Thread: ATO slugs Shell with $ 755 million fine

Ohhh, so thats why fuel.has gone up to $1.67 per l in Melbourne.
Great.

Strictly speaking a bill, not a fine. This particular dispute depends on the meaning of the wording in the Act, and is over whether buying an interest in an exploration prospect is a legitimate expense.

Originally Posted by JDNSW

Strictly speaking a bill, not a fine. This particular dispute depends on the meaning of the wording in the Act, and is over whether buying an interest in an exploration prospect is a legitimate expense.

So they don't pay tax until they make a profit? Isn't the problem the companies shuffle their money around the World and hide their profits. Perhaps the act should be changed.

The fundamental principal in taxing businesses is that you tax the company's profit - i.e. income minus expense. The arguments arise when you start defining what is an expense. The typical one involving overseas companies is that head office charges for something that is an expense, and this can move the tax liability to a jurisdiction where tax rates are lower. Recently the ATO won a case against Glencore mining where their head office charged an unrealistic interest rate on money loaned to the Australian branch. This is an example of "transfer pricing", and the ATO has started to crack down on this in recent years. But they have to be prepared to take each example to court, although the more they win, the fewer cases will have to go to court.

But, as I understand it, this is not the situation in this case. Shell bought the exploration rights to some acreage from another company. The rules on exploration allow exploration expenditure to be carried forward, necessary in an industry where you might spend money for twenty years before actually having any income. Shell treated the money spent in this case as an exploration expenditure, which is reasonable if you consider that the selling party was probably recouping the money they had spent to date on exploration (probably with a margin). The ATO has taken exception to this. It sounds to me as if it is going to be a lawyer's picnic.

It is not clear to me how the act could be rewritten to capture this without completely killing the exploration industry (and, for that matter, any long term research in any industry). To put it in perspective from a motoring point of view - should we not allow tax deductions for the money spent in designing and tooling up for a new model?

in the end, its the customers who will pay.

Tax turnover not profit. This will eliminate most of the dodgy schemes dreamed up by accountants and lawyers to keep businesses from having to pay income tax. Quite simple particularly in these days when many businesses handle little cash and most transactions are recorded by computer. You had $10,000,000 pass through your accounts. Send us (the ATO) $500,000. No deductions, no fancy minimisation schemes, you received it, you pay us.

That doesn't really work. GM and Apple in the US for example could have similar turnover of circa $150B. Apple would make around $50B profit and GM would make around $3B. You suggest they should be taxed the same.

Some industries have very high turnover for very low profit. Auto is a good example. Others, like software, can be the reverse.

The issue isn't the tax on profits it's on the way some companies hide profits through dodgy expenses to minimise tax. At the end of the day though most of us still benefit from this - Australia's superannuation scheme makes most of us shareholders in the bigger of these companies, particularly the public ones.

In the consumer market, that tax on turnover does exist already. It's called GST.

Originally Posted by AlexRS4

That doesn't really work. GM and Apple in the US for example could have similar turnover of circa $150B. Apple would make around $50B profit and GM would make around $3B. You suggest they should be taxed the same.

Some industries have very high turnover for very low profit. Auto is a good example. Others, like software, can be the reverse.

The issue isn't the tax on profits it's on the way some companies hide profits through dodgy expenses to minimise tax. At the end of the day though most of us still benefit from this - Australia's superannuation scheme makes most of us shareholders in the bigger of these companies, particularly the public ones.

In the consumer market, that tax on turnover does exist already. It's called GST.

Huge multinational corporations will always avoid tax as they have the capacity to do so. I am thinking of smaller businesses, partnerships, small companies, contractors, sub-contractors, sole traders and the like who are able to avoid paying income tax or at least to pay very little. Your local plumber who lives in a waterfront mansion, drive luxury cars, wifey goes into Centrelink to claim Family Allowances in the big Benz, $10,000 of clothes, shoes, and jewellery. All done on a taxable income of $5000 each p.a. A turnover tax would scuttle their little red wagons. Saw plenty of that, and yes, the staff do get resentful as a Grade 3 public servant has too high an income to get other than the base family allowance.