Tax – Foreign Owned Multinationals

The Problem

Too many of the 700 foreign-owned multinationals operating in Australia pay no income tax on the profits made here.

It is just too easy for these big, well-resourced companies to contrive paper losses or avoid creating a corporate tax liability in Australia.

There can be no doubt that we have a problem with foreign-owned multinationals. We looked at the members of the Business Council of Australia last year when 53 of the 127 members were foreign-owned multinational companies.

The ATO reports many of these foreign-owned companies paid little or no corporate income tax. These companies will tell you they pay tax in Australia, but what they mean is they forward PAYG tax on behalf of their employees, pay state payroll tax and fringe benefits tax but too often they do not pay income tax on profits made in Australia.

Foreign-owned multinational companies thrive on the shell game where profits are moved from one jurisdiction to another and end up in a tax haven.

The ATO may have all the laws it needs but it cannot expect to audit and litigate every recalcitrant foreign-owned multinational, to get payment of tax. The Government needs that tax to pay down debt and to undertake national building activities.

Foreign-owned multinationals have breached their social license to operate in Australia by not paying their fair share of tax.

By not paying tax on profits earned in Australia these big companies do not contribute to the costs of the infrastructure they use to make their profits.

One Nation rejects the argument put up by foreign-owned multinationals that it is unfair to change tax policy after they have made their final investment decision and that such action will risk future investment in Australia. The truth is that too many companies make investment decisions based on the fact they will never pay corporate income tax.

As it stands the only way Australians will benefit from the export of our vast gas reserves in Commonwealth territorial waters is to buy shares in these foreign-owned petroleum companies, because these companies do not pay for our gas, they do not pay tax on the profits made from our gas and they do not reserve any of our gas for domestic use.

We have the weakest fiscal regime for natural gas in the world but it is not only the petroleum industry which is of concern.

What can we do to get foreign-owned multinationals to pay their fair share of tax?

We believe foreign-owned multinationals should be progressively removed from paying corporate income tax and transitioned into a tax system based on activity transactions.

By way of example, we would put a royalty of 20% on the value of gas taken at the wellhead using meters.

These transactions are easily enough verified and royalty easily calculated. The companies would then have no further tax obligation in Australia.

It is difficult to estimate the tax that would be collected by putting 700 multinationals in a transaction based tax system. But these companies pay next to nothing now, our view Australia can only benefit.

We estimated the tax collected from these 700 companies could be in the order of 24 billion dollars a year based on a 9% return on their known capital investment in Australia of 1.4 trillion dollars

We propose that step by step foreign-owned multinationals would be taken out of the current tax system and transitioned to a new transaction based system appropriate to their industry.

In respect of the 250 billion dollars of tax credits accumulated by a clutch of foreign-owned petroleum companies, we would cease the special provisions which apply to them, including uplift factors on expenses of 18 to 30% a year.

We would allow petroleum companies time, up to five years, to use these Petroleum Resource Rent Tax credits when calculating their royalty liability under a reformed tax system.

Multinational companies present a problem to most countries in the world because they exploit the international basis of tax liability where income tax is based on worldwide profits.

What is the United States doing about multinationals?

We note that the recent reform of the US tax system, effective 1 January 2018, abandons the international basis of tax liability in favour of a territorial system.

Their new tax system encourages investment in the United States with five-year write-offs of investment and a lower tax rate of 21% but some losses made in other parts of the world are not taken into account in calculating tax liability.

Commonly States in America also levy corporate income tax making the real corporate tax rate in the United States on average 26%.

Additionally, the US now restricts a range of deductions including limiting interest rate expenses.

We cannot compare the Australian tax system with the United States.

They allow joint filing of tax returns, deductions for home mortgage interest and their tax code amended by the new 1000 page Tax Cuts and Jobs Act is too different from Australia’s tax system to make rate comparisons useful.

Final Comments

Australia’s failure to have foreign-owned multinationals pay tax means our Government collects next to no income tax from foreign-owned petroleum multinationals while the Japanese Government makes close to 3 billion dollars a year from our gas, by placing an import duty on it.

If we change the tax system for foreign-owned multinationals then we will collect more tax and be able to lift the tax burden on Australians, small business and Australian companies.

Under a transaction-based tax system multinationals will find it more difficult to avoid the payment of tax. It will free the ATO from expensive and protracted litigation.

If multinationals had paid their fair share of tax in the last decade we would now have less debt and we could raise the tax threshold for individual Australians meaning they pay less tax.

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