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Archive: November 2012

This section provides a selection of media items from November 2012.


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TREASURY TARGETS SUPER TAX BREAKS

Jacob Greber and Sally Patten, The Australian Financial Review, 28 November 2012

Treasury Secretary Martin Parkinson has cast doubt over whether the Gillard government should keep ¬doling out billions of dollars in super¬annuation tax breaks that favour wealthy individuals at the expense of most Australians.
In an unusually blunt warning, the nation’s top economic bureaucrat said Australia’s long-term budget woes were putting huge pressure on the sustainability of the super ¬system.
His comments are the strongest signal that Treasury is urging the government, which is struggling to deliver a budget surplus, to cut super concessions in next year’s budget.
The comments may fuel speculation that policymakers are preparing voters to begin winding back concessions, which Dr Parkinson described as “a very significant cost”.
“With the Commonwealth budget coming under increasing pressure over the next few decades, the fiscal sustainability of all policies, including superannuation, will demand greater public scrutiny,” he said.
“Existing concessions are seen to favour some at the expense of the majority.”
Treasury estimated last month that the budget forgoes more than $30 billion a year in tax revenue through super, a figure it expects will hit $45 billion by 2015-16, overtaking the capital gains tax break on housing as the biggest single concession.
industry cool on comments
The superannuation industry reacted cooly to the Treasury secretary’s comments. It said changes could hurt savers in retirement and urged the government to avoid tinkering.
Superannuation Minister Bill Shorten considered cutting super tax breaks in last month’s mid-year budget review and backed down after complaints from the industry.
Former Prime Minister Paul Keating, superannuation’s primary architect, suggested compulsory contributions could be raised to 15 per cent and the last 3 per cent funnelled into a government pooled insurance fund.
The fund would finance health and aged-care costs later in life.
Alternatively, retirees would be forced to set aside more of their savings.
Mr Keating said the “promise of superannuation” as a way of funding a “good retirement” had ended because people were now living longer.
Mr Keating’s and Dr Parkinson’s remarks were delivered to the Association of Superannuation Funds of Australia conference in Sydney on Wednesday, as the Senate passed the Fair Work Amendment Bill, which will give the industrial tribunal powers to decide which funds serve as the default in awards.
spending cuts essential
Opposition financial services spokesman Mathias Cormann said the law was “anti-competitive, conflicted” and “inappropriately favours union-dominated industry super funds”.
Dr Parkinson said the rising cost of healthcare and plans for a national disability scheme would hit the budget in coming years unless governments cut spending or raised taxes.
“There is widespread public expectation that governments will supply increasingly costly health and aged care, and deliver other worthy programs like the National Disability Insurance Scheme,” he said.
“Basic arithmetic will tell you that these new costs cannot be met without raising more revenue or cutting expenditure in other areas.”
The speech came less than a day after the Organisation for Economic Co-operation and Development told the Gillard government to fix the tax system or expose Australians to a crunch in living standards after the end of the commodity price boom.
The report by the Paris-based OECD highlighted that living standards could stagnate or even fall without productivity-boosting reforms to tax, infrastructure and innovation.
Dr Parkinson’s remarks echo those of a growing list of prominent policy makers, business leaders and academics who want the government to consider comprehensive tax reform, including the goods and services tax.
calls to look elsewhere for cuts
Government revenue as a share of gross domestic product has held “well below” its mid-2000s peak, according to Dr Parkinson. “At the same time, expectations of government service provision at all levels continue to rise.”
In a warning about the impact of Australia’s ageing population, Dr Parkinson said demographic change and falling participation rates would affect economic growth just as costs for services rose.
“This is not distant: it can already be seen in the budget numbers,” he said.
Ian Silk, the chief executive of the $46 billion AustralianSuper fund, said given that super created long-term benefits for the budget, “there were better opportunities for Treasury to look at”.
Tony Lally, the chairman of ASFA and chief executive of SunSuper, said: “Our problem is that super is seen as a short-term fix for budgetary pressures or electoral popularity.
“The government wouldn’t dream of changing the GST overnight. We want that kind of debate in relation to superannuation.”
Russell Mason, head of super at professional services firm Deloitte, said reducing tax incentives on super would hurt savers in retirement.
“We can sympathise with the pressures with a deficit. However, we need to think long term and that means people having sufficient assets in retirement to lead a comfortable lifestyle. The only way that is going to happen is if you raise the super guarantee dramatically or incentivise people through the tax system.”

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ABC/WASHINGTON POST POLL: TAX THE RICH, KEEP DEDUCTIONS

Kevin Robillard, Politico, 28 November 2012

The American public overwhelmingly favors raising taxes on the rich as a way to pay down the deficit, while opposing a hike in the Medicare eligibility age or eliminating tax deductions, according to a poll released Wednesday.
Six-in-10 Americans support raising the marginal tax rate on income above $250,000, according to a Washington Post/ABC poll. Only 37 percent would oppose a tax hike. Seventy-three percent of Democrats and 63 percent of independents support such a move, while 59 percent of Republicans oppose it. Even those making over $100,000 a year support a hike, 57 percent to 42 percent.
Increasing taxes on the wealthy was a key plank in President Barack Obama’s reelection platform.
Less popular is a plan floated by Mitt Romney and some other Republicans to limit deductions. Only 44 percent of Americans support the idea, and 49 percent oppose it. That idea is actually least popular among Republicans, with 51 percent rejecting it.
Americans also oppose increasing the Medicare eligibility age from 65 to 67. Two-thirds of Americans oppose the change, and only 30 percent support it. Independents are more open to the idea than Democrats or Republicans, with 34 percent supporting it compared with 27 percent of Democrats and 30 percent of Republicans.

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 REFORM TAX OR RISK LIVING STANDARDS: OECD

Jacob Greber, The Australian Financial Review, 28 November 2012

The federal government has been told by the Organisation for Economic Co-operation and Development to fix the tax system or expose Australians to a crunch in living standards from the end of the commodity price boom. Living standards could stagnate or even tumble without productivity-enhancing reforms to tax, infrastructure and innovation, the Paris-based research group says in its latest economic assessment. “Sustaining a robust rise in the standard of living will entail bolstering productivity by pursuing reforms in taxation, infrastructure and innovation,” it says.

The sharply worded warning from the organisation that represents the world’s richest economies is a wake-up call for the government, which has seen its minerals resource rent tax so far fail to generate the ¬revenue it was expected to.

The Australian economy will grow 3 per cent in 2013, which is less than the 3.7 per cent expansion forecast in May, the OECD says in its twice-yearly report on the global outlook.

Unemployment heading up, says OECD

Unemployment is forecast to average 5.5 per cent next year, up from 5.2 per cent this year. The OECD’s relatively optimistic outlook for Australia contrasts starkly with its assessment for other rich nations, which it says are “weakening again’’. It expects growth of 1.4 per cent overall next year in the 34 rich member-economies, down from 2.2 per cent forecast in May.

“The risk of a new major contraction cannot be ruled out,” it says.

The OECD slams European and US policymakers for eroding confidence through failures to take both “short-term action” and a lack of “credible long-term strategies”.

“Over the recent past, signs of emergence from the crisis have more than once given way to a renewed slowdown or even a double-dip recession in some countries,” OECD economist Pier Carlo Padoan said.

The OECD expects the euro-zone economy to contract for the second successive year in 2013 and is warning that the currency bloc “could be in danger” without progress by the region’s policymakers. Growth in the US is forecast at 2 per cent next year, down from a May estimate of 2.6 per cent. Japan’s economy is expected to expand 0.7 per cent, about half the growth expected in May.

Greece is expected to be the worst performer among the membership, shrinking 4.5 per cent next year. The Spanish, Italian and Portuguese economies are also predicted to contract. The OECD is most upbeat on Chile’s economy, forecast to expand 4.6 per cent.

The organisation called on some central banks to ease monetary policy and urged China and Germany to raid government coffers should growth disappoint.

In Australia earlier this month the Gillard government rejected calls for a root-and-branch review of taxation, including the goods and services tax, despite mounting concern that the current system is unsustainable.
Former NSW premier Nick Greiner, who was chosen to help review how the GST is shared between states, said this month the tax had failed to keep up with demand.

A spokesman for Treasurer Wayne Swan strongly rejected the charge the government had dropped the ball on tax reform, pointing to productivity-boosting measures such as instant asset write-offs and raising the tax-free threshold to at least $21,000.

Swan rejects claims of squibbing tax reform

He pointed to an annual 3.7 per cent trend increase in labour productivity in the June quarter.

The OECD welcomes the Reserve Bank of Australia cutting official interest rates to a near-emergency low of 3.25 per cent and says it expects monetary policy to ease further.

Amid increasing alarm in the organisation about the risks posed by Europe and the US fiscal cliff, the OECD forecasts Australia’s economic growth will fall slightly below its historic potential in 2013 and 2014.

Mr Swan said the OECD report demonstrated the resilience of the economy in the face of challenging global conditions.

The “report confirms that, unlike most other OECD economies, Australia’s economic fundamentals remain strong, with solid growth, low unemployment and contained inflation”, he said.

We’re Outperforming the world, says Swan

Mr Swan said the OECD had joined the International Monetary Fund in expecting Australia to “outperform every single major advanced economy – and the OECD as a whole – over the next two years”.

“In 2013 alone, Australia’s growth is expected to be more than double the average for OECD economies.”
The organisation says in its report, released late on Tuesday, that the business climate outside the resources and transport industries is “challenging, particularly in construction”, while the strong dollar and government budget tightening will depress the economy this financial year. It calls on Mr Swan to consider abandoning his $1.1 billion surplus goal if the economy deteriorates “significantly”.

Mr Swan’s return to surplus this financial year “should be less restrictive than it would first appear”. It says this is because much of the shift to surplus was driven by money shuffles, declaring lost bank accounts as revenue, and cutting defence and aid spending, none of which will have a direct impact on domestic growth.

The OECD says the Reserve Bank’s rate could stimulate housing investment, while spending by mining companies is expected to “expand vigorously” in 2013.

The OECD’s warning on productivity adds to a chorus of high-profile bureaucrats and business leaders who have expressed concern about sources of future economic growth once the mining investment boom ends in the next year or two.

Treasury secretary Martin Parkinson, who speaks in Sydney on Wednesday, and departing Productivity Commission chairman Gary Banks have emphasised the need for productivity-stoking reform as the easy gains from the commodity price boom fade.

At the same time, Australia faces its own version of a fiscal crunch this decade as the ageing workforce erodes government tax revenues just as costly demands for healthcare, education and a national disability insurance scheme escalate.

Prime Minister Julia Gillard and Opposition Leader Tony Abbott last week ruled out raising or widening the GST despite ¬signals from the welfare lobby it was willing to consider an increase if there were other concessions.

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AMAZING INVISIBLE TAX MAN

Adam Creighton, The Australian, 28 November 2012

“THE art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the least possible amount of hissing.”

It was not until the 20th century that the advice of King Louis XIV’s famous finance minister, Jean-Baptiste Colbert, was put into practice on a grand scale.

The ability of modern governments to raise sums of taxation that would have made the eyes of 17th-century European monarchs water — almost half of national income in most of Europe and about one-third in Australia — relies largely on sleight of a hand.

Since 1942, when World War II was putting huge demands on government, personal income tax in Australia has been withheld by employers, denying workers the chance to spend, savour, indeed to miss, a big chunk of the fruit of their labour.

On ABC1′s Q&A program on Monday night, a large fraction of the audience said they would happily pay more tax, yet how many were conscious of how much they actually paid? Australians compare their gross annual incomes, but few can readily recall how much of it is tax.

Companies are set to pay $73 billion this financial year, yet the real burden of company tax falls on employees, who earn lower wages; customers, who pay higher prices; and owners, whose dividends are lower. Only people pay tax.
Anyone who thinks the scope of government in Australia has grown beyond an economically or morally desirable level should strenuously resist calls to increase the rate or broaden the base of Australia’s GST, which is projected to raise $50bn this financial year.

For all their intellectual pedigree and economic efficiency, consumption taxes such as the GST are an even more insidious mechanism for boosting tax revenue beyond what taxpayers would wittingly endure.

The Rudd government passed the Trade Practices Amendment (Clarity in Pricing) Act in 2008, quietly banning businesses from quoting prices exclusive of GST. Ostensibly to make life easier for shoppers, it also stamped out the possibility they would be reminded they were paying tax.

Julia Gillard and Tony Abbott have ruled out any change to the GST, spooked by polling that shows the bulk of Australians are overwhelmingly opposed. But as it becomes increasingly clear the federal government’s growing list of electorally appealing plans — the National Disability Insurance Scheme, extra funding for schools and expanded public dentistry, for instance — is unaffordable, public opinion may shift.

