Tuesday, June 17

Apply accounting principles to multinational tax concessions

My letter as per below published today in the AFR with a cartoon. 

In “Tech has left tax system behind says Google(AFR, June 12), Paul Smith reports that the head of Google Australia wants governments to clarify grey areas in the global tax system and end the shaming of individual companies for how they transfer profits around the world.

However, the accounts of Google and other multinationals which legitimately take advantage of low-tax regimes don’t coincide with normalised accounting principles.

The numbers booked in the case of Google don’t include advertising revenue of up to $2 billion, which is accounted for in more favourable tax locations such as Singapore and Ireland.

Favourable tax principles are applied to the cost of Apple computers and iPads sold at a cost in Australia that ensures profits are booked primarily in the lower tax regimes, such as Ireland.

What is evident is not only the foolishness of countries offering extraordinarily generous tax concessions but a lack of a co-ordinated effort to ensure commercial principles are upheld in assessing tax liabilities.

Hopefully Prime Minister Tony Abbott will follow through on his remark made while in the US, that he is serious about leading global efforts through the G20 to stop tax ­evasion through profit shifting.

What is needed is the application of recognised accounting principles to tax, so that profits and revenues are either included or deemed to be included where multinationals do business, in assessing taxation liabilities


susan said...

What the world has now is a bloated financial sector combined with many people falling into poverty. It seems to me that the most straightforward means of making international taxes progressive would be for governments to institute financial transaction taxes - ie, the Tobin plan. A huge problem with ever getting something like this passed is that so many governments act in the interests of those who are already rich.

Best wishes, Lindsay. Sorry I'm a bit late to this one.

Lindsay Byrnes said...

Hi Susan,
I think the Australia’s tax collectors could possibly be much more proactive in ensuring multination’s doing business in Australia pay tax on their income here even within their current powers. I doubt if we are ever going to get any consensus on a global basis on any form of a transaction tax on speculative foreign exchange conversions as was first mooted by Tobin many moons ago. Not that his ideas don’t have merit, as he first proposed as a tax on speculative currency conversion, but rather because it is virtually impossible to determine the speculative portion in practice, and additionally it would require universal agreement from all countries to be effective.
Rather I think the best you can hope for is to have more cooperative agreements which share information to uncover tax avoidance or diversion to tax havens (finally the Swiss bank accounts havens are being uncovered) within a vision based upon respecting and upholding individual countries tax liabilities. Much more can also be done in outlining the effects and distortions of certain almost zero tax refuges, and in ensuring slippages are not encountered through ‘’contrived” commercial arrangements that avoid a fair share of tax being paid.
Best wishes

susan said...

I couldn't agree more, Lindsay.