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Recent Media

This section provides a selection of media items posted in the last seven days on issues within TaxWatch’s area of interest. Items of longer-term interest will then be transferred to the monthly archives and may also be filed under he relevant topic in the Tax Policy collection.


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Australia Taxation Office chasing $1 billion from energy giant Chevron in massive tax case

Heath Aston, The Sydney Morning Herald, 7 June 2017

A multinational resources company that holds the rights to exploit Australia's biggest deposits of natural gas is being chased by authorities for more than $1 billion in unpaid taxes. American fossil fuel giant Chevron, which paid no company tax in five of the past seven financial years, is fighting a demand by the Australian Tax Office for $1.062 billion in back taxes, Fairfax Media can reveal. The dispute could be the largest single corporate tax matter before the ATO and is part of $4 billion that tax commissioner Chris Jordan aims to claw back from multinational energy and tech companies known for their aggressive approach to tax minimisation. The $1 billion could build 17 new high schools like the one planned for central Sydney or a 400-bed hospital like the one opened in Bendigo in regional Victoria this year. Chevron's tax bill is a so-called "transfer pricing" matter and hinges on the rate of interest its Australian subsidiary pays on a $42 billion loan from its US parent to fund the massive Gorgon and Wheatstone LNG plants off the coast of Western Australia. The ATO is chasing multinationals that saddle their local operations with unreasonably high debt costs, thereby "exporting" profits via inflated interest payments to lower tax jurisdictions and avoiding Australia's 30 per cent company tax rate. In April, Chevron lost Australia's biggest-ever transfer pricing case and was ordered by the Federal Court to pay $340 million in taxes, penalties and interest. That finding, which the company has vowed to appeal to the High Court, stemmed from a 2003 loan in relation to Chevron's part ownership of the North West Shelf gas project. In that case, Chevron Australia paid $1.84 billion in interest on a loan that cost Chevron Corp in the US just $110 million to service. Chevron revealed its latest tax dispute with the ATO in written answers to questions from the Senate's inquiry into corporate tax avoidance. "Chevron Australia and the ATO disagree on how the law applies to determine the interest rate to apply to Chevron Australia's financing arrangements. The total difference in primary tax on all years currently in dispute is $1.062 billion," Derek Floreani, Chevron's general manager finance and compliance wrote. The company also stated that it had paid no company tax in five of the past seven financial years. In 2011 and 2012, Chevron paid an effective tax rate of 7 per cent and 8 per cent, respectively, less than a third of the corporate rate. Its latest financial accounts lodged with the Australian Securities and Investment Commission show it had revenue of $2.1 billion in 2016. An ATO spokeswoman said Mr Jordan would not comment on individual taxpayers but "as a general principle" he expected all debts to be paid once an assessment is issued. "The commissioner expects that all debts, including those subject to dispute, will be paid on time," she said. If a company is fighting a ruling it is asked to pay 50 per cent of the outstanding tax bill until the matter is resolved. A Chevron spokesman said the company was "one of Australia's largest investors and employers". "As recognised by the Federal Court, Chevron Australia's financing is a legitimate business arrangement, and the parties differ only in their assessments of the appropriate interest rate to apply. Chevron Australia pays a substantial amount of tax in Australia, including royalties, payroll tax, fringe benefits tax, excise and interest withholding tax. Since 2009, we've paid about $4.5 billion in federal and state taxes and royalties," he said. Neither Chevron or the ATO would comment on how many tax years the $1 billion involves. Fairfax Media first revealed in 2015 that LNG producers like Chevron would not pay any federal royalty for at least a decade or more due to generous write offs available under the petroleum resource rent tax. A recent report to Treasurer Scott Morrison found LNG exporters would soon sell $50 billion a year in the resource without paying anything for its extraction. Chevron told the Senate committee that it expected to start paying PRRT from Gorgon some time between "2029 and the mid-2030s". Offshore LNG projects are not subject to any state royalties. Top

Inspector-General of Taxation Ali Noroozi says ATO review 'inevitable'

Nassim Khadem, The Sydney Morning Herald, 6 June 2017

A review into the people and processes of the ATO following the alleged abuse of position by one of its highest ranking officers is "inevitable", says the man who audits the agency, Inspector-General of Taxation Ali Noroozi. On Tuesday morning, Mr Noroozi announced a separate review, at the request of Tax Commissioner Chris Jordan and tax professionals, into the future of the tax profession. Asked whether there would be a wider review into the ATO amid allegations that deputy commissioner Michael Cranston discussed an alleged tax fraud matter involving his son, Adam Cranston, Mr Noroozi said: "It now seems inevitable that we will expand our work program to do such a review." "We are working on its timing and scope. The community is welcome to continue providing feedback on these issues." Mr Noroozi told Senate estimates last week that his office was receiving more complaints about the ATO following the scandal. Mr Cranston, a long-time ATO officer who headed the private groups and high-wealth individuals area, is due to appear in court on June 13, when he is expected to be charged with abusing his position as a public official. He has been suspended without pay while investigations are under way. AFP investigators who conducted the tax fraud investigation, dubbed Operation Elbrus, taped phone calls in which Mr Cranston allegedly warned his son, "you could be the subject of search warrants". Mr Jordan, who has said the ATO will conduct an internal review, told Senate estimates last week that Mr Cranston had made a "huge error of judgment" in talking about the matter to his son. Two other ATO officers have been suspended and are being investigated internally for potential code of conduct breaches after allegedly trying to look up information on the ATO's audit at the behest of Mr Cranston. Some tax professionals fear that stains may be far wider at the ATO.

