We are embracing so many changes in the world of business. The internet, globalisation, ecommerce, increased competition and the concentration of market power with very few businesses, but one thing that hasn’t changed is the behaviour of many of the largest businesses when it comes to tax.
Basically if a small business person does something to avoid tax it is viewed as illegal. If their local suburban accountant assists them, he or she is viewed poorly by the profession and could suffer. That is the same in any developed or developing country.
In big business it is different; there are no individuals only companies. The job of tax advisers and the big accounting firms is to find ways and means for their client to avoid tax; these means are nearly always legal but also can be dodgy. The boards of big business feel obliged to maximise profits and tax is seen as a cost not an obligation. Because many of these businesses deal in many countries the boards feel no obligation to pay tax to anyone.
The difference between big and small business is profound. A small business is a person who is in the end just a taxpayer. The Australian Tax Commissioner and other tax officers will tell you that between 92% and 95% of small business people are compliant and they pay their taxes without being forced. It is the same with the wage-earning taxpayers; nearly all of them go out of their way to get their tax right. Whether this is out of fear or out of civic duty is not relevant. The important thing is that we as a nation pay our taxes, except of course for a small number of the largest companies who don’t and they secrete billions of dollars away from Australia. As a result, our national budget suffers and governments have to make individual taxpayers pay for the sins of the biggest businesses.
This has to change. And there is another important reason why big business has to do the right thing, and that is the integrity of the Australian taxation system and indeed the international tax system. In countries where there is no faith in the tax system, where most people believe that big business and wealthy people dodge tax, then the tax revenue suffers as more and more people join the tax dodgers and rort the system. As a result there is more corruption, more bribery and a closer alignment to economic anarchy than to stability.
In Australia we are not anywhere near tax anarchy, but the biggest companies must be forced to pay their fair share or perhaps we will be on the path to that situation.
Tax for big business is a game. Moving money to Luxembourg, the Seychelles or Ireland is not what a responsible company will do, that is what an unethical company will do as part of the game they play. Charging yourself for the use of your own intellectual property is not what an ethical, responsible company does; it is part of the game. It is smoke and mirrors, shams and scams and the normal taxpayer suffers for it. The normal taxpayer cannot move funds offshore and cannot charge themselves for their own IP or for use of their own premises.
When in the early 1970s and 1980s the bottom of the harbour schemes were uncovered the government of the day changed laws and even backdated changes to get back the tax revenue that had been lost by dubious business activities. The idea of tax avoidance as a crime became an issue and it should still be an issue. The finding of a royal commission of the time and other inquiries was that the involved public servants of the day were overworked and poorly managed, which contributed to the problem. Interestingly the ATO was recently stripped of 3000 employees just when we find the tax avoidance industry is well and truly alive – that is a decision that should be reconsidered.
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