The GST pool is due to grow to $57.5bn by 2015, but the increased propensity of Australians to save since the global financial crisis — and their changing spending patterns — has slowed its growth, prompting academics, former bureaucrats and politicians to make the case for a super-charged GST.

Australia’s savings rate has jumped from about zero to 10 per cent since the GFC, and the share of health and education in household budgets has increased by about 25 per cent.

Carving up the GST pie is proving as vexing as the size of the pie. Earlier this month, the government received a report from company director Bruce Carter and former premiers Nick Greiner and John Brumby on how better to distribute GST revenue to its ultimate beneficiaries — the states. Western Australia’s resources boom has seen its share of the GST fall to about 55c in the dollar.

Andrew Murray, a former West Australian senator for the Democrats who negotiated amendments to the Howard government’s original GST package in 1999, tells The Australian the original proposal excluded about 20c in every dollar of spending.

“We took it to 25c by insisting fresh food be excluded, too, but the Liberals’ original version already exempted education, health and financial services,” he adds, pointing out that since then the fraction of consumption spending that attracts the tax had fallen to about 65c in every dollar.

Any practical or political impediments to expanding the GST pale in comparison with the need to avoid it becoming a giant money pump that ratchets up government spending.

“Government is a revenue-hungry beast,” says Geoffrey Brennan, professor of philosophy at the Australian National University and co-author of a book, The Power to Tax, with Nobel prizewinner James Buchanan that helped establish the “public choice” school of economics, which considers governments and bureaucrats to be as self-interested as the people they govern.

“Taxes that are relatively invisible are not good taxes because they lead to government by stealth,” he adds, arguing any extra GST revenue will be spent mainly on programs of questionable merit, and any income tax cuts will be token.

“Government will take whatever ‘efficiency gain’ the tax brings and spend it,” he says.

Robert Carling, a former Treasury official and research fellow at the Centre for Independent Studies, agrees, saying: “Most economists think GST reform is a lay-down misere.” He argues cuts to personal income tax stemming from increases in consumption tax have been short-lived. “The marginal income tax rate most Australians paid was cut from 34 per cent to 30 per cent when a GST was introduced in 2000, but it is now 34 per cent once again,” he points out.

Taxes arising from “some abstracted exercise within the political naivete of the economist’s study”, as Brennan wrote in 1980, are likely to have unintended consequences because economic theory takes no account of politicians’ incentives. “The cost of government ought to be visible; democracy works best with transparency,” says Brennan.

Britain introduced its value added tax at a rate of 10 per cent in 1973, a similar tax to Australia’s GST. Yet successive chancellors of the exchequer in Margaret Thatcher’s government increased the rate to 15 per cent, then 17.5 per cent. Last year, George Osborne lifted the rate to 20 per cent to help shore up Britain’s haemorrhaging public finances.

Across the 29 countries in the OECD that have introduced consumption taxes, the average rate is now 16 per cent, 4.5 percentage points higher on average than when these taxes were introduced.

Among rich countries only the US has resisted introducing a broad-based consumption tax, although its states levy sales taxes of varying size. The greater transparency of sales tax — they are often excluded from the advertised price at the point of sale, thus ensuring they are more salient to buyers — appears to have curbed the ability of politicians to raise them. The highest sales tax in 2010 in the US was 7.25 per cent in California.

It is true Australia relies less on consumption tax than almost any other developed country, but most of those are in dire fiscal straits.

Europe, the pioneer of consumption taxes, is mired in an interminable debt crisis. Far from helping to restore public finances to balance, in Europe they appear to have underpinned the growth of government.

Academic arguments for relying more on consumption taxes such as the GST and less on other taxes are compelling. Income taxes distort people’s decisions in favour of spending rather than saving; consumption taxes don’t. For example, two people earn $60,000 and pay the same level of income tax. One person spends all their disposable income, while the other chooses to save $5000, preferring to consume later.

The saver is taxed more than the spender simply because she pays income tax on the earnings from her $5000.
The government’s 2010 Henry review of taxation calculated that ordinary taxpayers who put their money in the bank pay a real marginal tax rate of about 50 per cent.

A new research paper from the International Monetary Fund distils the logic empirically, arguing a percentage point shift from income taxes to consumption and sales taxes would boost economic growth by about 0.2 percentage points in the long run.

The Henry review showed that GST was one of the least damaging taxes to an economy. Increasing it entailed an economic loss of about 10c for every dollar, while lifting personal income tax was more than three times as damaging to the economy.

Analysis by KPMG produced in the lead-up to the government’s tax forum in October last year, which excluded examination of the GST, modelled the impact of lifting the GST and abolishing state insurance, vehicle and property transfer taxes, widely regarded to cause the most economic damage.

“Because the efficiency costs of raising the GST are lower than the efficiency benefits of abolishing the inefficient taxes, all the reforms lead to an overall higher standard of living,” pointing to a $4.7bn boost to national income from lifting GST to 15 per cent.

“The GST does not have a large impact on the pattern of consumption and thus has a relatively small impact on economic activity,” the authors write, alluding to a longstanding principle of economics that it is better to tax behaviour that is relatively immobile.

It is easier to avoid work or hide income from the tax office than to avoid buying goods and services.

John Piggott, professor of economics at the University of NSW and one of the authors of Australia’s Future Tax System review, points out that increasing the GST is one way of taxing Australia’s growing pool of retirees, who are relatively (and increasingly) lightly taxed compared with workers. “Broadening the base of the GST is the economist’s first instinct because it is more efficient and simpler,” says Piggott.

In practice, however, it may be difficult to extend the GST much beyond fresh food, which Murray concedes may now be an acceptable compromise provided it is taxed at a lower rate.

Neil Warren, a taxation professor at UNSW, says “health and education are provided to consumers with zero or heavily subsidised prices, making calculation of GST very difficult”.

“These areas, along with financial services, were excluded from both John Hewson’s Fightback GST in the early 1990s and also Paul Keating’s proposed consumption tax from the 1980s,” he adds.

Warren says putting GST on financial services is trickier again, as interest rates are not amenable to GST.
Carling says advocates of GST reform in Australia need to be clearer about whether they are advocating increased tax and commensurately increased spending or revenue-neutral efficiency tax reform.

Australia’s tax system is a huge burden on economic activity and enormously complex. Australia levies 125 taxes, although a handful of them raise the bulk of the revenue. Rationalising existing taxes and making them simpler and more transparent should be the first priority of reform, rather than increasing them.

If any change to the GST occurs, it would be better to broaden the base rather than lift the rate. The 10 per cent rate serves as a political dyke holding back further rounds of feckless spending.

The aversion of Australia’s politicians to expanding the GST should be encouraged, rather than criticised, even if their forbearance stems from self-interest alone.

As John Stuart Mill wrote: “The interest of the government is to tax heavily: that of the community is to be as little taxed as the necessary expenses of good government permit.”

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CHANGE SUPER TAX, NOT RATE: THINK TANK

The Sydney Morning Herald, 26 November 2012

The federal government should abandon plans to increase the compulsory superannuation guarantee for workers, an independent think tank says. Instead, the Centre for Independent Studies (CIS) believes there should be reforms to the way super is taxed.

As part of the government’s minerals resource rent tax (MRRT) package, the compulsory super rate will rise incrementally over a number of years from nine per cent to 12 per cent, starting with an increase to 9.25 per cent on July 1, 2013.

But the CIS says increasing the rate won’t address the many problems with current super system.
“Double-dipping – where lump sum superannuation benefits are dissipated to maintain age pension eligibility – is just one problem,” research fellow Stephen Kirchner said in a statement.

He said Treasury projections show what when the superannuation system reaches maturity in 2040, there will only be a small reduction in the number of people eligible for the aged pension.

In the meantime, every dollar forced into super will come at the expense of take-home pay, hours worked, or employment, creating financial constraints for low-income households, Dr Kirchner said.

Instead, Dr Kirchner believes the taxation of super should be reformed so that only super benefits are taxed, not contributions or earnings.

“This would place the taxation of super on a similar basis to the taxation of saving via housing, making it a more attractive vehicle for voluntary saving and reducing the need for compulsory contributions,” Dr Kirchner said.
“Superannuation benefits receiving this tax treatment should be subject to compulsory income streams rather than being taken as lump-sums to solve the double-dipping problem.”

He believes such reform will improve retirement income, reduce future demands on the federal budget, and make super saving less vulnerable to future government tinkering within the existing taxation arrangements.

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TV NETWORKS URGE TIGHTER TAX RULES ON ONLINE GIANTS

Anglea Macdonald-Smith and James Chessell, The Australian Financial Review, 26 November 2012

The commercial free-to-air networks have lobbied the government to impose tougher tax rules on inter¬national online giants, including Google, Apple and Facebook, in an attempt to create a “level playing field” beyond the media reforms set to go before cabinet as early as today.

It is understood that senior executives in the sector have raised their concerns about tax in recent discussions with government officials, including Communications Minister Stephen Conroy and his office.

The main priority of the powerful free-to-air lobby is to have licence fees reduced and the scrapping of reach rules preventing mergers with regional broadcasters. But they have argued that lower tax rates have handed an unfair advantage to online companies including Google which are grabbing an increasingly large share of the $12 billion local ad¬vertising market.

“The point we have always made is that there needs to be a level playing field for media regulation,” said Nine managing director and chairman of Free TV Australia, Jeffrey Browne.

Free-to-air networks receive government protection in the form of anti-siphoning rules that prevent pay TV from exclusively broadcasting key sports including AFL, NRL and international cricket.

However, they argue that local content rules requiring the generation of more expensive domestic programs justify the anti-siphoning rules. Pay TV operator Foxtel is not bound by the local content rules.

Free TV Australia chief executive Julie Flynn would not comment on the organisation’s stance on tax payments for Google and Facebook, but pointed to the need to ensure fairer competition between free-to-air broadcasters and their new rivals.

“It puts a lot of pressure on Aust¬ralian companies, on broadcasters in particular, if the people they are competing against are not regulated in the same way, and it seems don’t have to pay tax in the same way either,” Ms Flynn said. “There needs to be a fairer, balanced regulatory playing field.”

The differences in tax treatment by Australian and international companies were highlighted last week by Assistant Treasurer David Bradbury, who told a conference in Sydney how US technology giants such as Google use complex structures to shift profits to lower-tax countries.

The government also recently released proposed changes to toughen tax avoidance laws.

The package of media laws due to go before cabinet is expected to include a permanent 50 per cent reduction in the broadcasting licence fees paid by commercial TV networks. For the last 2½ years the networks have had a 50 per cent rebate on the original 9 per cent fee they pay on gross revenues above normal taxes. They have argued that the overseas standard of 1 per cent is more appropriate.

Meanwhile, whether the initial media reforms will go before cabinet this week remains in doubt amid uncertainty whether Mr Conroy needs to get cabinet’s sign-off on the licence rebates and, if so, whether he tries to insist that happens only as a broader package of reforms.

While industry sources want the licence fee issue to be settled this year, some in government suggest the existing rebates could be rolled over, removing pressure on the timetable.

More contentious elements of the reforms, such as the public interest test and how that may apply, are expected to be left out of the first package of regulations in any case.

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TAX PLAN COULD BACKFIRE, RIO TINTO WARNS

Gareth Hutchens, The Sydney Morning Herald, 23 November 2012

RIO Tinto says the federal government’s plan to crack down on the tax minimisation strategies used by global companies such as Google and Amazon could ”come back to bite” Australia if other countries started doing the same.

The comments by the mining company came as federal Assistant Treasurer David Bradbury cautioned that Australia’s corporate tax base risked becoming unsustainable if authorities failed to keep pace with dramatic structural changes in the global economy.

Mr Bradbury outlined plans to convene a specialist reference group of business leaders, tax experts, academics and community representatives to examine measures to combat the practice.

He said the digital disruption brought about by the internet and changes in technology had transformed the way economic activity was occurring and these changes were putting pressure on the corporate tax system in Australia.

”Increasingly, governments are discovering the lack of effectiveness in the digital age of international tax concepts created for the industrial age,” Mr Bradbury told an Institute of Chartered Accountants national tax conference.

He proposed that corporate tax should be based on profits that reflect the ”economic activity” attributable to Australia. Currently corporate tax in Australia is levied on the source of activity.

Company documents filed with Australian, European and Asian authorities show the Australian arms of Apple, Google and eBay are part of complex networks of subsidiaries held by their US parents through intermediary companies in tax havens.

In April, the Tax Office hit Apple with a $28.5 million bill for back taxes. Google Australia declared a loss of $3.9 million last year, and paid just $74,176 in Australian tax, despite generating revenue of more than $1 billion here.

