Thread: ATO slugs Shell with $ 755 million fine

Originally Posted by wardy1

A turnover tax..... sounds like a typical PAYG whinge about everyone getting tax deductions except you.
As a PAYG earner, how much of your total asset worth is attached to your job..... as in, AT RISK? You even single out the small to medium size businesses who should be the target of your naively conceived solution.
Small to medium size businesses employ over 70% of working Australians. So lets tax them out of existence and people like you will be happy.... nobody will be getting a tax deduction. Nobody will be working either, except of course, the public servants who run Centrelink. Oh, but they won’t be there either..... there will be no income to government so they won’t be able to pay the public servants either.
Australia has been built on people taking risks and if they get it right, being rewarded for taking them. MOST small business owners DON’T drive $300k cars, nor do they live in mansions on the waterfront. Most of them are just like you, they go to work, they earn a living but.... on any day, it is ALL at risk.

Exactly.

Been self employed with a small business for 30yrs,sure we have done well,but have taken and still take huge risks all the time.
And worked bloody hard,often 7 days a week.

Just employing staff is a huge risk these days.

You must be joking, a tax on turnover? We own and run in a partnership an agricultural business where we sell fertiliser , chemicals and seed. Our markup averages 3% on fertiliser , that means that we sell cropping fertiliser at the now price of $692.00 per tonne and we make as a gross profit of $20.00 per tonne. We sell a 1000 litres of glyphosate in an IBC and we make $50.00 out of it. We pay up to $11,500 a year for public liability insurance because we can't get anyone else to quote and we have never had a claim. With 3 of us in a partnership we probably make less each than a chalky. So you want to tax us on turnover? Wake up to yourselves I find that comment offensive.
The problem is that a lot of the unwashed out there believe that if you are self employed or run your own business you are fair game and listen to one side of the argument mainly from one side that talks about big business
Lindsay.

Just to add to this thread. This week I have been at a conference, and learnt a few new things.

One of these was a case study of an Australian gas project that has just started producing LNG for export. That project cost $35billion over a period of around thirty years before a single dollar of sales. How are you proposing to tax sales for that? On turnover? If this was proposed,oreven hinted, there would be no project.

Originally Posted by JDNSW

... That project cost $35 billion over a period of around thirty years before a single dollar of sales.

It's called creative accounting. If the above was really true then either the share holders were dudded, or they wanted a non-goer to claim their own tax deductions, or the project really was stuffed up big-time. Either way that's a classic case of never paying tax when they should have been.

It would be nice to see their original prospectus that they presented to share holders and to see what they published 30 years ago as to how profitable they would be, and over what time period. Either way I would not be investing in any project run by those directors given such a track record.

Mike

Originally Posted by speleomike

It's called creative accounting. If the above was really true then either the share holders were dudded, or they wanted a non-goer to claim their own tax deductions, or the project really was stuffed up big-time. Either way that's a classic case of never paying tax when they should have been.

It would be nice to see their original prospectus that they presented to share holders and to see what they published 30 years ago as to how profitable they would be, and over what time period. Either way I would not be investing in any project run by those directors given such a track record.

Mike

I'm afraid your post makes no sense whatever. The major part of the money was only spent when the operators had bankable contracts for gas delivery. My point was that projects of this type involve very large capital expenditure (in this case exploration costs, subsea production systems, wells drilled in deep water, hundreds of kilometres of large diameter pipelines, gas liquefaction plant, several LNG tankers), all of which must be in place before any sales can be made, and I was simply pointing out how ludicrous a proposal to tax on turnover would be. Perhaps a negative tax on the capital might be appropriate?

It should be pointed out that a considerable part of the capital expenditure was spent in Australia, and would have ultimately gone to individuals paying income tax and companies paying company tax.

There was no prospectus on the project - it would have been proposed by the operator after their board had approved it, and would then have required the approval of the boards of several other companies that are partners in the project. All of these have substantial teams of experts in all the necessary engineering and earth science fields, so it seems fairly unlikely that the project has been "stuffed up". It is expected that the project will be profitable - it is probably the largest LNG export project in the world.

