO) compliance activities against them and ongoing tax disputes,” the ABC reported.

In contrast, Scilla Alecci, writing (7 April 2020) for the International Consortium of Investigative Journalists which revealed to the world the Panama Paper tax  scandal, said: “As emergency coronavirus medical and social programs lay bare economic and social deficiencies around the world, experts are calling for a more forceful tax response to the crisis.

“In 2016, the ICIJ-led Panama Papers investigation exposed the offshore financial dealings of politicians, companies and criminals, helping governments recover at least $1.2 billion in fines and back taxes by April 2019. But trillions of dollars remain hidden offshore.

“Gabriel Zucman, an economist at the University of California, Berkeley, told ICIJ one of the clear lessons of the current economic dislocation was: ‘Tax havens are at the heart of the financial and budgetary crisis.’

“Each year, he estimates, 40% of multinational profits are shifted to tax havens and 8% of personal wealth is stashed offshore.”

How much of this is accounted for by Australian companies or the Australian subsidiaries of international companies is something we simply don’t know despite the best efforts of the ATO.

We do know that there have been Australian companies mentioned in the Panama Papers, which sold tax plans to Australian investors. For instance, a self-proclaimed John Grisham fan and former ATO official called Warren Black, still has website for a company called WealthSafe . It promises that he is “an international tax specialist who is passionate about freeing business owners and investors from unjust taxes 100% legally.” His mission is to “help his clients slash their tax 100% legally and keep greedy gold diggers far from their hard-earned wealth so they won’t reap where they have not sown …”

We are not, of course, suggesting that Mr Black’s  has engaged in any illegal behaviour or wrongdoing. Nor are the Big Four who dream up  tax minimisation advice.

But we are suggesting that perhaps someone with expertise like his, or the ATO, might advise the Morrison government on whether any businesses receiving handouts are avoiding or evading tax. Perhaps though, given the Morrison track record, one of the Big Four would get the gig.