Australia loses almost $8b a year from multinational profit-shifting

Profit shifting by multinationals results in a $US500 billion ($653 billion) annual loss to the global economy, of which about $US6.1 billion worth of revenue is leaked from Australia, new TJN research shows.


The Tax Justice Network research found that while the largest losses occurred in rich economies such as the United States, lower-income countries were the biggest victims of profit shifting.

“Losses in some countries such as Zambia and Argentina exceeded 4 per cent of GDP,” according to the report, which appears in a study published by the United Nations University World Institute for Development Economics Research.

“In Chad, the estimated losses to profit shifting were larger than all of the (non-resource) taxes collected in the country that year. In Pakistan the losses were 40 per cent of tax revenues.”

Still, the biggest dollar losses come from the US, estimated at $US190 billion.

In Australia, the GDP loss was 0.41 per cent, or in dollar terms, $US6.1 billion.

Tax Justice Network chief executive Alex Cobham, and Petr Jansk?? of Charles University in Prague, carried out the analysis which reworks earlier work carried out by researchers at the International Monetary Fund last year.

The Organisation for Economic Co-operation and Development (OECD) has set up a plan – known as Base Erosion and Profit Shifting (BEPS) – to prevent companies from exploiting old tax rules that allow companies to legally shift profits from high-tax to low-tax or no-tax nations, but now governments have to implement it.

As the recent European Commission case against tech giant Apple showed, countries are in disagreement about where profits should be taxed, and this is likely to spark tax revenue wars.

NGOs have also long complained that developing nations have not influenced the BEPS plan.

“The status quo, in which international tax rules are set at the OECD where lower-income countries lack any effective voice, is simply untenable,” Mr Cobham said.

“Now we need political progress to challenge profit shifting.”

He called on governments around the world to legislate for the publication of multinational companies’ country-by-country reporting.

Tax authorities around the world are collecting this information but have chosen to keep it a secret.

Mr Cobham said publishing them would reveal the precise pattern of profit shifting to citizens.

In a speech at The Tax Institute’s conference in Adelaide last week, Tax Commissioner Chris Jordan said the federal government’s tax avoidance taskforce was aimed at catching companies “who are not doing the right thing”.

There were already 71 audits under way in the large business area covering 59 multinational corporations, he said.

At least seven major multinational audits were expected to come to a head before June 30, Mr Jordan said, four in e-commerce and three in the energy and resource industries.

The ATO expects liabilities to total more than $2 billion from these seven companies.

“Some might be expected to be settled by the companies and some may go to litigation,” Mr Jordan said.

Treasurer Scott Morrison is still working to get the Diverted Profits Tax legislation, dubbed informally as the “Google Tax”, through Parliament.

Introduced in last year’s federal budget, the legislation targets companies with global turnover of $1 billion or more, by hitting them with harsh penalties and interest charges if they are found to have broken the law.

The other main law aimed at multinationals is the Multinational Anti-Avoidance Law (MAAL), which arms the Tax Office with stronger anti-avoidance laws, was enacted in late 2015. It is also aimed at companies with $1 billion or more in group income.

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