The Australian Taxation Office is representing the best interests of taxpayers and protecting the sovereignty of the Federal Government by moving to properly tax the revenue of multinational companies operating in Australia, according to a legal expert from the University of Western Sydney.
Dr Elfriede Sangkuhl, from the UWS School of Law, worked at Ernst and Young before completing her PhD on the equitable taxation of multinational corporations, which explored the possibility of consolidating profits and taxing them according to the actual sale, assets and size of employee payroll of the relevant taxing jurisdiction.
She says transfer pricing is, in reality, legal tax avoidance that effectively allows some multinational companies to artificially construct the prices of their goods and services, giving them the opportunity to increase their costs in high taxing countries while shifting profits to low taxing jurisdictions.
“I believe taxpayers in Australia would be hugely offended to know how blatantly multinational corporations reduce the amount of tax they pay in this country, and they would certainly be happy the government is taking action to rein it in,” Dr Sangkuhl says.
“Previously, the ATO tried to address the prickly issue of transfer pricing by writing new rules governing their use, but the army of lawyers and accountants employed by multinational companies in ‘transfer pricing departments’ are easily finding ways to slip through the regulatory loopholes.”
“Worldwide lost revenues through the use of transfer pricing have been estimated at over $1000 billion per annum, and one good approach would be to legitimately calculate what sales are being made by the multinationals in each individual country as a starting point, and working from there.”
The government’s move to toughen tax avoidance laws has drawn a sharp response from some companies, which warn the tactic could backfire if other countries adopt similar strategies.
But Dr Sangkuhl says these claims are disingenuous, and instead fit the narrative employed by large companies in an effort to convince governments to lower tax and join in the race to the bottom in terms of taxing multinational corporations.
“Time and again companies raise the spectre of job losses and a reduced tax take to spook governments into backing down,” Dr Sangkuhl says.
“Only three days ago Rio Tinto warned the federal government that any attempt to crack down on tax minimisation strategies used by global companies such as Google and Amazon could ‘come back to bite’ Australia.”
“The point that Rio Tinto has missed in their threat is that other countries are pushing back against the tax strategies used by multinationals. The British and German governments are pushing for a coordinated response among the G20, and France has sent Google a one billion Euro tax bill.”