But Rio Tinto’s tax head for the Asia-Pacific region, Ross Lyons, said if the government started tinkering with the current source-based tax regime, and instead focused on where income was generated to try to capture companies such as Google, then it could end up costing the government. Speaking after the event, Mr Lyons said from Rio’s perspective, the big miner did not have any income sourced in China, and that’s why Rio pays a very low amount of income tax: because that’s the way a source-based tax system works, and the Chinese accept that.

”[But] if the government wants to start unravelling that sort of concept in Australia to try to tax foreign taxpayers on the basis that they should be paying more tax because they’ve got sales in Australia, watch out, [because] other countries might start doing the same to us,” he told BusinessDay.

He said if the Chinese government suddenly said it would start taxing some of the income that Rio booked in Australia and paid tax on in Australia then companies like Rio could make use of the double tax agreement between the two countries.

”We could claim credit relief in Australia for the Chinese tax paid, so the loser would be the Australian government at the end of the day, because the tax agreement makes it quite clear that you don’t tax income twice,” he said.

Mr Lyons said the Henry tax review offered a better alternative for what the government was trying to do. ”The Henry review actually said [to] look at a more modern expenditure-based tax that deals with e-commerce, and deals with destination as to where the business spends its money. I think that kind of idea is what the government needs to start looking at.”

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LABOR TARGETS DIGITAL GIANTS FOR TAX

Katie Walsh, Australian Finacial Review, 22 November 2012

The federal government plans a tax crackdown on multinationals and has taken the extraordinary step of identifying two companies it believes are using complex structures to shift profits to lower-tax countries, US technology giants Google and Apple.
Assistant Treasurer David Bradbury said multinationals that failed to pay their fair share of tax were “free riding on the efforts of others” by benefiting from government-funded infrastructure, human capital and institutions.
If unchallenged, they threatened to “erode Australia’s corporate tax base”, he said.
“If enormous multinational corporations aren’t paying their fair share of tax on economic activity in Australia, then that’s not fair game,” Mr Bradbury told an Institute of Chartered Accountants tax conference in Sydney.
Until a month ago the government promised a cut in the corporate tax rate through an end to some corporate tax breaks. That process failed. Now, it is scrambling to find revenue to deliver budget surpluses.
The government last week released proposed changes to toughen the tax avoidance laws. Many fear they will force companies to maximise their tax bills against commercial sense.

New laws will give ATO unprecedented powers
Yesterday, Mr Bradbury went further and released new transfer pricing laws that experts say will give the Tax Office unprecedented powers to restructure cross-border transactions to extract more tax.
Treasury now plans to clamp down on methods used by multi¬national companies to dodge tax, including what is known as the “Double Irish Dutch Sandwich”, reportedly adopted by Apple and Google.
Estimates put Google’s Australian tax bill at $74,176 or $781,471 for last year, despite generating an estimated $1 billion-plus in revenue. The company is based in California.
Governments around the world are trying to capture more revenue from multinationals. Mr Bradbury cited Starbucks in the UK, where there was community outrage when it emerged it was paying very little tax because it made large royalty payments to related companies overseas.
“I’m not a coffee connoisseur, but I have difficulty in understanding that such a huge amount [of royalties] could be loaded up into the intangibles of a company,” he said.
Business groups backed the move but criticised Mr Bradbury for singling out specific companies.
Bradbury criticised for naming Google and Apple
Australian Industry Group chief executive Innes Willox said he was deeply concerned about the identification of specific taxpayers. There was no suggestion they had broken any law, he said.
“These points could have been made just as powerfully without attracting adverse publicity to any individual businesses,” he said.
A Google spokesman said the company made a “significant contribution to Australia’s economy by ¬helping thousands of businesses grow online, providing services to millions of Australians at no cost, as well as employing 650 people locally. We abide by all Australian tax laws.”
Apple declined to comment.
Experts said the plan, if it was ever executed, was likely to involve radical changes to the tax system.
“This is a complex web of international treaties, source and jurisdictional tax issues and transfer pricing,” said Tax Institute senior tax counsel Robert Jeremenko. “It’s certainly not an easy equation to solve.”
Treasury’s efforts will be helped by a group of business people, tax professionals, academics and representatives from the community sector. Treasury revenue head Rob Heferen, who was on the government’s recent Business Tax Working Group, will lead the efforts.
Right time to tackle the issue
Corporate Tax Association executive director Frank Drenth said it might be the right time to tackle the issue, given similar efforts under way in other nations, including the UK.
“He is right: both the income tax system and the GST system are having problems with digital transactions,” he said.
Mr Drenth was also on the business working tax group which tried to lower the corporate rate. He denied the issue could have formed a part of that group’s mandate. It would not have had the time, he said; and efforts to address the problems associated with the digital shift were more about protecting revenue than getting new revenue.
“The scoping group is looking at a very specific issue, that is very different from what the working group was looking at,” he said.
Tax experts said that for Australia to act unilaterally, it would mean imposing withholding taxes on companies such as Google for Australian sales. That would be hard to enforce, Mr Drenth said, and a global approach was needed.
“You could chop up the profits of an enterprise, wherever they’re based, according to where their sales are,” he said. “That would completely override the current source system [and] would require a lot of careful consideration.”
Ernst & Young partner Paul Balkus said to unilaterally tax the transactions would turn the industry into one of the “sins” subject to excise: “So you would have alcohol, tobacco, gaming and ‘digital stuff ’.” That would increase the costs of doing business and end up being passed on to consumers, he said.
An alternative would be to amend double tax treaties to divide up taxes on the profits – a process that would take a long time, he said – or to create new global rules to apply to any new treaties.
Changing source basis could be problematic: Rio
Rio Tinto’s tax head for the Asia-Pacific region, Ross Lyons, in the audience at the event, said changing the long-standing source basis of taxation in Australia could create problems, particularly considering the more than $100 billion of exports to China sourced from Australia.
Rio Tinto paid about 12 per cent of all big-business company taxes in 2011, he said.
“So I’m not so sure there’s a problem with multinationals across the board.
“The reason we’re paying so much Australian tax is we sell our product into China and Australia has a source-based [tax] system,” he said. “Presumably Amazon has the same problem, where they’ve got sales in the UK to elsewhere.”
Mr Bradbury referred to the “Double Irish Dutch Sandwich”, which involves making sales through a subsidiary in Ireland and funnelling royalties through Holland and tax-free Bermuda.
“I think a lot of people in the Australian community would be very disturbed to understand that some of the structures described are undertaken,” he said.
“If some of the most profitable companies are not paying their fair share, then by definition that means somebody else is left to carry the can,” he said. “That might be another company or, more concerning, ‘mums and dads’ that have to share a bigger burden.”
He said the newly released tougher transfer pricing rules, which govern the amount of tax paid on cross-border transactions, would help to tackle the problem in part.
Tax experts said it would not address the problem at hand.
“The concern they have with high-tech companies has to do with the potential disconnect in terms of how revenue originates from Australia,” Mr Balkus said.
Calls are also growing to attach GST to currently exempt digital imports.
In his speech, Mr Bradbury said the point was not to “single out Google for criticism”. It was an important innovator and played a significant role in the economy, he said. He named the company and others – a break from usual practice – because there was a “strong public interest in drawing attention to practices that have the potential to undermine the future sustainability of Australia’s corporate tax base”.

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CHALLENGES AWAIT AUSTRALIA’S NEW TAX COMMISSIONER

Miranda Stewart, The Conversation, 19 November 2012

In January 2013, Mr Chris Jordan AO starts as Federal Commissioner of Taxation in charge of the Australian Taxation Office (ATO). He follows Mr Michael D’Ascenzo AO, who was not reappointed after his seven-year term.
Mr Jordan will be only the 12th Commissioner and only the second external appointment in the ATO’s history. All appointments have been male. The first Commissioner, George McKay, appointed from the New South Wales public service in 1910, seems to have died from overwork in 1917 after administering on a shoestring the federal land tax and income tax introduced in 1915 to help fund World War I. The next Commissioner, Robert Ewing, appointed an assistant commissioner to help. In his 22 year innings until 1939, Mr Ewing oversaw a new federal estate tax, payroll tax, and the turbulent time before World War II, when the federal government took over the income taxes of the States.
Mr Jordan is a former chairman of KPMG and company director. His appointment has been widely welcomed especially by business and professional groups. He has been on the Board of Taxation since its establishment in 2000 and was appointed chairman in June 2011. His early working life as a policeman may also stand him in good stead.
So what are the challenges facing Mr Jordan in his new appointment?
Today, the ATO is an organisation of 25,000 people that collected net tax of $273 billion in 2010-11. Mr Jordan will be responsible for the income tax, GST, fringe benefits tax, petroleum and mineral resource rent taxes, medicare levy, fuel taxes and higher education levies. The ATO also administers parts of the superannuation system, child support, the Australian Business Register and Valuation Office.
The ATO is under constant pressure to increase revenue collection. Most revenue is collected through its highly effective income tax and GST withholding systems. These ensure electronic transfers from taxpayers to government coffers throughout the year. The ATO manages these systems at a remarkably low administrative cost of a little under $3.5 billion a year, a cost to revenue ratio of about 1 per cent. This does not include compliance costs of taxpayers and business and we know that these are significantly higher than direct governmental costs of tax collection, and regressive in their impact.
Mr Jordan’s main responsibility – and biggest challenge – is to keep this efficient organisation running well. He will have to manage his staff so that sick days are kept to a minimum and make sure the next computer roll-out stays on budget. He has lost one valuable support in this task, as Jennie Grainger, former Second Commissioner in charge of Compliance, has just taken up an appointment in Her Majesty’s Revenue and Customs in the UK. Several other leading ATO staff are also retiring, including senior legal experts.
Some have suggested that Mr Jordan can – and should – lead a change in ATO culture, presumably to make it more business and taxpayer-friendly. One commentator, for example, suggests that he will better understand the plight of small business.
It is true that the ATO has a strong organisational culture. Being the subject of widespread popular dislike will do that. ATO staff also understand their importance to government. Still, caution is needed: that strong culture contributes to the morale of ATO staff, and that helps keep the revenue rolling in.
Mr Jordan has demonstrated his effectiveness in liaison with government and business. He will no doubt strengthen the work begun by Mr D’Ascenzo in engaging with taxpayers and the tax profession about most aspects of administration and interpretation of tax law.
But it is important that the Commissioner of Taxation is – and is perceived to be – absolutely independent both of the government of the day, and of undue professional or business tax influence.
Mr Jordan faces the challenge of handling revenue collection in relation to high wealth individuals, including investigations into international tax evasion started under Mr D’Ascenzo. He must oversee controversial large corporate audits that challenge cross-border transfer pricing activity and tax planning. He becomes Commissioner in an era of unprecedented and expanding inter-governmental tax cooperation.
Mr Jordan will be in charge of new risk-based audit, settlements, and real-time information disclosure arrangements with large business. UK Secretary of Taxation Mr Dave Hartnett was at the forefront of these developments. He recently retired amid public controversy that he took “enhanced relationships” with big business too far. Within limits, a prickly relationship between business, the profession and the Commissioner is probably healthy. It won’t be Mr Jordan’s job to be liked.
What of Mr Jordan’s role in tax reform? That is only a small fraction of the job. In 2002, Treasurer Peter Costello moved the tax legislation function into Treasury. Mr Jordan will keep his seat on the Board of Taxation, but only as an ex officio member. He may be able to strengthen the voice of the core administrator in Treasury’s tax law reform processes. That would be a good thing. But his main job is to keep that revenue – about $750 million per day – rolling in to fund government to do what the public wants it to do.