Review into future of the tax profession

Mr Noroozi on Tuesday announced the terms of reference for the review of the future of the tax profession, including how digital changes are transforming the way accountants do business. Tax advisers assist more than 70 per cent of individual taxpayers and 90 per cent of business taxpayers to comply with their tax obligations. But the tax profession had experienced significant change, Mr Noroozi said. "The rate of this change is only expected to accelerate in future," he said. "Digital disruption or digital technology through advancements such as artificial intelligence and robotics is changing the very fabric of our society – the way we work, communicate, do business and manage our social interactions." "The consequences of the impending changes are far reaching and accordingly, the review will focus on all aspects of the profession." The review will also examine issues for regulators and the administration of the tax system. Top

Ending secret identities is the 'new frontier' in fighting tax evasion: OECD's head of tax Pascal Saint-Amans

Nassim Khadem, The Sydney Morning Herald, 6 June 2017

Revealing the secret identifies behind shell companies and opaque trusts is the "new frontier" in fighting tax evasion, says the OECD's head of tax Pascal Saint-Amans. In an exclusive interview with Fairfax Media, Mr Saint-Amans also spoke about the Turnbull government's tougher domestic laws aimed at cracking down on multinational tax avoidance, which, according to the tax man, are expected to lead to $4 billon in new tax bills issued against the nation's biggest companies. But the Paris-based Mr Saint Amans, who is the public face of the OECD/G20 crackdown on multinationals, said, while Australian laws appeared to be in line with the global plan to fight profit-shifting, it was possible tax authorities in other nations such as the United States could dispute Australia's right to tax. Since the release of the Panama Papers last year, countries including Australia have been considering beneficial ownership reforms, which would reveal the secret people behind shell companies. The Australian Taxation Office's Mark Konza told Senate estimates last week there were about 1300 Australians identified as being linked to the Panama Papers, but did not say how much liabilities they expect to raise from the individuals involved in tax avoidance. Tax Commissioner Chris Jordan told estimates he was not sure that a beneficial ownership register would be "a panacea" in fighting tax evasion. But Mr Saint-Amans said: "Access to beneficial ownership information is probably the new frontier in ... fighting tax evasion."

Call for public register

Groups such as Transparency International Australia have called for a central register to record beneficial ownership information. They want this information to be available to the public. Submissions also call for the anonymous people behind trusts to be revealed. The Treasury consultation paper on beneficial ownership reforms does not apply to trusts. Mr Saint-Amans did not go as far as calling for a public register, but did say that could be the next step. The OECD/G20 had already established a common reporting standard that would allow tax authorities to ask financial intermediaries to hand over specific information. As for a public register, "we are not there yet". "Yes it would be fantastic to be able to fly to Mars but let's first fly to the moon," he said. "Let's make sure we have ...good systems that make the information accessible." Privacy issues would need to be considered if that information was made public, he said.

Limit on Australia's right to tax

A number of companies, including tech giant Google and social media behemoth Facebook, are restructuring their tax affairs in response to the federal government's Multinational Anti-Avoidance Law (MAAL) and the Diverted Profits Tax (DPT), informally dubbed the "Google tax". Both laws aim to collect more tax by imposing restrictions on multinationals' ability to shift profits to lower-tax jurisdictions, and hefty penalties if they do. But Mr Saint-Amans had previously noted that with companies such as Apple – which had been ordered to pay up to €13 billion ($19 billion) in back taxes, plus interest, to Ireland after the European Commission found the software giant had received "illegal state aid" – the bulk of revenue belonged to the US. Mr Saint-Amans said the OECD/G20 plan to fight tax evasion, known as Base Erosion and Profit Sifting (BEPS), was about making sure tax bases were not eroded. Now that governments could share in the revenue pie, the next question was who got the share. But he noted that BEPS was about eliminating non-taxation, not about solving the secondary problem of who had a right to tax. Should Australia go beyond its right to tax, then the US had the right to claim its own tax, he said. However, for now "the US isn't exercising its right to tax" and was unlikely to until US President Donald Trump's reform agenda was implemented. Tax experts have warned there can be heightened US-Australia tax disputes if the plan passes US Congress.

Deal to be signed in Paris

Mr Saint-Amans said the OECD/G20 plan was on track. He was pleased it had got agreement on a multilateral instrument, which would be formally signed in Paris on Tuesday evening, to stop companies exploiting gaps and mismatches in tax rules. He was also thrilled Thailand was now the 98th country that had pledged to implement the BEPS plan's minimum standards. Mr Saint-Amans also said the OECD was working on closing down harmful tax practices and that a few regimes in low-tax nations such as Hong Kong and Singapore were being monitored. He believed the OECD/G20 efforts to stamp out "non-taxation" was likely to be followed by many countries reducing their rates of company tax. This would be the case, he said, regardless of the hurdles the Turnbull government faced in getting its corporate tax cuts for big business through the Senate. Top

Call to limit cash transactions from Black Economy Taskforce chairman

Nassim Khadem, The Sydney Morning Herald, 5 June 2017

Australia will never have a completely cashless economy, says the man heading the federal government's Black Economy Taskforce Michael Andrew, but it's likely that we will see a limit put on cash transactions at $10,000. Mr Andrew, who is advising the Turnbull government on how it can claw back up to an estimated $15 billion in lost federal tax revenue and illegitimate welfare payments due to widespread cash economy activity, told Fairfax Media that his final report to government, due in October, was likely to include stronger recommendations around limits. He said his second report would look deep into the "really dark black economy", as the taskforce was now talking to agencies such as the Australian Federal Police, the Australian Border Force and Australian Crime Commission on issues such as money laundering, terrorism financing and illicit trade. He said there were many examples of cash still being used for large transactions, especially luxury goods such as vintage cars and fancy boats, as well as private school fees. Currently banks and other institutions were required to report cash transactions valued at more than $10,000. "We are saying, let's just ban the transactions over $10,000," said Mr Andrew, who also heads the Board of Tax. He said reforms were needed so that cash payments could not be tax-deductible unless people had a valid invoice with an ABN, or a group certificate. "This will have a huge impact," he said. "It's a $4 billion to $5 billion tax saving."

