Thread: Australia's top 40 tax dodgers

Originally Posted by solmanic

The whole argument that these big companies pay no tax is flawed. They pay literally tons of tax, just not on profits. It comes out through payroll tax, royalties, tax on shareholder dividends, GST etc. To compare company tax to personal income tax, which is how the argument is simplified for the 2GB listening public, is just plain wrong. If a company is operating correctly, their taxable profits should be minimal. Whatever cash is left over after expenses should be invested in growth or paid out in dividends. Ergo, no company tax payable.

If the money is being "paid" to parent companies abroad then that's another matter, but then you need to consider what that parent company invested in the first place. No investment means no jobs, and no subsequent payroll tax.

This ^

Where our system does fall down is it's over reliance on PAYE, and the lack of incentives for R&D.There is no tax incentive to plow money into research, and is an area we sorely need support in.

Originally Posted by DiscoMick

The problem is when companies insert holding companies in the chain and then those companies charge big loans against the local branch and the branch repays those loans, which wipes out their profits. In effect, the profits on which tax might have been paid are instead shipped off overseas as loan repayments, which are not taxed. So it's a tax dodge.
Mind you, plenty of local business people do the same thing with inter-company loans.

So like negative gearing but on a larger scale. If it's legal it's legal, blame the pollies not the Company

I think Kerry Packer said it best

Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!"

Originally Posted by garrycol

And they can only do that because our tax laws allow that - so is it a tax dodge or just using the rules that are in place.

Its both.

The problem with this sort of article is that it ignores the fact that taxable income = income - expenses. This is on an annual basis. For any business enterprise there are likely to be expenses such that in some years expenses are far greater than income, and in this case, the expenses are allowed to be spread over a number of years (including interest on them). For any business that has high startup costs, especially mining , but really, any business starting up, there is likely to be several years where this is the case. Where governments provide incentives such as tax holidays and accelerated depreciation, it is easy for taxable income to drop to zero.

The practice of buying from (or borrowing from) an overseas associate in a lower tax country is referred to as 'transfer pricing', and has been in the ATOs sights for at least the last couple of decades. And periodically judgements in favour of the ATO make the news, so I tend to be rather doubtful about how widespread it is.

But as noted above, most of the companies involved operate strictly within the law. Easy - change the law. However, this is not as simple as it sounds. Limits to what the law says have two basic constraints - international tax treaties, and the economic necessity of foreign capital inflow to pay for the balance of trade deficit. Make it too hard on foreign companies, and they simply won't bring their money in in the first place - and changing the rules after the money has been brought in is a good way of ensuring nobody else risks investing in Australia.

Transfer pricing is legal, but the problem is when the loans are actually unnecessary as the subsidiary is making healthy profits, but are put in place purely to shift profits to avoid tax.

Transfer pricing is legal provided the charges made by the overseas associated company are the same as they (would) charge a non-associated company. Proof of illegality can be difficult.

Originally Posted by rick130

This ^

Where our system does fall down is it's over reliance on PAYE, and the lack of incentives for R&D.There is no tax incentive to plow money into research, and is an area we sorely need support in.

Yes, other countries have avoided this by whacking the GST up to 20% and cutting other taxes.