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TAX PLAN PROVIDES CFOS WITH SOME CERTAINTY, AT LAST

Sally Rose, The Australian Financial Review, 23 November 2012

The government has finally released long-awaited overhaul of transfer-pricing rules and the anti-avoidance provisions in the income tax act, in its latest push to shore up the tax base.
On Thursday, Assistant Treasurer David Bradbury announced the release of an explanatory memorandum and exposure draft of the new transfer-pricing rules. It followed the release last week of a delayed exposure draft on the anti-avoidance rule that was to be introduced to parliament in October.
The new material is being digested as the government comes under pressure to respond to reports that Google and Apple are using complex international tax arrangements, such as the “Double Irish Dutch Sandwich”, to dodge tax.
Much to the relief of corporate accountants, the new anti-avoidance rules will not be backdated to March when they were first announced – but only to November 16, the date the exposure draft was released.
Even though both the transfer-pricing and anti-avoidance rules are open for consultation, it is unlikely there will be significant changes to the final drafts.
Transfer-pricing rules try to minimise the ability for multinationals to shift profits into low-taxing jurisdictions. The anti-avoidance provisions in Part IVA of the Income tax Assessment Act are aimed at preventing transactions done solely to avoid tax.
The advantage of making the rules applicable from the start of the consultation period is that it will make it easier for CFOs to get decisions from lenders because tax positions will be certain, says Paul Stacey, tax counsel at Institute of Chartered Accountants in Australia.
“It is worse for business when it is known a tax rule will change but there is uncertainty around what the new rules will look like,” Stacey says.
The government is responding to a push by the tax office to change the laws affecting transfer pricing and the anti-avoidance provisions of Part IVA of the Income Tax Act after it lost several recent cases against companies which it said made the law ineffective.
Bradbury told an ICAA tax conference on Thursday protecting the tax base is more important than cutting the company tax rate, which would lead to “a race to the bottom” with other much lower taxing jurisdictions.
The Institute of Chartered Accountants argues cutting the corporate tax rate to 25 per cent at an appropriate time in the future would be in the public interest.
“To support an ageing population Australia will need a robust, corporate tax base,” says Paul Stacey, tax counsel at ICAA. He said Australia’s relatively high corporate tax rate makes us “less attractive” for companies.
SHIFTING INTANGIBLES, PLUGGING LEAKS
In a global, digital economy there is no point reducing the corporate tax rate as it would be impossible for Australia to compete against tax havens and other jurisdictions where multinationals can achieve an effective corporate tax rate of a few per cent. Bradbury argues the government should instead update industrial age laws which are not working in a digital era.
It has become more difficult for Australia to make sure multinationals operating onshore pay their ‘fair share’ of tax because it is now easier to shift intangible assets around the globe.
The assistant treasurer cited Starbucks, which relies heavily upon royalties in its tax calculations, as an example. “I’m no coffee connoisseur, but I have trouble seeing how so much of the value of a cup of coffee is bundled up in the brand,” he said.
He outlined a three-pronged approach being pursued by the government to make the tax system more sustainable: the modernisation of transfer pricing rules, ensuring the effectiveness of the income tax general anti-avoidance rules and increased multilateral cooperation.
Bradbury also announced that Treasury revenue head Rob Heferen will lead a scoping study into revenue leaks and ways to plug them.
“If a business failed to meet the challenge of digital disruption from a more global economy it would end up in liquidation, well the same principles apply to government,” Bradbury said. “There are looming threats to the corporate tax base and it would be negligent not to address them,” he said.
MULTILATERAL COOPERATION
Countries are also cooperating to try to close loopholes that allow multinationals to little, and potentially pay no tax, anywhere. “The G20 and the global financial crisis have changed the dynamic of international relationships,” Bradbury said.
Progress had been made to combat tax base erosion and profit shifting through Australia’s involvement in The OECD Global Forum on Transparency and Exchange of information for Tax Purposes and the G20.
Australia has signed 30 of the 33 tax information exchange agreements with low tax jurisdictions in the past five years.

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 TAX OFFICE WARY OF ‘DOUBLE IRISH DUTCH SANDWICH’ PLOY

Peter Martin, The Age, 22 November 2012

THE government is preparing for an assault on companies such as Google that funnel their Australian income through low-tax countries such as Ireland and Singapore.
Assistant Treasurer David Bradbury will outline the plan at a conference in Sydney on Thursday.
His speaking notes refer specifically to Google and to a technique known as the “Double Irish Dutch Sandwich”, which involves routing income between Ireland and the Netherlands. Google Australia declared a loss of $3.9 million last year, and paid just $74,176 in Australian tax.
“This is not just about dealing with illegal activity,” he will tell the Institute of Chartered Accountants national tax conference. ”This is about how the drivers of new business models in the information age are presenting great challenges for governments trying to make sure that companies are paying their fair share.
“The way people do business is changing, and we need to ensure tax systems keep pace, because it’s not fair if a multinational company pays much less tax than an Australian company.
“This is a challenge for other nations as well, as we have seen from recent revelations in the United Kingdom, where a parliamentary committee is looking into the issue.
”That means we need to continue our global co-operation to make sure that there is global consistency with the way we tackle this issue.” Mr Bradbury will ask Treasury to start
work on a scoping paper outlining the challenges posed by multinational corporations that use foreign subsidiaries to collect Australian income.
He will convene a specialist reference group made up of business leaders, tax experts, academics and community representatives to examine measures to combat the practice.
“We do not want to see a future where hard-working Australian families and businesses are having to pay disproportionately high taxes because multinational corporations are not pulling their weight,” he will tell the conference.
Company documents filed with Australian, European and Asian authorities show the Australian arms of Apple, Google and eBay are part of complex networks of subsidiaries held by their US parents through intermediary companies in tax havens.
In April the Tax Office hit Apple with a $28.5 million bill for back taxes. Google Australia declared a loss of $3.9 million last year, and paid just $74,176 in Australian tax.

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GST REVIEW PROMISED TO ME, SAYS OAKESHOTT

Gemma Daley, The Australian Financial Review, 20 November 2012

Independent MP Rob Oakeshott says the federal government and opposition have told him they will review the goods and services tax as part of a comprehensive tax review after the election.
Mr Oakeshott said he had received phone calls from senior representatives from both sides of politics following a report in The Australian Financial Review  last week in which he and fellow independent Tony Windsor called for a tax system review that included the GST and middle class and business welfare.
“In phone conversations with ¬senior MPs from both major parties over the weekend, I am confident both sides understand the importance of tax reform, both sides continue to look at it privately, but they will only move on it post-election,” Mr Oakeshott said in an interview. “This mindset of current party ¬politics shows the ongoing difficulty of tax reform in a three-year electoral cycle, and confirms neither side has the confidence of the ballot box to do what needs to be done, even though it looks like they’ll do it anyway.”
Former NSW premier Nick Greiner, who was chosen to help review the allocation of the GST between states, said this month the tax had not grown with demand.
Parties have ruled out changing GST
Both major parties have publicly ruled out looking at the GST and say they will trim the budget to pay for ambitious policies like the Gonski school funding overhaul and National Disability Insurance Scheme.
Experts say increasing the 10 per cent GST and applying it to fresh food, healthcare and other essential items would be one of the fairest ways to fund government services.
“The government has been clear that we will not be expanding the base, or raising the rate of GST,” a spokesperson for Treasurer Wayne Swan said.
The spokesman said shadow treasurer Joe Hockey had “actively called on” premiers to campaign for an increase in the rate and base.
Mr Hockey denied a number of times that the Coalition would apply the GST to more items or lift the rate. “Cost of living is the number one issue highlighted for everyday Australians. Increasing the GST increases the cost of living,” he said on Sky. Mr Oakeshott and Mr Windsor will today meet with Treasury officials and a representative from Mr Swan’s office about the minerals resource rent tax and whether it has raised any revenue.

Labor has breached agreement on royalties: Oakeshott
Mr Oakeshott said the government had breached an agreement with him to abolish or reduce state royalties as part of his approval for the MRRT, which instead encouraged states to increase their inefficient taxes.
“It was put to me that the profits-based tax would exclude the need for inefficient state royalties,” Mr Oakeshott said. “Now we have a system that incentivises royalty increases.”
Prime Minister Julia Gillard, in a letter to Mr Oakeshott and Mr Windsor in November, said state-based royalties were inefficient taxes and the government would ask the distribution review to look at discouraging states from increasing them.
The terms of reference of the GST review from March 2011 were altered in November to include extra components, including existing state taxes and mineral royalties, that the MRRT provide a more efficient approach to charging for Australia’s non-renew-able resources than mineral royalties, and that state tax reform will not be financed by the federal government.
Mr Swan last month received the final report from the group and has committed to release it, with complex issues surrounding the tax and the royalties it has considered. “The government is taking time to consider the final report and its recommendations before releasing it publicly,” a spokesperson for Mr Swan said yesterday[Monday].
Greens leader Christine Milne said the government should implement a broader minerals resource rent tax and superannuation reforms to raise more revenue. “We had a major tax review by Ken Henry very recently and key planks of it such as a properly designed mining super profits tax and reform of superannuation still haven’t been implemented,” she said.
Still waiting for Henry Review recommendations: Milne
“We should be implementing those sensible proposals to make sure government has enough revenue to invest in things like better schools, publicly funded dental care, high-speed rail and more, rather than making food and healthcare more expensive by extending the GST.”
Mr Oakeshott said it had been more than 12 months since Labor committed to him that it would work on royalties and that promise was “fragile”. “It breaks the spirit of what the crossbench agreed to before passing the MRRT,” he said. “There was a fundamental understanding that the government would work hard to reduce state-based royalties in the way Ken Henry said they should.”
The Parliament was at a “crossroad” on tax policy. Increased demands from an ageing population and broad policy needs were clashing with dwindling revenue, he said. “We are at a crossroad of whether inefficient state-based taxes should be replaced by an efficient tax system and if we don’t get some substantial movement in the next four weeks, I will spend Christmas thinking long and hard about how we get parties to look at comprehensive tax review,” he said.
Mr Windsor said the government could not blame the hung Parliament for failing to pursue tax reform. He said billions of dollars from middle class and business welfare could be redirected to substantial policies.
The MRRT is understood to have raised a small amount in the first quarter, although Mr Swan does not yet know the result because Treasury needs to comply with legal obligations and complete its analysis. The official figures will be published in a figure that includes the petroleum resource rent tax.
Companies estimate each quarter what their liability will be this financial year and pay quarters in instalments, meaning the numbers will move around and there may be an overpayment or underpayment at the end of 2012-13.


OECD CALL TO TAX ONLINE TRANSACTIONS

The Australian Financial Review, 20 November 2012

The Organisation for Economic Co-operation and Development has urged all countries to agree on how to tax internet transactions to avoid losing billions of dollars in revenue during the online sales boom.

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ONLINE SELLERS RAIL AT GST PUSH

Andrew Colley, The Australian, 20 November 2012

 AUSTRALIA’S top online sellers association has accused supporters of a plan to dramatically cut the GST-free threshold on imported retail goods of hypocrisy for targeting them over giants such as eBay and Google.
Phil Leahy, founder of the Australian chapter of the Professional eBay & E-commerce Sellers Alliance, said the plan was driven by traditional retail lobby groups and was inherently unfair.
A proposal to lower the GST-free threshold on low-value imports (LVIT) from $1000 to $30 is expected to be taken to Wayne Swan next month. The proposal is broadly seen as a move to return competitiveness to the bricks-and-mortar retail sector lost to online importers whose goods are not subject to the 10 per cent GST until their value exceeds $1000. However, Mr Leahy said local authorities should examine the tax obligations of online giants such as eBay and Google, which were not required to levy GST for services. In Britain, Google’s Adwords services were subject to Value Added Tax, but Mr Leahy said the company had no GST obligations here.
“This is being led by the (Australian) Retailers Association. It’s promoted as helping the country and getting more money,” Mr Leahy said. “Well, then you would focus on companies like Google and eBay who don’t pay GST, have large offices here, who have services, and there’s billions of dollars being spent with these companies.” “The real issue should be that if you’re going to look at GST you should look at it properly across the board.”
The plan to lower the LVIT was agreed last week at a meeting of state and territory treasurers led by NSW’s Mike Baird. They will seek approvals from their governments before taking the proposal to federal government. Late last week, a spokeswoman for Mr Baird declined to say whether extending the GST obligation to companies such as eBay and Google was under consideration.
“The Treasurer acknowledges that there are a number of options that need to be worked through and part of that process will be engaging with stakeholders on their feedback and concerns,” she said.
Ebay declined to comment directly to questions concerning its local GST compliance activity. “It is the responsibility of anyone selling on eBay to comply with all relevant tax obligations and we provide information for sellers about this on our site. Ebay itself is an international and global marketplace and we work with and comply fully with all applicable tax authorities and regimes,” a spokeswoman said.
Google did not respond to requests for comment.
Google, which bills for marketing and advertising services it supplies here through its Ireland subsidiary, has frequently been under the spotlight over the apparent disproportion between the tax it pays in Australia and the revenue it generates. In the 12 months to September last year, Google reported $201 million in revenue. It is estimated to have an 88 per cent share of Australia’s $1.4 billion online directory and advertising market.
There have been several reports on the benefit of lowering the GST threshold for imports of low-value goods. A 2011 report by the Productivity Commission found the cost of collecting the tax would offset any increase in government revenue. But an Ernst & Young report this year found removing the LVIT would preserve 33,000 retail jobs by lifting domestic retail sales by $12bn.