Tens of billions of dollars lost

Estimating the size of the clandestine black economy is difficult, but in a 2012 study the ABS suggested it was roughly 1.5 per cent of GDP, or around $25 billion per annum in today's dollars. Of that, Mr Andrew has estimated about $10 billion is untaxed and another $4 billion to $5 billion is money that should not have been paid out as welfare payments because people did not correctly report their income. Mr Andrew said while more people were being encouraged to do business online, and technologies such as blockchain could help with transparency of electronic payments, "you will never get to a non-cash world". "There's certain parts of the economy where you need cash, for example casinos." He said older people were also fond of cash. "For example my mother says, 'I give $100 note to all my grandkids at Christmas; you can't ban cash'." Nevertheless other measures could be taken, such as putting an expiry date on $100 notes so that all notes were valid until a certain date, after which people would have to exchange them. Such practice was common overseas, he said.

Dodgy invoicing

​And credit card fees for transacting at restaurants and hotels could be reduced to just 10¢. "The more we can get people electronically transferring funds, the more likely we are to have transparency in the system," Mr Andrew said. The Taskforce is examining high-risk industries that have a propensity to use secret cash-in-hand payments, such as the cafe and restaurant industry, and tradesmen. "At the moment 30 per cent of business held by many restaurants is being skimmed off in cash,"  Mr Andrew said. Many tradesmen were issuing fraudulent invoices to people who they want cash payments from and disguising this under the Bunnings ABN. "If you pay cash for something there's no consumer warranties," he said. The Turnbull government accepted some of the Taskforce's early recommendations and in the May budget announced some measures aimed at collecting about $632 million in federal and state revenue. Mr Andrew said it could take up to five years to implement the full suite of measures needed to tackle the black economy.

Policy initiatives

The Taskforce's work is being supported by a number of other initiatives. The federal government has also established a Phoenix Taskforce to crack down on dodgy companies which deliberately go out of business only to re-appear in another guise. The Taskforce's report references Fair Work Ombudsman and PwC estimates in 2012 that illegal phoenixing resulted in economic costs of around $1.8 billion to $3.2 billion per year. The Government is also currently consulting on beneficial ownership reforms for companies, which would ensure the secret people behind companies and trusts would have to be revealed. This was one of the big problems identified from the release of the Panama Papers last year. Tax Commissioner Chris Jordan told Senate Estimates last week "if people want to do the wrong thing, they will put all sorts of different names in places. I am not sure it [a beneficial ownership register] is a panacea, as such". But Mr Andrew, who was co-chair of the B20 Working Group on Anti-Corruption, said the best way to tackle tax evasion and money laundering was to know who the beneficial owners of companies and trusts were. Top

Foreign buyers tax to have little impact, say analysts

Ben Wilmot, The Australian, 5 June 2017

While some property developers have attacked moves to hit foreign buyers with higher stamp duty imposts and warned they could bring some projects to a halt, analysts have predicted the fallout may be more limited. Offshore investors are to be hit with a doubling in taxes under a NSW government package announced last week, with the state’s foreign investor stamp duty surcharge set to jump to 8 per cent, effective from July 1. Annual land tax on foreign homeowners will rise to 2 per cent and stamp-duty concessions for those buying off the plan, often foreigners, will be axed. CLSA head of real estate Sholto Maconochie said listed developers Mirvac and Lendlease already limited foreign buyers who need Foreign Investment Review Board approval to 30 per cent of most projects, with Chinese buyers typically up to two-thirds of this group. While in some instances these levels are higher, the Australian Prudential Regulation Authority recently imposed 50 per cent limits on FIRB buyers in developments. “We believe these changes are incrementally negative for both Mirvac and Lendlease on new apartment sales post July 1, 2017, and will soften demand at the edges. However, Chinese buyers are motivated by other factors rather than just price alone,” Mr Maconochie said. Sydney was still a lot cheaper than Hong Kong, Shanghai and Singapore and the measures would bring Sydney more in line with other countries in Asia and also Canada, he said. Moves to help for first-home buyers were also positive for Mirvac, Stockland and Lendlease in their land businesses. UBS analyst James Druce said that doubling foreign buyer stamp duty in NSW would slow activity, but said the equities house did not expect a collapse as the first tax — of 4 per cent in June 2016 — had very little effect and Sydney still compared favourably to other global cities. Mr Druce did not expect stamp duty concessions and moves to help first-home buyers to have a material impact for Stockland or Mirvac, although the policy shifts moves were welcomed by the companies. Stockland chief executive residential Andrew Whitson said housing affordability was a “critical issue” in Sydney and noted the focus of the NSW government’s plan to address this challenge by also unlocking supply and investing in local infrastructure. “We also strongly support moves to fast-track supply including through driving better cross-government co-ordination to increase efficiencies in the planning system, and expanding the number of priority precincts to accelerate rezoning in key areas,” Mr Whitson said. Mirvac chief executive Susan Lloyd-Hurwitz said the company strongly supported the overall plan to help address housing affordability barriers. “It’s good to see the measures the NSW government are taking to help boost supply and facilitate surrounding infrastructure,” she said. The Urban Development Institute of Australia has warned the extra charges on foreign buyers would drive long-term home prices up. It said an expected fall in foreign buyers would mean some developments would be cancelled, worsening Sydney’s undersupply crisis and causing prices to rise further. NSW’s foreign investor surcharge is now above Victoria’s 7 per cent. Top

