Multinational tax avoidance is big news - #luxleaks and #panamapapers provided plenty of eagerly-consumed media content. That corporate tax policies released during the recent Australian Federal election were re-framed through a multi-national profit shifters' lens with little pushback is another example.
The linked article introduces a new angle to the debate by posing serious questions about the role of the Big 4 accounting firms in what is suggested costs governments and taxpayers an estimated $US1 trillion a year. Whether or not the inferences made in the article are valid, there has been plenty going on that provides hope for better future direction on this issue:
- the BEPS (base erosion profit shifting) effort led by the OECD is a comprehensive response to multinational profit shifting. It is a major undertaking that has many facets and affects many stakeholder groups across a wide geo-political & cultural spectrum. As such, it will take a long time for any benefits to unfold
- while there is plenty of detail, the broad focus of BEPS has been to influence a change in business culture. Corporate attitudes to multinational tax avoidance appear to be changing quickly. But that does not mean that approaches are changing in practice. Governments are only just starting to legislate BEPS-related measures so it remains to be seen what actual impact they will have
- however, what serious actions, if any, are being taken about "sins of the past"? And do they need to be taken?
- the article suggests a $US 1 trillion annual cost and that this is shared among some obvious victims - Governments, taxpayers, the underprivileged, the homeless. The extent of this cost alone provides justification - but is there more to it that provides more reason to focus on prior activities?
While it is not surprising, there is no mention in the article of the anti-competitive damage that global tax avoidance does to mid-size businesses that are expanding internationally. These organisations are an economy's engine room: they need to be innovative to survive & grow and have greater capacity for putting capital and even careers at risk.
For mid-size businesses to compete, they deserve a level playing field. They should not need to be tempted to use aggressive tax structures simply to be able to compete against large organisations paying no or little tax. And for the latter to simply to alter future actions will permit any unjust enrichment to be deployed in competition against mid-size businesses.
But there are some disturbing signs, at least in the Australian context:
- the focus to date has mainly been on increasing tax transparency, which has mainly affected mid-size businesses rather than large multi-nationals
- the Australian Taxation Office has been boosting its resources, but it appears that much of this is being allocated to the Private Groups & High Net Worth area rather than Large Business & International
- the ATO's focus on private business has been increasing at a seemingly unsustainable rate
The "tax avoidance masterminds" of this article will not go away. They are currently "in the BEPS tent". Let's not allow them to get away with ignoring the past under the guise of promoting future change - this would be to the cost of growing mid-size businesses.
Over the past four years, rising community awareness has made multinational tax avoidance a big political issue. In Australia, press revelations about the tax affairs of Google, Apple, eBay, News Corp, Chevron, Glencore and the pharmaceutical giants, among many others, led to the establishment of the Senate Inquiry into Corporate Tax Avoidance. The upshot has been increased scrutiny of the tax affairs of multinationals, targeted investigations into some of the major culprits and finally reform. In Australia that reform came in the guise of last year’s amendments to the Tax Act requiring better disclosure by both wealthy private companies and multinationals.