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OAKESHOTT CALLS FOR NATIONAL CONVERSATION ON GST BEFORE ELECTION

Dan Harrison, The Sydney Morning Herald, 20 November 2012

Independent MP Rob Oakeshott says senior figures from both major parties have told him they want comprehensive tax reform, including a review of the GST, but are unwilling to debate the issue before the election.
nterviewed on ABC radio this morning, Mr Oakeshott did not name the MPs he had spoken to, but said ”senior” politicians from Labor and the Coalition had contacted him and acknowledged the need for reform. ”Privately, the basic sentiment that comes through is ‘we get it – we just don’t want to go there prior to an election’,” Mr Oakeshott said on ABC Radio.
Mr Oakeshott said he wanted to ”flush out” a national conversation about tax reform ahead of the election. ”Why this risk averse approach prior to an election when in my view there is an opportunity for the political parties if they frame the conversation correctly,” he said.
”It shouldn’t just be about the GST. This is about why on earth in Australia we have insurance taxes at all. Why do we still have stamp duty in Australia in 2012? It’s removing those inefficient state taxes that is the game. And if we’ve got to have a look at how we work some of these so-called efficient taxes harder to achieve that purpose, then that is an opportunity to engage the Australian community, not a threat pre-election. ”Let’s have the discussion openly.”
But both major parties have publicly ruled out changes to the GST.
Finance Minister Penny Wong told Sky News on Tuesday that the government was looking at the distribution of the GST, but was not considering broader changes. ”We are not in the cart for increasing the rate, nor extending the base,” she said.
On Monday shadow treasurer Joe Hockey repeatedly denied the Coalition would apply the GST to more items or lift the rate, saying to do so would increase the cost of living.
Mr Oakeshott will meet Treasury officials in Sydney today to be briefed on the operation of the mining tax.

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TAX REBATES GIVE PRODUCERS A SEAT AT THE TABLE

Nick Leys, The Australian, 19 November 2012

AUSTRALIAN film producers are calling it the stimulus package they didn’t know they needed.
In mid-2007, the federal government introduced the Producer Offset — a tax rebate of 20 per cent for television drama and documentaries and 40 per cent for feature films — as an incentive package to drive local production. As the global financial crisis started to take hold here in early 2008, Screen Australia came to the realisation the scheme was not just going to create incentive, but would make the industry the envy of the world.
In the five years since it was introduced, 500 final certificates have been issued, giving local producers more than $500 million. Emile Sherman, the Australian producer of the Oscar-winning film The King’s Speech, said the scheme “has been a game-changing moment for our industry”. “It has given us a meaningful position in our own films and has enabled us to start thinking about projects in a more entrepreneurial way,” he said. “Previously, you had some net profit in your film but because, almost by definition, film is more expensive than its value in every country around the world with the exception of Hollywood or Bollywood, you need some sort of government subsidy to make it viable.
“That subsidy would sit there as an investment, with the producers left to have a net profit position right at the end. “And that meant you were working for a modest fee in the budget and there was no real chance of building a business.” The Producer Offset changed this, he said, and made the producer “a key participant with ownership and equity in a movie”.
His next project, Tracks, is budgeted at $12 million, with the offset a key component alongside overseas investment. “It created an entrepreneurial spirit . . . as an Australian producer you now feel you can achieve those things and receive the upside and benefits of those deals,” Sherman said. “It also makes us an attractive country for projects that are floating around the world.”
Sherman said the scheme enabled him to “go to the next level”: “The offset gives us the engine to make those films like The King’s Speech, Tracks, or The Sapphires.”
The success of the Producer Offset was presented to the industry by Screen Australia chief executive Ruth Harley last week, at the Screen Producers Association of Australia conference in Melbourne. Projects made during the offset period include productions since sold overseas, including SBS’s Wilfred and the ABC’s Rake and The Slap.
Harley said a survey of the first five years of the scheme showed that producers felt it enabled them to have a “seat at the table” and greater equity during a period of stagnating production in overseas film industries.
“The offset was introduced before the GFC and just before the Australian dollar went to parity and stayed there for five years,” she said. “Without the offset, that would have had an extremely negative effect on our film and television industry.
“There would have been no large-scale production in Australia, there would have been no footloose production coming here. What we have had is Australian creative-driven projects by Baz Luhrmann, Alex Proyas and George Miller.”
Harley said the second effect of the economic downturn was the loss of pre-sales for Australian production, “but the Producer Offset has filled those gaps”.
“I don’t think it’s an exaggeration to say our industry has been deeply envied by other film industries around the world because production levels here have increased. Given any metric to compare, our industry is healthier.”

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TAX OFFICE TAKES $28.5M BITE OUT OF APPLE

Georgia Wilkins and Ben Butler, The Sydney Morning Herald, 17 November 2012

APPLE AUSTRALIA has been hit with a $28.5 million bill for back taxes, statements lodged with the corporate regulator in April show.
News of the Tax Office bill comes as European governments put global technology companies under intense pressure over their complex ownership structures that rely heavily on a network of tax havens.
Apple’s Australian arm reaped $4.9 billion in revenue last year through the sale of its computers, iPads and iPhones. The bill takes its total tax tab for the year ending September 24, 2011, to $94.7 million.
Apple declined to comment on the tax bill and it is illegal for the ATO to comment on individual cases.
According to company documents filed with Australian, European and Asian authorities, the Australian arms of Apple, Google and eBay are part of complex networks of subsidiaries, held by their US parents through intermediary companies located in tax havens.
Apple’s tax bill may be a sign the ATO shares the concerns of cash-strapped European governments over the complex tax schemes employed by technology multinationals.
The French government this week demanded $US252 million ($244.2 million) in back taxes from Amazon, adding to pressure on the online retailer to justify its network of subsidiaries in Europe, including in tax haven Luxembourg.

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OBAMA STANDS FIRM ON WEALTHY TAX HIKE

The Sydney Morning Herald, 15 November 2012

US President Barack Obama said on Wednesday that Republicans would have to agree to raise taxes on the wealthy as the first step in a budget deal that would prevent a dysfunctional Washington from pushing the economy into recession.
In his first news conference since winning re-election last week, Obama said he would be open to considering Republican priorities like entitlement reform and a tax-code overhaul as part of a broad-based deal to get the nation’s finances on a sustainable course.
But Obama said Republicans in Congress would first have to agree to his top priority in the complex negotiations aimed at preventing a $US600 billion combination of tax increases and spending cuts known as the “fiscal cliff” that could halt the weak economic recovery at the beginning of next year.
“What I’m not going to do is to extend further a tax cut for folks who don’t need it,” Obama said, shortly before meeting with a dozen business leaders who are pushing policymakers to reach a deal.
Obama’s remarks, and unyielding comments from Republican leaders earlier this week, begin a long and possibly tense period of bargaining and brinkmanship that could leave a cloud of uncertainty over the economy leading up to the Christmas holidays and beyond.
Both Republicans and Democrats want to keep low income tax rates in place for middle-income and low-income households, but Democrats say the wealthiest 2 per cent should have to pay the higher rates that were in place in the 1990s.
Obama made increased taxes on the wealthy a centerpiece of his re-election campaign, and polls show public opinion is on his side. Obama is reaching beyond Washington to ramp up pressure on Republicans and has already met with labor and liberal groups to build support for his approach.
Several of the chief executives due to meet Obama on Wednesday, including General Electric’s Jeff Immelt, Aetna’s Mark Bertolini, Honeywell International ‘s David Cote and Dow Chemical Co.’s Andrew Liveris, back an approach roughly in line with Obama’s position.
Many other business leaders do not share that view. The US Chamber of Commerce released a letter, signed by more than 200 business groups, calling on Obama to find budget savings by scaling back benefits rather than raising taxes.
Obama’s relationship with the US business community has been strained over much of his first term, and it is unclear how much support he will be able to muster from executives who in many cases backed Mitt Romney, his Republican rival in the presidential race.
But the meeting could rattle Republicans who are licking their wounds after last week’s election that gave Obama another four years in office and sent more of his Democrats to the House of Representatives and Senate.
More voters would blame Republicans than Obama if the two sides failed to reach a deal to avert the “fiscal cliff,” according to a Pew Research Center/Washington Post poll.
Republican leaders have indicated some willingness to compromise. While they oppose Obama’s plan to raise tax rates on the wealthiest 2 per cent of US taxpayers, they have said they might go along with a deal that would raise additional tax revenue by limiting tax breaks for the wealthy.
Rank-and-file conservatives are less eager to reach a deal.
“We will continue to fight any member of our conference that decides that this is a good time to raise taxes,” Republican Representative Raul Labrador said.
Democrats in Congress want the negotiations to concentrate heavily on tax increases rather than further spending cuts before the end of the year, an aide said, although they would be willing to consider other elements down the road.
Legacy of postponed action
If the two sides do not reach a deal by the end of the year, tax rates on income and investments will rise for all Americans and government programs from the military to education will face deep, across-the-board cuts. A broad range of business tax breaks for everything from wind power to research costs would expire as well.
That could cause the economy to shrink by 0.5 per cent and push the unemployment rate up to 9.1 per cent by the end of next year, according to the Congressional Budget Office. The current unemployment rate is 7.9 per cent.
The deadline comes from years of dysfunction as lawmakers and presidents have postponed tough decisions on fixing the nation’s finances.
Obama and Republicans could settle on a temporary deal that would give them more time to reach compromise, or agree to the outlines of a far-reaching budget plan that could boost the economy in the short term and rein in the country’s growing debt burden over the coming decade.
They could also fail to reach a deal entirely and plunge the economy off the fiscal cliff.
Some Democrats have suggested that scenario could give them more leverage when income tax rates rise automatically on Jan. 1 to levels that were in place during the 1990s. By that line of thinking, Republicans might be more willing to agree to a tax deal that would lower rates back to their current levels for the bottom 98 per cent.
That idea clearly spooks corporate America, which is urging policymakers to settle the issue before the end of the year. Some business leaders say failure could prompt them to shift their investments overseas, and others say the uncertainty is already weighing on the economy as businesses sit on more than $US1 trillion in cash rather than putting it to work.
Hiring may slow toward the end of the year as employers postpone major decisions until there is more clarity on the country’s economic future, consulting firm Challenger, Gray & Christmas said.
US stocks fell on Wednesday, erasing earlier gains, as strong earnings from technology bellwether Cisco were not enough to offset investor anxiety over the fiscal cliff and the European debt crisis.
“We are probably going to have many more days like this,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab’s Center for Financial Research.

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AUSTRALIA NEEDS TO GET SERIOUS ABOUT TAX REFORM

Kelly O’Dwyer, The Australian Financial Review, 13 November 2012

The Asian Century white paper was Ken Henry’s third big review project for this government. Given the opportunities and threats involved, it is critical that this one has a bigger impact than his past efforts had.
Remember the review of the Australian retirement income scheme? Only one of its three core recommendations was implemented (both major parties committed to increase the pension age to 67 over time). The government went against the recommendation to maintain the superannuation guarantee at 9 per cent, and ignored the advice to gradually align superannuation access and pension ages.
Henry’s second big review was his ill-fated examination of the tax and transfer system. Delivered in 2009, it had 138 recommendations. Only a handful have been implemented. Many areas canvassed in that review are fundamental to our prosperity in this century, whether you term it the “Asian Century” or something else.
The tax review recommended a reduction in the company tax rate to 25 per cent over time. In a world of mobile capital and vigorous competition to service emerging markets, a commitment to minimise this rate is vital. But we’ve seen no progress, with the government scrapping its own long-promised company tax cuts in this year’s budget.
The government’s latest effort has been to increase the effective tax rate for many companies by moving to monthly tax collection (not one of the 138 recommendations). This increases companies’ effective tax rates through funding costs to cover working capital requirements and compliance costs.
Far from making Australia’s tax system more competitive, we have moved backwards. PwC’s “Paying Taxes 2012” analysis highlights the ground we need to make up. Australia ranked 52nd in terms of medium-sized companies paying taxes and government mandated contributions. Competitor economies in the region ranked far higher, with Hong Kong at 3 and Singapore at 4.
Company tax is not the only area where the response to the Henry tax review has been found wanting. We’ve seen no progress on removing inefficient state taxes, with the government refusing to consider a proposal prepared by the states to reduce stamp duty, nor on removing distortions in the taxing of savings.
And the botched mining tax has deterred investment but delivered no revenue, even though commodity prices remain way above long-term averages.
With the Asian Century white paper, Henry and the government appear to have learnt some lessons from these previous two experiences. Unfortunately, the lessons appear to be to avoid policy detail and recommendations. The white paper would be described as “motherhood” – rather than recommendations, it includes a series of “objectives” supported by “pathways”.
For tax reform, the objective is for a system that is “efficient and fair, encouraging continued investment in the capital base and greater participation in the workforce, while delivering sustainable revenues to support economic growth by meeting public and social needs”.
What does this mean? The left would argue an “efficient and fair” tax system prioritises wealth redistribution; Liberals that it would reward risk taking, effort and investment. Naturally, the policy prescriptions for each interpretation are very different.
The six tax reform pathways listed are broad brushstrokes. There are two broad aspirations without any new policies in support (to ensure the system does certain things), and three facilitation objectives (facilitate state and territory led reform, establish a Tax Studies Institute and continue a “conversation” about tax reform, including through working groups).
Only one pathway has a real policy edge, to increase the tax free threshold to at least $21,000. But the effective tax-free threshold is already around $20,500, and the increase to this level from $16,000 previously was only achieved at the price of the carbon tax.
Where is the discussion about attracting and retaining the best and brightest in the face of competition from a cashed-up Asian region? Or about how globalised consumption and a low-cost, integrated Asia will affect the Australian tax base? Or our reliance on volatile tax streams? Or about the risks of hot capital and high current account deficits, and the need to ensure an appropriate taxation regime for savings? What about the differing investment horizons between Asia and Australia, and whether our taxation arrangements favour the short term over long term?
The white paper is right to identify tax reform as a key policy priority, but the government is wrong to kick it into touch through more talk-fests such as the Business Tax Working Group process.
We’ve seen how much tax reform that process has delivered . . . precisely zero.