Increasing top tax rate to 49.5% a penalty on success, Malcolm Turnbull says

Katharine Murphy, The Guardian, 31 May 2017

Malcolm Turnbull will use a speech to an economic thinktank on Wednesday to argue that increasing the top personal tax rate to 49.5% is a penalty on success and to insist that his government’s budget stuck to Liberal values. The prime minister will use a speech to the Committee for the Economic Development of Australia on Wednesday morning to argue that governments cannot “reduce inequality of opportunity by putting up barriers that stop people getting ahead”. Turnbull will blast Labor policies, which include increasing the Medicare levy for workers in the top two tax brackets, and keeping the current 2% deficit levy on earnings above $180,000 – which would put the top tax rate at 49.5%. He will say the last time the top tax rate plus the Medicare levy was higher than Labor’s current proposal was back in 1988-89, when it was 50.25%. Turnbull will argue that a tax rate at that level undermines “aspiration and fairness, while worsening incentives and economic efficiency”. “Returning to that bygone era would send a very poor signal to all Australian workers: don’t bother trying to earn just over two times average full-time weekly earnings,” Turnbull will say. “Because once you do, half of every additional bit of effort; half of every extra hour you work; half of every new idea you generate – indeed, half of your extra perseverance, determination and enterprise – belongs to the government.” In a speech designed to contrast his government’s aspirational philosophy with Labor’s current inclination toward redistribution, the prime minister will argue that if Australians recognise the principle that we are all born equal “then surely it follows that everyone deserves an equal chance of improving their stocks in life”. “One of the marks of an advanced society and a developed, well-functioning economy, is that each generation strives to improve on the last, and has a good chance of doing so. “Liberals not only believe in this ideal, we believe that it is the government’s duty to help enable it. “You cannot reduce inequality of opportunity by putting up barriers that stop people getting ahead. Rather, these barriers entrench the wealth or poverty that people are born into. “What more hopeless, defeatist principle could there be than the one that tells people they cannot aspire to outdo their parents? And what is more natural, more human, than do all we can as parents to ensure that they can?” With opinion polls suggesting that the Turnbull government has not achieved a political dividend from a budget that attempted to reset the national debate, and shift the Coalition back towards the political centre, the prime minister will also use his speech to defend the direction of his government’s economic statement. The high-taxing, high-spending May budget was characterised by many commentators as “Labor-lite”. Turnbull will acknowledge that Liberals prefer lower taxes “but we dislike unsustainable deficits and mounting debt even more”. He will say the government embarked on budget repair “while sticking to our values”. “All of our new spending decisions were paid for by reducing spending elsewhere in the budget.” With pitched political battles still in progress over key budget initiatives, Turnbull will argue that his government is funding schools, Medicare and the national disability insurance scheme in a sustainable manner. “Labor floats grand schemes, Liberals fund vital services.” “This is the great modern test of political character, and it is one that Labor has failed,” Turnbull will say. “Only Liberal governments are able to deliver the services and quality of life that Australians have come to expect, and we won’t make future generations pay for it.” Top

Bank levy will have 'trivial' impact on interest rates, Treasury secretary says

Gareth Hutchens, The Guardian, 29 May 2017

The Treasury secretary, John Fraser, has said the Turnbull government’s $6.2bn bank levy will have a “trivial” impact on interest rates, dismissing concerns by the major banks that it will be disruptive. He told Senate estimates Treasury had no reason to review its estimate that the levy would raise $6.2bn over four years, despite forecasts from the banks suggesting it would raise much less. Fraser’s comments come after two weeks of sustained criticism of the levy by the Australian Bankers’ Association, and the heads of Australia’s biggest banks, who are still angry with the government for proposing the levy without consultation. Last week the major banks estimated how much the levy would affect their after-tax earnings, collectively putting the cost of the levy at $965m over the next 12 months. Those forecasts prompted analysts at Deutsche Bank and Morgan Stanley to warn that the revenue collected by the levy could fall half a billion dollars short this year. But Fraser told a Senate estimates hearing on Monday he did not believe that, given it was “very complex” calculating what the tax would raise. “You need to consider the timing of the payments and tax deductions and issues about bank credit and credit growth over time,” he said. “We see no reason to step away from our forecast.” He said Treasury had modelled the bank levy and it would have a negligible impact on interest rates. “The results are what common sense would suggest, they’re trivial,” he said. However, the finance minister, Mathias Cormann, said the levy would help smaller banks become more competitive because they would have relatively cheaper cost structures as it was introduced. Ian Narev, the chief executive of Commonwealth Bank, last week told a business audience why the Turnbull government’s claim that the banks could “absorb” the new levy was wrongheaded. Fraser also weighed into the housing affordability debate, saying the budget’s housing affordability measures would not reduce house prices. When asked by Greens senator Peter Whish-Wilson if he was comfortable with young people entering the housing market at this point in the cycle, he said: “Look, you make a comment in this area and you never win, but I don’t take any joy in the fact that when I was buying a house in the 1970s it was a far easier process. “For many families, it’s a bigger hurdle to jump than we ever imagined.” Fraser was also asked about the leak that saw the value of Australian bank stock lose billions of dollars on the day the budget was released. Fraser said he was considering overhauling the budget lock-up to make it harder for leaks to occur, even though the leaks occurred before the lock-up. Sky News had reported on the evening before the budget that the budget would include a bank levy, and the Australian Financial Review reported further details on the morning of the budget. But Fraser said the government relied on people’s honesty during the lock-up, and it was too easy for people to sneak mobile phones inside, and to use the internet on their personal laptops. He said everyone may be given Treasury-issue iPads in the future, with USB sticks, to make it impossible to access the internet while inside. He said he would be “devastated” if any Treasury staff were responsible for the leak before the budget was released publicly. An hour after Fraser’s testimony, Treasury released a statement clarifying his remarks. “At this morning’s Senate estimates hearing, the secretary stated his preferred approach to the IT security arrangements for these events in the future,” the statement said. “There are a range of matters to be worked through to implement these changes including working with media outlets on their requirements. The final form and arrangements will be decided in conjunction with the treasurer’s office.” Top

