The current tax debates

You would need to have been living under a large rock with your hearing aid turned off not to be aware of the current debates raging in relation to tax. But it is hard to sort the wood from the trees or the real facts and issues from all the surrounding noise.

In the past nine months or so, we have seen the Tax Justice report alleging that ASX200 companies pay very low rates of tax, prompting Senator Milne to push for the establishment of the Senate inquiry into corporate tax avoidance. We have also had the release by the Government of the long-awaited Tax White Paper on tax reform. In parallel, we've had the Treasurer first announce a 'Google tax' and the dispatch of a team to London to consult with the UK authorities on the design of the UK's 'Diverted Profits Tax', and then announce that it had been decided that such a tax was not appropriate for Australia. Instead, as part of the Federal Budget, the Treasurer announced an amendment to Australia's anti-avoidance rules (Part IV A) aimed at a small group of companies identified by the ATO as structuring their affairs to pay less tax than might reasonably be expected. A so called 'Netflix tax' – an extension of the scope of the GST – was also announced in the Budget. In the background, the OECD member countries continue work aimed at addressing 'base erosion and profit shifting', or BEPS.

The Canberra circus (or Senate Inquiry, as it has been called) has been quite extraordinary. We have had the Senators ask some searching questions and some very ill-informed questions; we have seen big companies refusing to answer questions; the ATO has broken with past practice and discussed particular taxpayers' affairs; the ATO has disputed some statements made by the big companies appearing before the inquiry; and some of the big companies are disputing what the ATO said.

Where is this all heading?

Some Senators and some journalists have deliberately or otherwise conflated various different issues. If you had fallen asleep through boredom brought on by reading the Tax White Paper and woken up beside Alice, in Wonderland, you might see everyone rushing around shouting 'off with their heads', in reference to numerous large companies that have not been paying their 'fair share of tax'. But no-one actually knows, or perhaps cares, which heads get chopped off!

Let's hope that with the announcement of the new anti-avoidance rules and the revelations that the ATO is already handling a number of large disputes, under existing tax laws, with some of the alleged underpayers, things might settle down. It would be good to think that:

  • the Government will consult sensibly on the proposed new anti-avoidance rules;
  • the ATO and the companies concerned can be left in peace to resolve the existing disputes and otherwise administer the tax laws. Australia already has recently updated, tough transfer pricing rules;
  • the journalists who have been whipping up an emotional frenzy, often without any pretence of factual accuracy, find something else to focus on; and
  • the Senate Committee carefully considers any next steps.