• Crackdown on Tax Dodging Needs to Go Global

    Posted by Mark

    22 May, 2013

    After all the attention focused on aid delays and asylum seekers in last week’s Federal Budget, you may be forgiven for not noticing that the Government also announced steps to crack down on multinational tax dodging. This move could raise an extra $4.2 billion over the next four years.

    The Government will crack-down on multinational companies being able to loan money to themselves and then claim the interest repayments as a tax deduction, a process whereby multinationals essentially receive a tax break for recycling money from one part of the company to another. Research by Dr Grantley Taylor of the Curtain Business School and Professor Grant Richardson (paywall) from the University of Adelaide found that for publicly listed Australian companies, this practice, along with the misuse of transactions between different parts of the same multinational enterprise (known as transfer mispricing), were the primary methods of tax avoidance in the period 2006 to 2009. These tax-dodging practices are also used by multinational companies to cheat developing countries out of vital revenue they need.

    The Australian Taxation Office will be given $109 million over four years to look into multinational corporations that may be setting up artificial ‘marketing hubs’ in tax havens or setting up artificial legal structures for the purposes of tax dodging. Again, these are techniques also used to cheat developing countries of much needed tax revenue. For example, the Kenyan government has taken Karuturi Global Ltd, the world's biggest producer of cut roses, to court for alleged $11 million of tax evasion. This is the first time an African government has brought a large multinational company to court for transfer mispricing through a fully public process. A broad alliance of civil society movements and organisations are celebrating the Kenyan government's resolve to stop such behaviour and to do so transparently.

    In addition to the measures announced in the budget, there is a need for all governments to work together on this to ensure multinational corporations are not able to play off the tax laws of different countries against each other or to claim double deductions on the same expenses. Developing countries also need to be included in the global crack down on tax dodging by multinational corporations and the super-rich. Research by Christian Aid (pdf) in 2009 found developing countries were cheated out of at least $160 billion a year by transfer mispricing and false invoicing by multinational corporations. This is more than the $120 billion they received in aid that year. Ending tax dodging by multinational corporations would give many developing countries greater resources to provide services to their own people. It would also reduce dependence on aid and loans, making developing country governments more accountable to their own citizens.

    The Australian crackdown on tax dodging comes at a time when the rich countries club, the Organisation for Economic Cooperation and Development (OECD), has released a report on the need to address multinational corporate tax dodging, Addressing Base Erosion and Profit Shifting. The OECD plans to develop an action plan to address tax dodging by multinational companies, with a draft to be completed by June 2013. OECD member countries have been asked to consult with business and civil society and provide input into the plan. This is a significant opportunity to seek fairness for developing countries in the global tax rules as the OECD has said the plan will require some “out of the box” thinking and “ambition”, rather than just tinkering at the edges. It’s time to make sure that multinationals pay their fair share of tax in every country in which they operate, and that the governments and citizens of developing countries have sustainable sources of revenue to reduce poverty and develop sustainably.

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    Next week Micah Challenge will be emailing all supporters to take action in support of a submission we will make to the Treasury to ensure these new global tax laws work for the world's poorest.

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    Mark Zirnsak is the Director of the Justice and International Mission of the Synod of Victoria and Tasmania Uniting Church in Australia. Mark also sits on Micah Challenge's Campaign Strategy Group.