'Taxpayers sabotaged': Companies not paying tax despite receiving $6 billion in government contracts

Eryk Bagshaw, The Sydney Morning Herald, 27 May 2017

Multinational companies winning taxpayer-funded contracts worth hundreds of millions of dollars are not paying tax, a Fairfax Media investigation of Tax Office and tender data has revealed. Computer giant IBM, software company SAP and military arsenal provider Northrop Grumman are among those paying little or no tax in Australia, while scoring hundreds of government contracts. A Fairfax Media analysis of 20 of the largest tender-winning companies over the past decade has found taxpayers shelled out $6 billion for services ranging from tank maintenance to software. But those top 20 companies paid only a combined $42 million in tax in the last financial year, Tax Office data shows, meaning Australia may have missed out on as much as $264 million in tax if the companies paid the average rate of 30 per cent. Australian business leaders have accused the Turnbull government of fostering an "unconscionable situation" and "sabotaging the taxpayer". Japanese tech conglomerate Fujitsu, winner of a $42 million contract for broadcasting technology in August, paid the highest tax rate of the top 20, at 18 per cent. The company, which made a global profit of $1 billion last year, has secured 268 taxpayer-funded tenders over the past decade. All companies that responded to questions from Fairfax Media said they operated legally and reduced their total tax payable by claiming tax credits for development or carrying tax losses forward. [Link to their responses in original article] Fairfax Media can reveal Coalition senator Barry O'Sullivan first raised concerns with former treasurer Joe Hockey more than three years ago, but despite the 2015 recommendations of a Senate inquiry, little direct action has been taken by the government. The Tax Office's Black Economy report, released on budget night, urged the government to "take the lead" and limit tender opportunities to companies that have a good tax record. In documents recently released under freedom of information, Finance Minister Mathias Cormann previously said assessing a company's tax rate for tenders was impractical and warned that discriminating against foreign companies would be a breach of free trade obligations. "This would demand very specific expertise and impose significant compliance costs for businesses as well as the Commonwealth," he said in 2016. Bureau of Statistics figures show that in 2014-15, $52 billion of the $59 billion awarded in tenders were attached to an Australian address. Many, such as airplane titan Boeing, which has taken out 232 tenders over the past decade, operate from an Australian address while being owned by their US based parent company. A spokesman said Boeing paid taxes in Australia in accordance with relevant laws and requirements. It is understood Senator O'Sullivan was particularly concerned about the increasingly uneven playing field in IT contracts, a problem that has emerged as more government services move online. IBM has a $1 billion contract to overhaul computing at the Department of Human Services but has failed to sign on to the government's tax transparency reforms. It has won 178 tenders in the past decade but paid 0 per cent tax last year. A confidential ministerial brief for Financial Services Minister Kelly O'Dwyer states the measures in the government's tax integrity package and the Multinational Anti Avoidance Law would ensure that activity taking place in Australia is taxed in Australia. But neither it nor the recently released procurement rules from the Department of Finance include a provision for withholding government contracts from companies not paying tax; rather suppliers are asked to "provide an economic benefit" through paying tax in Australia. Labor has adopted the 2015 Senate inquiry recommendation that tenderers be forced to state their country of tax. "Disclosure isn't discrimination," said Labor's shadow assistant treasurer Andrew Leigh. "You see the analogy with Plutus payroll [which allegedly defrauded $165 million from the tax office] – good companies which have been working for many decades missed out on government tenders because their model involved paying tax." Small Business Minister Michael McCormack is also understood to have advocated for a greater focus on small to medium-sized Australian enterprises, which receive less than a quarter of all government contracts, despite the value of all tender contracts more than doubling from $26 billion to $56 billion in the past decade. Mercury chief executive John Anastasiou, who has contracts under threat from SAP, a company that paid 15 per cent tax last year, said he was deeply disturbed by the situation. "It is unconscionable that they are generating large sums of money from Australian taxpayers while contributing a paltry amount to the system that is supporting their business," he wrote in a letter to Prime Minister Malcolm Turnbull. Optical Superstore chief executive Ian Melrose, who lost a defence contract to Specsavers, headquartered in the corporate tax haven of Guernsey in the Channel Islands, said the concept of letting Australian taxpayers' money support a contract "whose headquarters have a zero tax rate sabotages the Australian taxpayer." Small Business Ombudsman Kate Carnell has launched an investigation into the issue. "This scenario has gotten worse because the government has gone to fewer bigger tenders," she said. "A mower used to get the mowing contract, a maintenance company got the maintenance contract and the defence expert got the defence contract. Those three have now been pulled into one contact picked up by large multinationals." KPMG's Australian tax leader, Grant Wardell-Johnson, said the recommendations of the ATO's black economy report were an appropriate next step. "If I was to draft the laws and you were involved in anti-avoidance activity that would threaten your procurement," he said. Top

Government faces tough test on $16.3m property vacancy tax plan

Michael Bleby and Larry Schlesinger, The Australian Financial Review, 23 May 2017

A federal budget plan to tax homes left vacant by foreign owners remains unclear, with the Australian Taxation Office yet to say how it will be implemented. Treasurer Scott Morrison said last month that the ATO would implement the measure, which aims to free up housing stock and raise $16.3 million over the next four years by charging owners at least $5000. But the ATO said it couldn't yet provide any details on how it will determine whether dwellings are left unoccupied and out of the rental market for six months or more out of every year, as this would be contained in legislation that had not yet passed through parliament. "Unfortunately we are unable to answer your question as the government announcement is yet to be legislated," a spokeswoman told The Australian Financial Review. The federal government faces the same dilemma as Victoria, which this year said it would start taxing properties left vacant in Melbourne's inner and middle suburbs for six months or more at 1 per cent of their value. Victoria's regime, which it says will raise $80 million over the next four years, will be self-reporting – owners will be expected to inform the State Revenue Office when their property becomes vacant. A federal treasury spokeswoman said the department was working on the rules. "The government is developing legislation as a matter of priority and anticipates that it will be introduced into Parliament later this year," she said. "The measure is not about raising revenue, but ensuring vacant properties are released into the market both now and into the future."