Hi

You may be right John; I'm just skeptical as i cannot understand how a project can take that long and that much $ and just now starts to make a dollar. I understand that mining companies and companies that develop new drugs have very large up-front costs and risks, but as there are some that use creative accounting, it tars them all.

I agree one can't tax on turnover. It has to be profits, but some companies never make any profits despite high turnover (e.g. software companies that pay massive license fees to their parent company in other countries, so they make no significant profit). Yes much of the expenditure would have been to Aust companies and contractors. But $30 billion ... is that ever going to be recovered? What could have those backers done with that money over the last 30 years that might have been economically or socially of greater benefit?

And if we had decided not to supply the world with LNG and therefore not had to spend all that $ for extra extraction and export terminals and just maintained our domestic LNG the local price would not have skyrocketed. It's now adversely affected fertiliser manufacture, abattoirs, food processing and the hundreds of industries that use gas for heating, boilers or feed stock.

Mike

Originally Posted by speleomike

Hi

You may be right John; I'm just skeptical as i cannot understand how a project can take that long and that much $ and just now starts to make a dollar. I understand that mining companies and companies that develop new drugs have very large up-front costs and risks, but as there are some that use creative accounting, it tars them all.

I agree one can't tax on turnover. It has to be profits, but some companies never make any profits despite high turnover (e.g. software companies that pay massive license fees to their parent company in other countries, so they make no significant profit). Yes much of the expenditure would have been to Aust companies and contractors. But $30 billion ... is that ever going to be recovered? What could have those backers done with that money over the last 30 years that might have been economically or socially of greater benefit?

And if we had decided not to supply the world with LNG and therefore not had to spend all that $ for extra extraction and export terminals and just maintained our domestic LNG the local price would not have skyrocketed. It's now adversely affected fertiliser manufacture, abattoirs, food processing and the hundreds of industries that use gas for heating, boilers or feed stock.

Mike

Having advised on a couple of LNG projects on the North-West Shelf and prior to that having been a tax adviser in a big 4 accounting firm, I can assure you that the reason that the deductions exist for these projects is because without them they just wouldn't occur. And being commercial enterprises, they don't go ahead unless the parties believe that they will ultimately get their money back. The term you're looking for is FID - "Final Investment Decision".

You're also mixing up a couple of different issues - transfer pricing is one issue and up-front deductions for project developments is another - they're not the same thing.

"Creative accounting" is also not what's going on - in the case of, for example, Shell, it would've been advised by its very high-powered lawyers and accountants as to what the law permitted. Being the Tax Act there may be legitimate disagreement about what the Act permits - that's what's being discussed. The ATO has obviously come to a different conclusion to Shell and its advisers. It's the courts that will now decide who's right.

And "we" didn't decide to build export terminals - that was done by the relevant joint venturers, not at the cost of the Australian public. And if the production platforms weren't built, and the LNG trains not constructed (NB, in this case "train" means the processing plant) by the consortiums then there wouldn't be any gas to sell locally - it'd be being imported. Do you think that the State governments would be capable of developing off-shore gas fields hundreds of kilometres off-shore? Do you think that they would have the technical expertise or the capital required? And keep in mind that the State's territorial rights end about 30km off the beach? Do you think it would be a sensible use of Commonwealth funds to spend tens of billions developing gas fields for a relatively small number of domestic users? Can you imagine what the amortised cost of that would be? And again, the issue of domestic reserves is a whole different topic - but the counter-argument would be, why should some industries get subsidised imputs? Why shouldn't they pay global prices like the rest of us?

There's a lot of populist rubbish circulating at the moment, and it's a pity that the ATO and the Government are stoking it.

Hi

> Having advised on a couple of LNG projects on the North-West Shelf and prior to that having been a tax adviser in a big 4 accounting firm,

It's clear that you have a closer and deeper inside knowledge of this issue than a reading of the Brisbane Times and A Current Affair. I might even be tempted to lessen my expressed scepticism :-) But just a bit.

Mike