ROSS GREENWOOD:
Well it's interesting to note that the Assistant Treasurer David Bradbury has been looking pretty hard at, in particular, the big global e-commerce companies. These include, for example, Apple, Google, maybe Amazon, a number of others. So what he's looking for is some sort of a way to shine a light on whether these companies do genuinely pay a reasonable rate of tax here or alternatively, as some people sometimes call it, where transfer pricing which is technically illegal, in fact it is illegal, takes place to allow them to produce less profit here and therefore pay less tax here and more elsewhere. He joins me on the line right now, many thanks for your time David.
DAVID BRADBURY:
Good evening Ross, good to be with you.
GREENWOOD:
Look this is a serious matter because you want companies if they're making significant revenues here, to pay their tax here. Why do you have any suspicions that this might not be the case?
BRADBURY:
There's a lot of material out there in the public domain that would suggest that when you look at the revenues that are being earned by some of these companies, and when you look at the material that's been publicly reported around how much tax is being paid, there is a very big mismatch between the two. Now it's incredibly difficult and of course we have various privacy provisions for the ATO so I'm not privy to the individual positions of any of these taxpayers, but what you can deduce from looking at some of the public material is that the amounts of tax that are being paid in Australia, corporate tax, in some cases are very very modest compared to what some analysts would suggest are the profits and the revenues being generated by some of these companies. There are a whole range of ways which profits can be shifted and you mention transfer pricing. We've done a number of things on that front to try and make sure our laws are as strong as possible and basically transfer pricing, are laws that try to stop companies, where they have transactions occurring between a company that they have onshore in Australia and then other companies that might be resident in other jurisdictions, having a look at those...
GREENWOOD:
So the classic of this would be, let's say for example you've got a tax haven somewhere overseas that doesn't pay terribly much tax out of that tax haven, you have a company that's there that has a service agreement with the company in Australia and as a result they have a massive bill that goes to the Australian company, the money pours out into that tax haven style company, the profits are reduced in Australia and as a result your tax obligation is reduced when it lands in that tax haven, *inaudible* the country, there's no tax there either.
BRADBURY:
That's right and transfer pricing is, as much of a challenge as that is, we do have some of the tools that are necessary to tackle that and today I've released a further exposure draft, a new round of amendments to our transfer pricing laws, that will bring them into line with best practice internationally. But there are some practices that are occurring out there that are even more difficult to combat than the sort of activity that you've just described there and that's in particular where Australians might be contracting with what might seem to be an Australian entity, but it is in fact a company that is located offshore in the first place. Transfer pricing is very effective in dealing with transactions between companies within the corporate group across national boundaries, but it is effective when it comes to shifting profits to other jurisdictions where the economic activity is clearly occurring in Australia, but from a tax perspective it's being brought to account in another country.
GREENWOOD:
Okay I'll give you a classic example of that. Therefore you have your company here in Australia, I am not related to you in any way, shape or form, I have a company in Hong Kong let's call it, I invoice you in Australia, you pay out the invoice, it arrives in Hong Kong, I then move the money across to you and take a commission for having done that, and basically we're both winners as a result of that transaction.
BRADBURY:
That's certainly true, where it gets more complex and this is where we see an even greater impact in eroding the tax base is when it comes to the question of intangibles. By intangibles we're talking about things such as good will, or intellectual property rights. The thing about intellectual property or good will is that unlike other factors that generate income, these are income factors that can be located just about anywhere in the world. What we're increasingly seeing is companies that are loading up their intangibles or their intellectual property, in low tax or no tax jurisdictions. What that then means is that they're effectively paying royalties out to entities or companies that are in low tax jurisdictions when in truth, there may not be much more than a presence in that country and in fact, it could be located anywhere in the world, but people are making choices about where they locate their good will or intellectual property based solely on how they can minimise their tax. So it's quite a complicated set of arrangements...
GREENWOOD:
So what hopes have you got of being able to close down loopholes because one of the issues of this is having to deal with those international tax havens and yes, I know some of the treaty agreements that have been done with various countries has perhaps cut down on a good deal of this, but there is no doubt still tax havens out there that will not necessarily cooperate with the Australian government.
BRADBURY:
It's incredibly difficult, but to try and explain what needs to be done, our rules of international taxation were developed very much for the industrial age. We've now moved into the information age and unfortunately, some of these traditional taxing concepts just haven't kept up. The only way you can change that, is you need broad international agreement around these things. Now you mention tax havens, and certainly on the question of tax havens and secrecy, we've seen in the last decade a considerable amount of work done internationally in countries which previously maintained secrecy over the affairs of taxpayers, are now engaged in sharing some of that information with other revenue authorities. In large part that came about post September 11 where there was a much bigger focus on making sure that we understood where money was coming from when it was being shuffled around. This is a difficult and challenging thing for us to do, it can only be done internationally, but you've got to put it on the agenda. We're not the only country facing a potential erosion of our revenue base, and when you look at some of the countries involved in trying to lead a race to the bottom by cutting corporate taxes, and allowing this sort of activity, some of them are countries that have experienced severe difficulty financially in the past few years post GFC. If we all want to have sustainable budgets to help us meet the expenditure requirements that we have for the future, then you can't just have countries out there undercutting others and providing some sort of incentive for companies to be out there, forum shopping if you like, in order to reduce their tax.
GREENWOOD:
No, very interesting stuff. David Bradbury the Assistant Treasurer there and I would have to say, that is a campaign no matter which side of politics you're on, that you'd have to endorse wholeheartedly. You can't have companies here, whether or not they're the ones that we mentioned here or not or other companies, basically getting away scott-free and through loopholes being able to salt money away out of the country. It doesn't make any sense to any Australian tax payer, after all if you come here from overseas, you come here to sign up to the Australia tax rules, not to find yourself you-beaut way to get it out of the country so you pay none. David Bradbury I appreciate your time.
BRADBURY:
Thanks very much Ross.