 PUT GST RISE ON THE AGENDA

The Australian Financial Review, 13 November 2012

Reform of the goods and services tax is a topic that everyone but politicians is willing to discuss. The GST had an extremely long gestation and by the time it was introduced, some 25 years after such a tax was first recommended, its effectiveness was limited by a number of exemptions.

With the government now looking under every stone for ¬revenue, the issue of extending the consumption tax into ¬previously forbidden areas, not to mention raising the basic rate, is being discussed. The question is whether the government has the political will to do anything about this area.
As reported in this newspaper yesterday, former Labor ¬government Treasury secretary Tony Cole has declared that it was “inevitable” that the GST would be extended into areas such as health, education and fresh foods. Also the rate would be lifted from the present 10 per cent.

That assessment, which met with some support in the ¬business community, is helped by the fact that Australia’s GST rate is well under that of other countries. Britain’s value added tax rate is 20 per cent, and elsewhere in Europe will often be set at 25 per cent. New Zealand’s GST rate is 15 per cent.
Australia’s small GST rate means that our taxation system is far more heavily dependent on taxing companies and individuals as opposed to consumption than any other, advanced nation. Cutting income and company taxes in favour of an increase in consumption tax will favour job creating enterprise, but the government has shown no appetite for even limited reform, let alone changing the rate and extent of the GST.

In early October, noting the lack of political consensus on GST, federal Treasury secretary Martin Parkinson suggested an increase in the rate for the payroll taxes administered by the states. Although in theory payroll tax has the same “incidence” as a consumption tax, it falls on a narrower base of labour income rather than on spending income from all sources.

The government has certainly tried to keep GST reform off the agenda. Ken Henry’s “root and branch” reform of the tax system was forbidden from recommending major changes to the GST, and the business tax working group was only allowed to look at business tax concessions to find the money to pay for a cut in the company tax rate. As the government had already spent the money previously set aside for a cut in the company rate, no business group was willing to sacrifice its concessions in exchange for further, empty government promises.

If the government is serious about tax reform it must ¬consider a change in the GST rate, as well as eliminating the tax’s major concessions.


BRITISH MPS BLAST MULTINATIONALS ON TAX

David Stringer, The Age, 13 November 2012

British MPs have accused major multinational companies of aggressive tax avoidance, amid calls by the UK government for a global crackdown on firms that seek to evade tax.

In sometimes bitter exchanges at a parliamentary committee hearing, MPs have questioned Starbucks, Google and Amazon about the amount they pay to the UK government in taxation.

MPs scoffed as Troy Alstead, Starbucks global chief financial officer, claimed the fact the coffee giant had reported losses for all but one of the 15 years it has operated in the UK was down to poor performance – and not an attempt to minimise its taxes in Britain.
“You have run the business for 15 years and are losing money and you are carrying on investing here. It just doesn’t ring true,” said Margaret Hodge, head of parliament’s Public Accounts Committee on Monday.
Alstead acknowledged to the panel that its taxable profits in the UK are calculated after royalties paid to its European headquarters in the Netherlands have been deducted. He said Starbucks had a special tax arrangement with the Dutch government covering its headquarters, but declined to give details.

“Respectfully, I can assure you there is no tax avoidance here,” Alstead told the panel.
Companies operating in Europe can base themselves in any of the 27 EU nations, allowing them to take advantage of a particular country’s low tax rates.

Alstead insisted Starbucks was not seeking to mislead investors or tax authorities about its performance in Britain. “We are not at all pleased about our financial performance here. It is fundamentally true everything we are saying and everything we have said historically,” he told the committee.

Last week, Britain and Germany called for the world’s largest economies to do more to collaborate to fight tax evasion, particularly in online commerce.

Hodge told witness Andrew Cecil, public policy director at Amazon, that many people in Britain are angered over the low tax rates paid by the retailer.

“Your entire activity is here, yet you pay no tax here and that really riles us,” she said.

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EU FREEZES AVIATION CARBON TAX

The Sydney Morning Herald, 13 November 2012

The European Union executive caved in to critics of its contested carbon tax on air travel yesterday, offering to ‘stop the clock’ and freeze the measure for a year on flights to and from non-European nations.

The European Union executive caved in to critics of its contested carbon tax on air travel yesterday, offering to “stop the clock” and freeze the measure for a year on flights to and from non-European nations.
The EU’s climate commissioner Connie Hedegaard said at a hastily arranged news conference that she had just recommended in a phone conversation with the 27 EU nations that the tax be suspended in the interests of negotiating a global CO2 deal.
“Finally we have a chance to get an international regulation on emissions from aviation,” Hedegaard said, referring to progress on the matter at a Friday meeting of the International Civil Aviation Organization (ICAO) in Montreal.
“But let me be very clear: if this exercise does not deliver — and I hope it does — then needless to say we are back to where we are today with the EU ETS (Emissions Trading Scheme). Automatically!” she said.
The suspension of the CO2 tax would affect flights “to and from non-European countries”, meaning European airlines will continue to pay.
The International Air Transport Association (IATA) was quick to celebrate the announcement, with IATA chief Tony Tyler saying in a statement that it “represents a significant step in the right direction and creates an opportunity for the international community”.
“The commission’s pragmatic decision clearly recognises the progress that has been made towards a global solution for managing aviation’s carbon emissions,” Tyler said.
“The flexibility shown by the European Commission demonstrates that the ICAO process is working,” he added.
Hedegaard said she had recommended “stopping the clock for one year”, until after the next ICAO general assembly in autumn 2013, due to signs at Friday’s ICAO talks of a move towards a global deal, or “market-based mechanism”.
The EU imposed the scheme on January 1, but 26 of ICAO’s 36 members, including India, Russia, China and the United States, have opposed the move, saying it violates international law.
The EU tax forces airlines operating in the bloc, whatever their flag, to buy 15 per cent of their carbon emissions, or 32 million tonnes, to help battle global warming.

Payment, however, was due only from next year, once billing for 2012 had been completed.

In a statement, the Association of European Airlines (AEA) “cautiously welcomed” the EU decision, saying it hopes the moratorium “will stimulate action within the notoriously slow-moving ICAO, which must come up with concrete progress towards a global approach”.

“As international tensions over the issue have escalated, European airlines have been facing the very real prospect of discrimination and retaliation in our most important global markets, said AEA’s acting chief, Athar Husain Khan.
Airbus likewise welcomed the suspension, saying it brought the aviation industry “one step closer” to a coordinated approach to civil aviation emissions.

Brussels had said the scheme would help the 27-nation bloc achieve its goal of cutting emissions 20 per cent by 2020.

But airlines allege it will cost 17.5 billion euros ($21.2 billion) over eight years.
The EU counters that the cost is manageable, estimating it could add between four and 24 euros to the price of a round-trip long-haul flight.

India and China have been at the forefront in opposing the scheme. India in April barred its airlines from complying with the EU carbon fee, joining China in resistance.

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CHRIS JORDAN APPOINTED TOP TAX MAN

Clancy Yeates, The Sydney Morning Herald, 12 November 2012

A former policeman who once worked in John Howard’s office has been appointed to run the Tax Office, in a rare decision to give the top job to an outsider.

The Treasurer, Wayne Swan, said on Monday that a veteran private-sector tax adviser, Chris Jordan, would replace the departing Tax Commissioner Michael D’Ascenzo from January.

Before spending more than two decades at the accounting firm KPMG – where he worked until this June – Mr Jordan began his working life as a policeman in Sydney in the 1970s. He was also seconded to advise Mr Howard on taxation when the future Prime Minister was in Opposition during the 1980s.
But although Mr Jordan still counts Mr Howard as a personal friend, his handling of complex policy issues has earned accolades from the current Labor government.
After several bruising battles with big business, the government was also impressed with Mr Jordan’s private-sector experience. Mr Jordan this year chaired the panel tasked with cutting company taxes – which failed to reach an agreement with business – and also helped implement the GST for the Howard government.
‘‘Mr Jordan brings a broad range of experience, including industry and public policy experience under both Labor and Coalition Governments,’’ Mr Swan said.

The shadow Treasurer, Joe Hockey, said the Coalition welcomed Mr Jordan’s ‘‘much-needed’’ private sector experience.

In tax circles, Mr Jordan is also known for this impartiality. But this has not stopped him from criticising business and government alike. In June, Mr Jordan criticised simplistic calls for business tax cuts dressed up as ‘‘reform.’’ “Is tax reform just a rate cut? That’s not really reform, that’s just reducing rates,” he told BusinessDay.

He also took aim at both sides of politics for their failure to consider raising or widening the GST. “I think it is a shame that it’s something that we just can’t even have as a debate, like increasing the tax on consumption was ruled out of the Henry review,” he said.

Mr Jordan will take over the ATO at a time when the agency is under pressure from slipping projections for tax receipts, while there are also growing calls from business to consider an increase in the GST.

The appointment of Mr Jordan breaks a long-running tradition of promoting staff from within the ATO to Commissioner – a move that has been welcomed by tax groups.

Until this June, Mr Jordan was the chairman of KPMG in NSW, and he is currently chair of the Board of Taxation.

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 BUSINESS LEADERS APPLAUD NEW ATO CHIEF

Katie Walsh, Australian Financial Review, 12 November, 2013

Chris Jordan’s Bio
• Chris Jordan was appointed chairman of the Board of Taxation in June 2011. He has been a member of the board, an advisory body to the federal Treasurer, since its inception in September 2000 and was appointed deputy chairman in 2005.
• He is a Fellow of the Institute of Chartered Accountants, the Taxation Institute in Australia, and the Australian Institute of Company Directors and is a solicitor of the Supreme Court of NSW.
• Jordan was previously chairman of KPMG NSW and partner in charge of the NSW tax and legal division of KPMG.
• He is the former chairman of the New Tax System Advisory Board and was also the state chairman of the NSW division of the Taxation Institute of Australia.
• He is a board member of the Sydney Children’s Hospital Foundation and the Bell Shakespeare Company.
• Jordan was awarded the honour of Officer of the Order of Australia in the 2005 Queens Birthday Honours list for high-level advice to Government.
The Australian Taxation Office will have a leader from the private sector for the first time in its 102-year ¬history, former KPMG partner Chris Jordan, who will take over as tax commissioner next year.
Business figures applauded the appointment of Mr Jordan – a former police officer who was chosen by Treasurer Wayne Swan to lead the Business Tax Working Group – as someone who will inject into the Tax Office a much-needed commercial approach to the admin¬istration of the tax laws. Mr Jordan will replace tax commissioner Michael D’Ascenzo, who announced his shock retirement last month.
In a display of bipartisanship, the opposition said Mr Jordan brought a “wealth of much-needed private sector and government experience”.
Mr Jordan played an important role in the introduction of the goods and services tax under the Howard government. He has served on the Board of Taxation for 12 years under Coalition and Labor governments and advised former prime minister John Howard when he was opposition leader in the 1980s.
Mr Howard said he knew Mr Jordan well and congratulated him on his appointment, saying: “he is very skilled in taxation ¬matters.”
First priority will be to listen
Speaking with The Australian Financial Review after the announcement of his appointment, Mr Jordan said he did not want to set out a plan of action yet. “All I want to do is listen to people in the Tax Office and to stakeholders – to business, the community,” he said. “I’m really honoured and excited about a great opportunity.”
A Sydney resident and a champion of the city in his role as chairman of the Committee for Sydney, Mr Jordan will not relocate to Canberra. But he will spend a lot of his time in Canberra, head office to the organisation which has 24,000 staff.
His new role will mean letting go of his numerous external positions.
A Board of Taxation member since its inception in 2000, Mr Jordan took over the chairmanship last year, replacing business veteran Dick Warburton. He served as Mr Warburton’s deputy for six years before that.
Mr Jordan also has a long history of involvement in the community sector. Apart from his role on the Committee for Sydney, which is campaigning to improve the city’s infrastructure and performance, he is on the board of the Bell Shakespeare Company and the Sydney Children’s Hospital Foundation.
Mr D’Ascenzo, who is joining the Foreign Investment Review Board, will be the first tax commissioner to leave after one term in almost 50 years.
The government was widely expected to appoint someone from outside the notoriously insular Tax Office, but some doubted it would go as far as appointing a person from the private sector despite demands for a fresh perspective from business.
In a press release issued by Assistant Treasurer David Bradbury and Mr Swan yesterday, the government announced it was appointing Mr Jordan to the role, as foreshadowed by the Financial Review last month.
“Mr Jordan brings a broad range of experience, including industry and public policy experience under both Labor and Coalition governments,” the government said.
Strong business links
Business welcomed the news.
“As an external appointment, he will bring a fresh perspective to the running of the ATO,” said Australian Industry Group chief executive Innes Willox.
“Mr Jordan has extensive links with the business community, most recently as the chair of the Business Tax Working Group, and we hope he further develops the consultative arrangements between taxpayers and the ATO.”
Business Coalition for Tax Reform chairman and chief financial officer of Woolworths, Tom Pockett, said that support for Mr Jordan among coalition members was “very favourable”.
“He’ll make a very good tax commissioner, bringing both a good commercial view as well as a good tax discipline view,” he said.
Although Mr Jordan had extensive private sector experience, Corporate Tax Association executive director Frank Drenth said that he was not entirely an outsider due to his engagement with the ATO as a Board of Tax member. “I think it was a good decision by the government.”The current commissioner, Mr D’Ascenzo, joined in 1977, reaching the top spot in 2005. His predecessor, Michael Carmody, spent 12 years at the helm, after 30 years working his way up. Trevor Boucher, the ninth commissioner, joined in 1956 and led the ATO for nearly a decade from 1984.
“He’s used to dealing with the revenue agencies so he wouldn’t be an unknown quantity to the Tax Office at all,” Mr Drenth said.
Mr Jordan will be the Tax Office’s 12th tax commissioner and the only one never to have worked at the office previously – apart from the first commissioner, Robert Ewing, in 1910, who was appointed to head the newly created Commonwealth Land Tax Office.
Each of the past three commissioners spent more than 30 years at the Tax Office.

