Corporate giants failing to pay their fair share of tax have been put on notice, with Deputy Treasury Secretary Andrew Leigh warning that those who ‘steal from the public’ are in the government’s crosshairs.
Talk to The new daily On Thursday, Dr Leigh welcomed news that the Australian Taxation Office had secured nearly $1 billion in unpaid bills from mining giant Rio Tinto, saying the development should make others think twice.
He said Labor would continue to close a series of multinational tax loopholes “in the coming months” – reforms which Labor hopes will add $1.89 billion to public coffers each year.
“Good companies recognize that the tax is not an optional extra,” Dr Leigh said.
“We want the business sector to compete over who can offer the best products at the best prices, not who can avoid the most taxes.”
But while Labor is advancing local reforms, key elements of its plan hinge on global tax reforms that have met a major hurdle in the United States.
The ATO revealed on Wednesday that it had concluded a decade-long battle with Rio Tinto, winning one of the largest tax settlements in history.
The giant was cutting its tax bill by using a so-called “market hub” in Singapore to divert payments for its iron ore from Australia.
The practice, which other mining companies have also tried over the past decade, angered the ATO, which eventually sued to recover the debts.
ATO Deputy Commissioner Rebecca Saint said the settlement will result in large backlogs and also block future taxes from the mining giant.
“Additional profits from the sale of Australian products from Rio will be taxed in Australia in future years,” she said.
“Resolving these issues means ordinary Australians can be sure that even the biggest companies are held to account.”
Tax repression looms
Rio Tinto, however, is just one of many big companies trying to find ways to cut their tax bills, with research showing the government is missing out on billions of dollars.
Dr Leigh said the Labor Party wanted to put renewed pressure on all businesses to pay tax, especially multinationals like Google, Apple and Facebook.
Each of these companies has been criticized for paying small tax bills in Australia, despite billions of dollars in sales to local buyers.
“It requires constant vigilance,” Dr Leigh said.
“The job will never be done – we have to make sure the system is constantly updated.
“His [about] rewarding energy, innovation and dynamism and not protecting monopolies that rob the public.
The Treasury is working on reforms to address several known tax loopholes used by multinationals.
The reforms will work in concert with a global effort to tackle tax avoidance, which is led by the OECD.
Local crackdowns will cap the debt-related tax deductions multinationals can claim at 30% of their profits and limit the use of tax havens.
Labor hopes the reforms will generate $1.89 billion in new revenue a year.
But Tony Greco, managing director of technical policy at the Institute of Chartered Accountants, said key elements of Labor’s plan are still uncertain.
He said The new daily that global discussions on reforming multinational tax rules are not finalized, making it unclear how much money Australia can expect to make.
“Nobody really knows how much extra tax Australia will get if these OECD proposals are implemented,” Greco said.
“It’s a guessing game at this early stage.”
The OECD plan faces a roadblock
The OECD tax reforms have two main elements.
The first will redistribute the tax revenue generated by companies like Apple and Google from the countries where they are headquartered to the countries where they actually sell their products, such as Australia.
The second will introduce a global tax floor of 15%, under which signatory nations would commit not to create huge tax havens.
About 140 countries agreed to the plan last year after lengthy discussions.
But since then, the first part has hit a roadblock, with a US bill to ratify the proposal failing to pass Congress after US Senator Joe Manchin refused to support the government’s tax program. President Joe Biden.
US involvement is vital, as nearly half of the companies affected by the new rules are headquartered there.
Mr Greco said this was not the kind of reform Australia could pursue alone.
Dr Leigh said he “hopes we will see movement on the second pillar”, but conceded that the first pillar of the OECD plan had “suffered a setback”.