Ghost house

Some vacant homes are easy to spot. The six-bedroom, six-bathroom mansion at 57 Coolawin Road in Sydney's prestigious north shore suburb of Northbridge, which former Kohlberg Kravis Roberts head Justin Reizes sold last year for $15,250,000, is almost never used by its overseas-based owners. "They're not there a lot," said selling agent Michael Coombs, who confirmed the buyers were Australian residents. Another local agent said neighbours referred to the home as a "ghost house", with timing switches turning the lights on and off. But many vacant homes, particularly apartments, are hard to identify and housing policy advocates say a broad-based land tax levied across all property that would replace transaction taxes such as stamp duty would do more to improve the liquidity of housing and put stock on the market. While the Victorian scheme is self-reporting, the state government says the SRO has extensive powers to match data from state and federal agencies and other entities, as well as the ability to compel document inspection, conduct searches and require people to attend interviews. And with the federal government only expecting to tax 1000 vacant foreign-owned properties in 2019-20 – for a total $5 million in revenue – the proposal is a futile exercise, according to the Property Council of Australia. "This will end up being a tax that costs more to enforce than it raises," Property Council chief executive Ken Morrison said. "We see no practical mechanism to collect this tax in a cost-effective way so it's simply going to end up as bad policy in search of a headline." The lobby group, which represents property developers, also opposes higher land taxes. Housing think tank Prosper Australia, which lobbies for a broad land tax, said a vacancy tax was a step in the right direction. "A variety of measures such as water consumption or postal analysis can be used without notice to verify vacant property at little administrative cost," Prosper director Karl Fitzgerald said. "The cost to society of ever-increasing housing prices demands action."

Double hit looms

But if the new regimes are pursued, foreign owners of vacant properties in Victoria, at least, can expect to take a double hit from both state and federal vacancy taxes. "The Vacant Residential Property Tax is intended to encourage these owners to make their property available for purchase or rent, allowing Melbourne's current housing stock to be used more efficiently, a measure that the Turnbull government now appears to be following," Victorian Treasurer Tim Pallas said. And then there's Canberra. "The annual vacancy charge for foreign buyers is a tax levied by the federal government and would be in addition to any relevant tax levied by a state or territory government," the federal Treasury spokeswoman said. Top

Black economy surges to ‘much larger’ $50m

Damon Kitney, The Australian, 23 May 2017

The federal government’s key tax adviser has dramatically upgraded its estimates of the size of the cash economy in Australia to as much as $50 billion, as it ramps up its focus on illegal activities including drug trafficking and money laundering. The interim report of The Black Economy Taskforce that was released with the federal budget a fortnight ago made nine ­initial recommendations to the government to crack down on the cash economy, including new reporting requirements for courier and cleaner businesses. But taskforce head Michael Andrew said it had received detailed, confidential briefings from various agencies and individuals on criminal elements of the black economy since handing its interim report to the federal government in March. The Australian Bureau of Statistics estimated in 2012 that the black economy in Australia had grown to 1.5 per cent of GDP ($25bn per year in today’s dollars). “Since I put the report out, when I was saying the black economy was worth $25bn, now I think it’s worth a minimum of $35bn and could be as much as $50bn. Briefings we have received on the illegal side of the black economy — the drug trade, money laundering — have led us to believe it is much larger than we first thought,’’ Mr Andrew told The Australian. Mr Andrew also heads the Board of Taxation, which advises the government on the development of tax policy. “We have done a good job so far on the household component of the cash economy,” he said. “In the final report, which goes to the government in October, we will focus closely on the illegal component of the black economy,’’ Mr Andrew added. He said the taskforce would be working closely with government agencies such as the Department of Immigration and Border Security, the Australian Criminal Intelligence Commission, Austrac, Australian Federal Police and the tax office. The AFP last week revealed it had cracked a major conspiracy to defraud taxpayers of at least $165 million by a group running an alleged payroll tax scam out of Sydney. ATO deputy commissioner Michael Cranston has been issued with a summons to appear in court in relation to his son’s alleged involvement in the scam. The Black Economy Taskforce is now set to focus on a range of areas including illegal gambling, hire practices from criminal gangs and the illegal cigarette trade as it delves further into the black economy. Its interim report also lists cryptocurrencies such as bitcoin as likely areas of focus in its final report. “While cash can facilitate black economy and illegal behaviour, non-cash payment methods can also be used, including cryptocurrencies, certain commodities (for example the black market trade in cigarettes, both smuggled manufactured cigarettes and ‘chop chop’), as well as money-laundering practices such as ‘cuckoo smurfing’,” the report says. “These are not commonly or widely used at present (although it is estimated that 14 per cent of total tobacco consumption in Australia is illegal). If the community moves away from cash, or limits on cash payments are put in place, these alternatives may become more popular.’’ The Black Economy Taskforce interim report also recommended that the Australian government only sign procurement contracts with firms that had a good tax record and did not engage in bribery or corruption. It also suggested it may impose new responsibilities on procurement officers in private sector companies because of the critical role they play in influencing commercial suppliers. “Through their purchasing decisions, they can set high standards for supplier behaviour (insisting on compliance with tax and other legal requirements) or, when under commercial pressure to cut costs, allow poor practices to flourish. Indeed, there have been well-documented cases of suppliers being forced to cut corners in these instances,” the report said. “The taskforce will consider ways to improve supply chain management practices in its final report. Strengthened procurement officer accountabilities (including the idea of making them responsible officers under the Corporations Act) will be considered. There may also be scope for tax and other regulatory authorities to publicise instances of egregious supplier practices (for example, exploitation of vulnerable employees).” Mr Andrew said the move was about making those at the top of companies more responsible for ethical sourcing through their supply chains. “When you have large monopolies or duopolies dictating prices at the top of the supply chain, at the bottom of the chain you see people cutting corners,” he said. Top