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 GST – THE GORILLA IN THE ROOM

Fleur Anderson, Australian Financial Review, 12 November 2013

With the tax take dwindling and spending priorities rising, it’s time to seek a consensus on what needs to be done. Australia may not be about to fall off a fiscal cliff like the US, but it’s fast approaching a ‘fiscal crunch’.

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WILL THE FAT TAX WORK FOR AUSTRALIA

Lucy Kippist, News.com.au, 12 November 2012

ITS official, the Danes cant live without their favourite sugary, fatty foods.
Less than one year after imposing their progressive health tax, the Danish government have scrapped it for being too expensive and taking jobs away.

Everything from butter and milk to pizzas, oils, meats and pre-cooked foods were hit with a 16 kroner per kilo of saturated fats in a product. According to a report by the AFP, when the tax was introduced the price of a pack of 250 grams (0.5 pounds) of butter rose by 2.20 kroner ($0.37, 0.29 euros) to more than 18 kroner.

Despite this, according to Danish health authorities, the policy failed to be effective. Jobs were lost, prices were unmanageable and some reports even suggested that Danish people have been so put out by the restrictions that they’ve travelled outside the country to get their sweet fix.
Scrapping the tax is a gutsy move for a country where 47 per cent of the population are already obese. But the decision also raises some questions around whether hiking up prices will actually change unhealthy eating behaviour.
Australia doesn’t have a fat tax yet, but there have been some serious discussions about the possibility of imposing one this year. After all, when it comes to obesity rates our population is not too far away from the Danes.
According to research by The Australian Institute of Health and Welfare’s report, Australia’s Food and Nutrition 36 per cent of Australians are overweight, with 25 per cent of us obese, including one in four children.

But is a fat tax, like the one imposed in Denmark, the answer? Maybe, says Jane Martin, the Executive Manager of Australia’s Obesity Policy Coalition (OPC).

The OPC is an independent body, who today have released findings from their detailed investigation into Australia’s self-regulatory system for food marketing.

According to their research, Australian advertising regulation bodies are not doing enough to protect children from junk food advertising.

But as Martin told news.com.au that the most effective approach to our obesity crisis is two-pronged.
“Pricing points are effective they deter people but as tobacco control has taught us, a combination of tax and social marketing is the most effective approach,” she said.

“The Government definitely need to tax sugary and fatty foods in conjunction with subsiding healthy foods.
“This two pronged approach is most likely to have the required affect and also benefit low-income families, who already spend the highest proportion of their earnings on food. And this way they will not be missing out,” she said.

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FACTS ON THE US FISCAL CLIFF

ABC News, 10 November 2012

The fiscal cliff is a combination of dramatic spending cuts and tax increases mandated to take effect in January 2013 if Democratic and Republican US lawmakers cannot bridge their differences on how best to reduce the nation’s budget deficit and debt.

What is it?
The Budget Control Act of 2011, set into law in a grudging political compromise in August that year, forces the government to slash spending by $1.2 trillion over 10 years from January 1, 2013. Next year’s cuts, called “sequestration”, would be about $109 billion.
Also on that date, a package of tax reductions set or extended in 2010 to spur economic growth, as well as an extension of unemployment benefits, will expire, meaning taxes will rise significantly for most Americans.
Why will this happen?
Democrats and Republicans have long been deadlocked over whether to address a $1 trillion-plus annual budget gap with higher taxes or lower spending.

The BCA was a poison-pill deal designed to force them to find a less austere compromise, but neither side would budge before the November 6 election.

Now that the vote has passed, they only have a few weeks to find a solution to beat the year-end deadline.

What happens if the cliff is not avoided?
Together the higher taxes paid and lowered spending could slice the $1.1 trillion deficit racked up in fiscal 2012 (ended September 30) by almost $500 billion next year, according to the Congressional Budget Office, vastly improving the government’s financial picture.

But the CBO estimates the shock treatment would send the country back to recession and push the unemployment rate to 9.1 per cent.

Deep cuts would come to both defence and non-defence spending. Government suppliers and contractors would lose business, and temporary furloughs could be in store for tens of thousands of federal employees.
Taxes and automatic pay check deductions would increase for most Americans, reducing the cash they have for spending, and taxes on capital gains and dividends would rise, hitting investors.

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MANDATE THERE TO HIKE TAXES ON RICH: OBAMA

The Sydney Morning Herald, 10 November 2012

US President Barack Obama and House Speaker John Boehner are signalling they’re open to some compromise on a taxes and spending to prevent more financial pain in the new year, but the two sides are digging in on raising taxes for wealthier Americans.

Obama declared on Friday he was not “wedded to every detail” of his approach to prevent a looming set of automatic tax hikes and budgets cuts that threaten to erase millions of jobs and push the US back into an economic recession.

But the president insisted his re-election gave him a mandate to raise taxes on wealthier Americans.

The changes, widely characterised as a dangerous “fiscal cliff” set to kick in January 1, include a series of expiring tax cuts that were approved in the George W Bush administration.

The other half of the problem is a set of punitive across-the-board spending cuts, looming only because partisan panel of politicians failed to reach a debt deal.

Put together, they could mean the loss of roughly three million jobs.

“The majority of Americans agree with my approach,” said Obama, brimming with apparent confidence in his first White House statement since securing a second term.

Trouble is, the Republicans who run the House plainly do not agree with his plans. Boehner insisted that raising tax rates as Obama wants “will destroy jobs in America.”

So began the “fiscal cliff” political manoeuvring that will determine which elected power centre – the White House or the House – bends more on its promises to voters.

An exhausting presidential race barely history, Washington was back quickly to governing on deadline, with agreement on a crucial goal, but divisions on how to get there.

Obama invited the top four leaders of Congress to the White House next week for talks, right before he departs on a trip to Asia.

World stocks mostly fell on Friday as fears persisted over the “fiscal cliff” that’s seen as a big threat to the economic recovery.

On Wall Street, stocks managed a small rally. The Dow was up about 30 points when Boehner started talking and about 80 points shortly after.

Then Obama said he would not accept any approach to federal deficit reduction that doesn’t ask the wealthy to pay more in taxes. A spokesman later said Obama would veto legislation extending tax cuts for families making $US250,000 ($A241,275) or more.

The CBO analysis says the looming combination of automatic tax increases and spending cuts would cut the massive US deficit by $US503 billion ($A485.45 billion) through to next September, but that the fiscal austerity would cause the economy to shrink by 0.5 per cent next year and cost millions of jobs.

The new study estimates that the nation’s gross domestic product would grow 2.2 per cent next year if all Bush-era tax rates were extended and would expand by almost 3 per cent if Obama’s two percentage point payroll tax cut and current jobless benefits for the long-term unemployed were extended as well.

About 60 per cent of voters said in exit polls on Tuesday that taxes should increase, either for everyone or those making more than $US250,000. Left unsaid by Obama was that even more voters opposed raising taxes to help cut the deficit.

Since the election, Boehner and Obama have both responded to the reality that they need each other.

Compromise has become mandatory if the two leaders are to avoid economic harm and the wrath of a public sick of government dysfunction.

Obama says he is willing to talk about changes to government-funded medical insurance for the poor and elderly, earning him the ire of the left.

Boehner says he will accept raising tax revenue and not just slashing spending, although he insists it must be done by reworking the tax code, not raising rates. The framework, at least, is there for a broad deal on taxes.

Yet the top Democrat and Republican in the nation are trying to put the squeeze on each other as the public waits for answers.

“This is his opportunity to lead,” Boehner said of Obama, not long before the president said: “All we need is action from the House.”

Obama said the uncertainty now spooking investors and employers will be shrunk if Congress extends – quickly – the tax cuts for all those except the wealthiest.

The Senate has passed such a bill. The House showed no interest on Friday in Obama’s idea.

Obama and Republicans have tangled over the Bush tax cuts for years. The president gave in to Republican demands to extend the cuts across the board in 2010, but he ran for re-election on a pledge to allow the rates to increase on families making more than $US250,000 a year.

Also lurking is the expiration of the nation’s debt limit in the coming weeks. The last fight on that nearly led the United States to default on its bills.

When asked if he would try to use that issue as leverage, Boehner said it must be addressed “sooner rather than later.”

The national debt now stands above $US16 trillion. The government borrowed about 31 cents of every dollar it spent in 2012.

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HIGH COURT AGREES TO HEAR MINING TAX CHALLENGE

ABC News, 5 November 2012

The full bench of the High Court is set to hear a constitutional challenge to the Federal Government’s Minerals Resource Rent Tax as early as March.

Miners, led by the Fortescue Metals Group, have asked the court to consider the constitutional challenge on the basis the tax discriminates between states and restricts their ability to encourage mining.

In a directions hearing last month, lawyers for the group were asked to clarify their arguments before the case could be considered.

Today, Chief Justice Robert French agreed the case could now be heard by the full bench.

No date has been set, but Chief Justice French says he believes the two-day case could be run in the March sittings next year.

The Queensland and West Australian governments are intervening in the case.

Falling commodity prices mean the Government’s income from the profits-based tax, which applies to coal and iron ore, is well short of projections so far.


 LABOR MUST RENEGOTIATE MINING TAX: GREENS

The Sydney Morning Herald, 3 November 2012

If Prime Minister Julia Gillard doesn’t renegotiate the mining tax to generate more revenue, all the talk about sharing the super profits has been nothing but rhetoric, Australian Greens leader Christine Milne says.

Senator Milne says the Labor government should revert to the old planned mining tax to find $26 billion in revenue over the next four years, instead of the projected $9 billion.

By “plugging the loopholes” in the Mining Resources Revenue Tax (MRRT) and establishing the 40 per cent tax rate recommended by former treasury secretary Ken Henry, Ms Gillard could be investing in a happier Australia, Senator Milne said.

“If she won’t (renegotiate) then it is an acknowledgment that all the talk about super profits, all the talk about sharing the benefits of the boom is no more than talk,” Senator Milne told reporters after an address to the Greens national conference in Sydney on Saturday.

“… What we’re going to see is the miners celebrate all the way to the bank.” Single parents, the unemployed and the entire nation would pay, she said. “Ken Henry put forward a well-designed mining super profits tax,” Senator Milne said. “Now, instead of confidently investing in a happier, healthier, smarter Australia, (Treasurer) Wayne Swan is scrambling to meet a political surplus target by slugging single parents, cutting support for research, education and training and refusing to lift Newstart to a liveable level.”

The government had lost a huge opportunity but it was not too late to change the tax, Senator Milne added.

