Why is it possible for multibillion dollar companies to pay zero tax?
Namely this article which lists the companies that paid the least tax - I'm astounded that this is still the case. How is this possible? I earn less than 40K a year and still end up paying close to 20- 30%. How is it possible that companies making billions can pay zero?
What are the implications if they imposed a tax floor of say ~10% so you can reduce your tax down of course, but still must pay 10% of tax to the country as obligation for the privilege of using the Australian economy? Is that likely to ever happen?
This can also occur when the two companies are only technically different.
Say BananaUS sets up an independent company BananaAU. BananaAU buys the widgets from BananaUS at half the US retail price, and sells them in Australia.
At the end of the tax year, BananaAU has made a taxable profit - but wait. BananaUS can charge BananaAU a fee for the rights to trade using the trusted Banana name... and that fee is probably pretty close to BananaAU's profit.
That fee is then a business expense for BananaAU, reducing the taxable income/profit to zero, so BananaAU pays no tax in Australia.
If BananaUS was actually BananaCayman, or BananaSomewhereWhereTaxIsLowLikeIreland, they won't pay much tax there either, so they've extracted profits from Australia without being taxed here, and taken them somewhere else that they pay little or no tax.
Tax avoidance schemes. The news was full of an example a few weeks back: the Paradise Papers.
I’d like to see big companies pay a fair amount of tax. I don’t believe that’s likely to happen any time soon, though. When Kevin Rudd proposed that miners pay a fair rate of tax, for instance, the miners ran a propaganda campaign which saw Rudd turfed. His successor, Julia Gillard, revised the mining tax arrangements so they amounted to a net income to miners. Our politicians have learned which hands feed them.
Imagine that I've got a company in Ireland and I own widgets. You live in Australia and you ask me if you can sell widgets in Australia. I say yes, and off you go.
I sell you widgets for $5 dollars. You sell widgets to Australians for $8 dollars. That $3 over your purchase cost covers business your business costs (wages, insurance, rent, etc.) including your lucrative salaries as CEO and etc.
If you sell 100,000,000 widgets then while your company revenue may be $800,000,000 most of that money, $500,000,000 of it actually, is money that you owe me the person who owns the global rights for widgets.
Any revenue in excess of your liabilities to me and your cost of business are invested in a savings fund for future upgrades like new stores and logistic trains.
And this explains exactly why Australia by itself cannot do anything about this problem. Governments have been talking with each other for over a decade on how to deal with this and no good solution has been found yet. It'll take a truly global effort to hold these companies to account, and I'd expect the EU to have to lead the charge.
This problem is simply too big to be ignored anymore, most developed nations are heavily in debt, yet their biggest companies are paying no tax directly. The only reason it is still overlooked is that they pay their employees who then pay tax on what they earn. This is what Ireland gets out of their low taxes, lots of well paid jobs that pay taxes.
That's exactly right. The part that makes this tricky is understanding what are totally legitimate and required liabilities and what liabilities are generated simply to skim the profits.
The most common reason is probably because of accumulated losses. Qantus, for example, made a taxable profit in 2016, but because of past losses they didn't have to pay tax, which is fair enough. If they keep making profits they will pay their fair share of tax.
Some of the companies dodge tax through payments to foreign subsidiaries of the same multinational. They might pay inflated prices for components, royalties, management fees or interest on loans. The foreign subsidiary makes a bigger profit, presumably at a lower corporate tax rate, and the Australian subsidiary makes a smaller profit, presumably at a lower tax rate. Those are the companies that need to be targeted for better tax compliance. Some of them might make losses and pay no tax, but most of the time they will make small profits and will not appear on the list.
The large company I worked for paid no tax on profits for several years due to having a loss of tens of millions one year.
Have your printing presses overcharge your newspapers so that the papers make all make a loss. Claim those losses for tax credits and apply to the profits you make at the printing press. Laugh when people make fun of you for posting a loss.
But not $24 Billion every year.
there are a few ways that companies can reduce their taxable income which may no longer be lawful under recent amendments to the tax act but are very hard to stamp out
one is to have the australian company borrow money from related overseas companies in jurisdictions with lower corporate tax (like bermuda)
the interest payments are deductible for the australian company, thus reducing their taxable profit and their tax payable
another is for a 'parent' company in a low tax jurisdiction to sell product to the australian company at a price that is sufficient to cover the the local company's expenses, but high enough to ensure they don't make a significant profit or pay significant taxes in australia on said profit
for example, company A in ireland manufactures products in china for $5 each and sells them to their australian subsidiary for $50
the subsidiary sells them in australia for $70, a gross profit of $20
the subsidiary may have fixed and variable costs which amount to $18 a piece, meaning that only $2 of the $70 they sell the product for is taxable, while $45 a unit is the profit of the parent company in the low tax jurisdiction
there are also many other tricks multinationals can use to avoid tax in australia
the idea of a floor tax would be hard to sell to a government that is convinced that companies are overtaxed in australia and has a stated objective of reducing companies' tax liability
you mention a 10% tax, but i'm unsure what you are taking 10% of, turnover?, gross profit?, net profit?
10% of turnover is effectively what the GST is and 10% of gross or net profit can be manipulated using tactics described above