Bank levy to hit investors, customers, workers

Richard Gluyas, The Australian, 22 May 2017

Modelling by the major banks reveals that the government’s $6.2 billion levy on industry liabilities will have a significant impact on one or more of the three groups that will share the pain — customers, shareholders and bank workforces. With the government taking submissions on draft legislation for the tax last Friday, the big four commercial banks and Macquarie Group are yet to determine the extent to which each group will suffer as a result of the $1.5bn-a-year revenue grab. However, working on the assumption that each of the big four is facing an incremental tax bill in the range of $300m to $350m a year, internal bank modelling shows a big impact on customers, shareholders and staff if they were to bear the entire burden. If shareholders were to take the hit, dividends would be slashed by 5-6 per cent, according to a well-placed industry source. Customers, on the other hand, would face a 6-9 basis point hike in interest rates for all loan products, including business and personal. Finally, if the banks’ huge workforces were targeted, staff numbers would have to be slashed by about 10 per cent — equivalent to 2500 to 3000 people — to offset the higher cost burden. The banks will ultimately determine a fair apportionment between the three stakeholder groups. Treasurer Scott Morrison has made his view clear — that the industry should “absorb” the cost itself. However, as a succession of chief executives has pointed out, there is no such thing as the banks absorbing the impost. ANZ chief executive Shayne Elliott, who has adopted the most conciliatory approach to the tax, said there was no “secret vault” from which the banks could draw to meet their obligations. If the banks were to take no ­action, they would effectively be passing on the entire cost to shareholders through lower profits and, in all likelihood, lower dividends. This would hurt the industry’s natural ally in any campaign it wages against the tax. Mr Morrison has derided the banks’ protests, telling them to “cry me a river” and accusing the industry of having no friends. But even Mr Elliott, who is now urging the banks to move on and form a better relationship with the government, has argued that ANZ has a large group of friends in the form of its 550,000 mum and dad shareholders. The prospect of a 5-6 per cent cut in their dividends that was directly connected to the tax could inflame some passions, particularly among self-funded retirees. The banks are expected to continue lobbying against key elements of the tax, despite failing to secure changes in the draft legislation they saw for the first time last Wednesday after signing strict confidentiality agreements. Contrary to the banks’ wishes, the draft legislation was not broadened to include foreign banks, and there was no sunset clause for the tax in 2020-21, when the budget is forecast to return to surplus. Westpac said it continued to have “significant concerns” about the tax, as outlined in its first submission after a briefing by Treasury officials two days after the budget. “We believe it is an inefficient tax that is targeting a group of companies that are already the biggest taxpayers in the country,” the bank said. “If this tax is implemented, we strongly encourage the government to include foreign banks and a sunset clause to ensure that domestic banks can compete on an equal footing.” National Australia Bank slammed the secrecy surrounding the tax, and said it had worked through the night in the 39 hours that the draft legislation had been available to respond to a budget measure that would have unintended consequences. “We believe the community should have the opportunity to be part of the discussion of what is a significant new tax that will ultimately affect all Australians,” NAB said. “It should be debated in a public forum, such as releasing the final draft exposure legislation for public consultation, as often occurs with other pieces of legislation in the Treasury portfolio.” Top

Mathias Cormann rejects hitting foreign banks with tax

Phillip Coorey, The Australian Financial Review, 22 May 2017

The federal government has rejected a call by Labor and the Nick Xenophon Team to subject foreign banks to the new bank tax, arguing it would defeat the purpose of the levy which was to foster greater competition. Finance Minister Mathias Cormann told ABC radio on Monday that foreign banks were similar in size to the small banks, which were supposed to be advantaged by the the imposition of a 0.06 per cent tax on the liabilities of the big four Australian banks plus Macquarie Bank, all of which qualify for the tax by having more than $100 billion in liabilities. In a dig at Labor, which suggested last week that foreign banks be included, Senator Cormann pointed out that it was Labor icon Paul Keating who let the foreign banks into Australia to improve competition. "A feature of our major bank levy policy design is to level the playing field for smaller banks operating here in Australia, to helping them compete with the major banks," he said. "Foreign banks were first encouraged into the Australian market, for very good reasons, by Paul Keating in order to ensure that we had increased competition in the banking system." He said that still held and no foreign bank operating in Australia "is a major bank in Australia". Another concern within government is that some of the foreign banks are already subject to similar levies on their home country, and would be double taxed if hit with the bank tax in Australia. The position is not unanimous. Last week, Assistant Treasurer Michael Sukkar did not rule out including foreign banks and Queensland MP Andrew Laming says they should be taxed as well. The government can secure the passage of the bank tax legislation with the nine Greens plus one other of the Senate crossbenchers. Prime Minister Malcolm Turnbull said if the legisation did ot pass, the budget would fall short by $6.2 billion and the nation's AAA credit rating would be a risk. Greens banking spokesman Peter Whish-Wilson said last week, and again over the weekend, that his party would consider the change but he did not believe it was workable. He said the foreign bank operations in Australia were on a par with the smaller banks which were meant to benefit from the bank tax and it would be discriminatory to tax one and not the other. Such a differentiation could possible breach trade and services agreements. He said the Greens would not let a squabble on foreign banks hold up the imposition of the bank tax. "But the fundamental thing for us is that whatever we support, it has to be workable, and I have my doubts that a levy on the big four and the offshore banks would be workable. "It would certainly take the pressure off the big banks, and the underlying reason we support a levy on the banks is to get back the implicit guarantee and some money for the explicit guarantee following the GFC." Westpac issued a statement saying the tax, if passed on the shareholders, will cost about 8c per share. It says the impact of the levy on the bottom line represents a cost of around $370 million or around $260 million after tax. "The exact cost will depend on the final form of the new legislation passed and the composition of Westpac's liabilities," it says. "No company can simply 'absorb' a new tax, so consideration is being given to how we will manage this significant impost on the bank.  We plan to consult with stakeholders, including shareholders, on the levy. "To dimension the impact of the Levy for our shareholders, the $260 million after tax cost is equivalent to around 8 cents per share (using the above estimates).  Based on Westpac's 2016 full year dividends of 188 cents per share, this represents 4.3% of dividends paid." Senator Whish-Wilson questined how the government expected to raise $1.5 billion a year if Westpac was paying only $260 million. Meanwhile, Senator Cormann also called on Labor to rethink its opposition to an across-the-board increase to the Medicare levy to fully fund the National Disability Insurance Scheme. This came after leadership aspirant Anthony Albanese broke ranks last week and suggested Labor leader Bill Shorten should have accepted the budget measure and not chosen to fight it by demanding the tax increase apply only to those on incomes over $87,000. On Monday, Fairfax Media reported the extent of the split in shadow cabinet over the decision, Senator Cormann seized on the report saying Mr Shorten should listen to the majority of his shadow cabinet. "We call on Bill Shorten to reflect on the national interest and the public interest instead of continuing his opportunistic political games," he said. Labor MP Peter Khalil told Sky News the decision "was a very good decision" and "demonstrated a very good decision making process". He said it spared 10 million lower paid people from a tax increase. Top

Shorten to end double dip on tax advice

Colin Brinsden, The Australian, 21 May 2017

Opposition Leader Bill Shorten has pinched a phrase from Joe Hockey to describe how rich people manage their tax affairs. He wants to end the practice of paying accountants thousands of dollars to arrange financial affairs and then claim that as a further deduction. "That is a double dip," Mr Shorten said, a slogan used by Mr Hockey when he was treasurer to attack parents who drew parental leave payments from two sources. Mr Shorten told the Victorian Labor conference on Sunday it was an absurd situation where if you have a lot of money you can not only claim a lot of deductions, "but you can deduct the costs of deducting the costs". A Labor government would eliminate the ability to claim more than $3000 on their accountant's costs. "We should not have a taxation system in this country where paying taxation is an opt out benefit for the very wealthy, and that's what we have at the moment," he said. An analysis by The Australian Institute found setting such a limit would go unnoticed by the vast majority of Australian taxpayers. But those people on an income of over $1 million deduct an average of $12,657 for the management of their tax affairs. It compares with the average $378 deducted for tax advice. However, the average of those earning over $1 million but not paying any tax spend over $1 million on tax advice a year. "This loophole is legal but when it is being exploited in such an excessive way it probably doesn't pass the pub test for most taxpayers," the institute's senior economist Matt Grudnoff says. Top

Tax deductions for advice should be capped at $3,000: Australia Institute

Michael Janda, ABC News, 22 May 2017

The Australia Institute think tank has backed a plan by Labor to limit deductions for the cost of managing tax affairs to $3,000.

Under current tax laws, individuals can claim all their expenses related to managing taxation, such as accountancy and legal fees, software costs and the like. The 2014-15 statistics from the Australian Taxation Office showed more than $2.3 billion in deductions were claimed for managing tax affairs. Analysis of the ATO statistics by The Australia Institute found that less than half (47 per cent) of taxpayers claimed a deduction for getting assistance to manage their tax affairs. Presumably the majority used the ATO's online e-tax system without professional help. Of those who did claim a deduction, the average amount was $378, but the median was just $165. That indicates that a relatively small group are making much larger deductions, pulling the average higher. The Australia Institute's analysis showed that those earning more than a million dollars claimed an average $12,657 in deductions for help managing their tax affairs. The average amount claimed dropped off sharply from there as incomes declined.

High earners claim vastly more tax advice deductions

The institute's senior economist, Matt Grudnoff, told RN Breakfast that this was inequitable in two different ways. "There are a number of people who earnt more than a million dollars who paid no tax and, of that group, they were deducting in excess of a million dollars each to manage their tax affairs," he said. The Labor proposal is expected to affect around 90,000 taxpayers, which is only 1 per cent of the total, but still raise just short of $2 billion over a decade. Mr Grudnoff said, aside from improving fairness in the tax system, a cap on tax advice deductions might also help reduce the economically inefficient allocation of resources to tax minimisation. "They hire very clever people and they spend money and their entire job is basically to minimise their tax," he said. "These people aren't producing anything of particular value in the economy and these people are spending large amounts of resources just to reduce their tax. "It'd be far better from a societal point of view if these very clever people were out doing something more productive and these very rich people were paying their fair share of tax."

Accountants defend 'tax planning opportunities'

A major accounting body has defended its members, and their clients' rights to use legal means to minimise tax. Michael Croker, the tax leader at Chartered Accountants Australia and New Zealand (CA ANZ), said groups critical of tax loopholes should advocate closing them rather than limiting deductions for people's legitimate tax planning. "If civil society groups have concerns about tax planning opportunities which exist under the law, they should advocate for changes to the law rather than criticise those who avail themselves of the opportunities which the law itself presents," he wrote in an email to the ABC. Mr Croker said the services accountant provide to their clients in relation to tax advice go far beyond simply minimising their liabilities. CA ANZ have also identified a number of questions about Labor's proposal, which so far lacks important details. Some of the questions include whether the limit will include litigation costs and interest payments to the ATO or costs associated with ATO audits (even where no extra tax liability is found), and whether will there be a carve out for small businesses. Chartered Accountants also argue that the deduction limit may dissuade some people from seeking private rulings from the ATO or voluntarily disclosing some tax issues via their agent. Top