However, Ms Gillard said she would not be taking advice from anyone about a tax that was already in place. Ms Gillard said she was confident the government had implemented a mining tax that was right for the nation and she would not be changing it. “I worked on it directly with (Resources Minister) Martin Ferguson and with Wayne Swan. We agreed on it with some of the nation’s biggest mining companies,” she told reporters in Sydney on Saturday. “We have enacted the MRRT we think is appropriate and consequently we won’t be taking advice from the Greens political party or anybody else on this question.”

Senator Milne said she wasn’t surprised that the prime minister was not enthusiastic about renegotiation, given it was she and the treasurer who had originally “caved” to the mining industry’s $22 million campaign to see the tax rate decreased.

“This goes to the heart of the prime minister’s claims to be the great negotiator,” Senator Milne said. “Well let’s put our shoulders to the wheel and renegotiate so that we get a tax that raises money in the best interests of the community.”

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NEW ATO CHIEF TO BE HANDED BIG GUNS TO BLAST TAX CHEATS

Adele Ferguson, Sydney Morning Herald, 7 November 2012

In the next week or so the boardrooms of corporate Australia will be hit between the eyes with draft legislation designed to beef up the ATO’s core arsenal – its anti-avoidance law – after suffering some big courtroom defeats that cost it more than $1 billion in lost revenue.
The draft legislation, which is designed to amend Part IVA of the Tax Act, will be tough, retrospective and controversial, and it will be released as the ATO searches for a new boss after last month’s shock announcement that Michael D’Ascenzo would leave at the end of the year.
D’Ascenzo’s replacement is expected to be announced within weeks, with speculation running hot that the government will break with tradition and make an external appointment. A few names rumoured to be in the mix include chairman of the Board of Taxation Chris Jordan, former head of Treasury Ken Henry and Inspector-General of taxation Ali Noroozi. It is also believed that Rona Mellor is being considered for what is one of the most important and high-pressured jobs in the country.
Mellor, a senior official at the Department of Agriculture Forestry and Fisheries with responsibility for the Biosecurity Services Group after serving as deputy CEO of Medicare Australia, would be well placed to run the ATO as she worked there for 20 years before leaving in 2006.
The reality is the ATO has a strong culture and it would be hard for an outsider with no ATO experience to hit the ground running at a time when the federal government needs to raise money, particularly as its mining tax is shaping as a revenue-raising flop.
To put it into perspective, the latest financial results for the government’s chief revenue raiser, the ATO, reveal that it collected $301 billion in net tax, up 10.3 per cent from $273 billion in 2010-11, but 3.4 per cent below its 2011-12 budget forecast.
When the tax budget is below forecast it puts everything else out of kilter, which explains the flurry of announcements by the government designed to lift revenue. These include assigning the ATO another $390 million to help boost its revenue raising abilities; forcing big companies to bring forward their tax payments from quarterly to monthly to raise an estimated $8.3 billion over the next three years, and the introduction of a series of pieces of retrospective legislation to crack down on tax avoidance and plug loopholes.
The crackdown on big business is part of a global trend by governments to raise tax revenue, as the United States and eurozone debt crises squeeze government budgets. Cranking up the scrutiny on big companies is a vote winner, particularly when it is aimed at companies that pay minimal tax, or whinge about the tax they are paying, such as multinationals engaging in elaborate transfer pricing rackets.
The decision to amend anti- avoidance law under Part IVA will have a profound impact on the ATO’s powers, and that of business. Part IVA is the ATO’s key weapon for fighting tax avoidance. However, after a string of losses in the courts, the ATO and the government decided that the 31-year-old law needed to be spruced up – fast.
The way Part IVA currently operates is there must be a transaction or scheme, such as a corporate restructure, that results in a tax benefit and the restructure was designed for the ”sole or dominant purpose” of getting a tax benefit. If these conditions are satisfied, then the ATO can make a determination to cancel the tax benefit.
In recent cases, including the James Hardie case, the argument was used that the company did not get a tax benefit, because without the transaction it would not have entered into an arrangement that attracted tax. In other words, it applied the ”do nothing” argument, which was accepted by the courts.
It followed a string of other defeats for the ATO in court cases over the past couple of years, including: Foster’s, which cost it $390 million; BHP Billiton, which cost $550 million in lost revenue; AXA Asia Pacific Holdings, which cost it $383 million; and Macquarie, which cost it $95 million.
To this end, the federal government put corporate Australia on notice in March that it planned to make changes that could impact any transaction with a tax consequence. This means that anything from mergers and acquisitions, divestments, corporate restructures, capital raisings, private equity or expansion offshore, could be impacted by changes to the law.
Clayton Utz partner Dr Niv Tadmore said: ”Part IVA is the ATO’s chief anti-avoidance provision. It gives the ATO extensive powers … it was originally designed with two important safeguards: the tax benefit and dominant purpose tests. The reform is expected to neutralise the former … if you compare Part IVA to a video game, until 1 March you got to play with two lives and now you get only one.”

Tadmore said the ATO has lost many Part IV cases that it strongly believed it should have won. ”Once we have an upgraded Part IVA, the ATO will seek to identify and test the new boundaries,” he said. With an extra $390 million in funding – which it will need to turn into $2.5 billion in extra revenue – more honed powers and a federal election looming next year, the Gillard government looks set to increasingly use the ATO, big business and billionaires to claw back its ratings in the polls.


NEW TAX TO BE RAISED FROM VENUES TO FUND PRE-COMMITMENT POKIE REFORMS

Richard Willingham, Sydney Morning Herald, 7 November 2012

ALL poker machine venues in Australia, regardless of size, will pay a new government tax to help fund national pokies reforms, although the price is yet to be set.
The government’s watered down pokies reform, finally agreed to by the Greens last week, will require all poker machines to eventually have pre-commitment technology that will allow punters to preset how much they are willing to lose.
Legislation associated with the reforms imposes a ”supervisory levy” on venues that will be used to fund the scheme – the price of the levy has not been set yet but the government says it will not raise a dollar more than is needed to fund the scheme. The levy’s rate will not be set until after legislation is passed.
Eventually all pokies within a state will have to be linked so players locked out of one venue, once they have exceeded their limit, will be locked out of all pokies.
Clubs Australia would rather its members did not have to pay, but the government told clubs in February this was non-negotiable. Executive director Anthony Ball said there were some serious issues with the levy, including the fact it had no expiry date or cap, and that it would be set after legislation was passed. There is also concern that small clubs will be charged as much as casinos per machine.
Mr Ball said any new tax would be on top of the cost of installing voluntary pre-commitment on every poker machine. ”This power to tax is effectively an admission that a federal bureaucracy is going to be needed to run the voluntary pre-commitment technology,” Mr Ball said.
“Clubs are being asked to support legislation without knowing what the full cost of that support would be or how it could increase in the future,” Mr Ball said. “Members of Parliament are now being asked to vote on legislation to introduce voluntary pre-commitment without knowing if that technology comes with a new tax for every club and hotel.”
Clubs Australia backs voluntary pre-commitment and a trial of the compulsory scheme to be held in the ACT.
Clubs Australia was told in February, during consultation on the bill, that a levy was non-negotiable and a Clubs’ submission paper says that if a levy had to be paid it was best done on a machine basis, not revenue. It says the levy referred to in the paper is the Gaming Machine Regulation levy, which some clubs may have to pay, not the supervisory levy.
A spokeswoman for Families Minister Jenny Macklin said it had been made clear to Clubs Australia that there would be a supervisory levy to cover the cost of administering the rules. ”The legislation is also clear that the levy will not start until regulations are made, and we have consulted further with industry,” she said.
‘The supervisory levy can only be used to cover the costs of administering the legislation. It cannot raise $1 more than it costs to administer the new rules. It does not, and cannot raise revenue for the budget.”
Government said the industry requested that details for the supervisory levy be settled in regulations, following further consultation.

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BUYERS BAULK AT ONLINE SHOPPING TAX ON OVERSEAS PURCHASES

Sophie Elsworth, The Courier-Mail, 6 November 2012

ONLINE shoppers are angry they could be forced to pay tax on goods bought from overseas websites but retailers say it will help revive their struggling industry.
Under recommendations in the Federal Government’s goods and services tax review, the suggested changes could result in Australian online shoppers being hit with GST costs when buying goods from international websites.
Online shopper Patricia Tanks, 43, said she regularly shopped online for “convenience”. “There are some things that you can’t buy here and there’s not as much variety as overseas,” she said. “I don’t buy online because it’s cheaper, I do it because it’s convenient, I’m a mother of three children.”
Shoppers don’t pay GST on goods bought for less than $1000 on overseas internet purchases.
Shopper Estelle Oliveri said the introduction of GST on goods bought overseas wouldn’t put her off buying from international websites. “I wouldn’t be happy about it,” she said. “If I desperately wanted it, I would buy it regardless.”
A 2011 review found if the tax-free threshold on internet goods were lowered from $1000 to $100, it would cost about $500 million for the Federal Government to implement and has been deemed far too expensive to do.
But Australian Retailers Association executive director Russell Zimmerman said changes needed to be made. “It needs to be a level playing field, retailers that are retailing online in Australia have to pay the GST as do bricks and mortar retailers,” he said. “Where those products are coming in from overseas, that’s where it’s hurting the Australian retailer.”
Mr Zimmerman said GST charges on overseas goods would help improve the nation’s unemployment levels and boost the economy. “The industry employs something in the area of 1.2 million people, so from that perspective the consumers are supporting the jobs,” he said. “We are protecting some of those jobs for our kids and grandkids and ensuring the retail industry can survive.”
New figures released by the Australian Bureau of Statistics yesterday showed retail spending rose 0.5 per cent in September.
CommSec economist Savanth Sebastian said if the tax threshold was lowered for overseas online sales, it would be a good result for the Australian economy. “It makes the environment more competitive and fair across local retailers as well as the online retailers and that’s a good outcome,” he said. “Yes it means more money into the Government’s coffers, but that money can certainly be used in other parts of the economy.”
Treasurer Wayne Swan yesterday told radio the Government was not considering changing the GST because it would hit struggling Australians hard.
Retail magnate Gerry Harvey, who has been a strong advocate in introducing a tax on overseas goods, said he did not want to speak on the issue. He said he was attacked after fighting for changes to be made in 2010.

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UK AND GERMANY FLAG TAX CRACKDOWN ON E-COMMERCE

The Sydney Morning Herald, 6 November 2012

UK finance minister George Osborne has joined forces with the German finance minister, Wolfgang Schauble, to announce an international crackdown on tax avoidance by big multinationals, such as eBay and Amazon. Osborne said he and Schauble, meeting at the G20 finance ministers’s summit in Mexico, had called for ‘‘concerted international co-operation to strengthen international tax standards that at the minute may mean international companies can pay less tax than they would otherwise owe’’.
Neither man was eager to identity individual corporate culprits, but government sources said the spread of the e-commerce, and the ponderous nature of international corporate tax rules have left governments trailing behind multinationals as they shift profits around the globe. The two men, determined to give the issue a political push, said they would back the OECD’s current work on identifying possible gaps in the standards, as a first step in promoting a better way of dealing with profit shifting and base erosion of corporate tax at the global level.
The OECD is seen as the guardian of global tax standards. Trying to show a balance between his defence of low tax rates and the need to act against firms that repeatedly pay virtually no tax, Osborne said: ‘‘We want competitive taxes that say Britain is open for business and that attract global companies to invest in and bring jobs to our country, but we also want global companies to pay those taxes. The best way to achieve that is through international action that ensures strong standards, without pricing ourselves out of the global market.’’
The joint statement by the two countries – a rare example of Anglo-German co-operation said: ‘‘international tax standards have had difficulty keeping up with changes in global business practices, such as the development of e-commerce in commercial activities.’’ It adds: ‘‘As a result, some multinational businesses are able to shift the taxation of their profits away from the jurisdictions where they are being generated, thus minimising their tax payments compared to smaller, less international companies.’’
In the statement, Britain and Germany said they expect the first report from the OECD at the next G20 meeting in Russia in February 2013. The two men agreed their joint approach when the chancellor visited Berlin on Thursday last week.
The co-operation comes ahead of a meeting between David Cameron and Angela Merkel on Wednesday. Government sources said there was growing international political support for a crackdown on some of these multinationals that were in some cases either paying next to no tax or funelling profits to low corporation tax regimes such as the Cayman Islands, Holland or Ireland.
The sources added there was equal determination to act in America, even though many of the companies under the microscope are US based. Changes to the international standards have to be agreed at the international level.
But the British government believes there have been time lags in updates to technical tax standards that may be creating unintentional gaps in them. The OECD will present the next stage of its proposals to its committee of fiscal affairs (CFA) on 16 November in Paris.
Britain has the lowest rate of corporation tax in the G7, and has cut its rate by more than any other G20 country over the past two years (from 28% in 2010 to 22% by 2014). In the last year, around half of the GBP136bn of taxes paid in the UK by the biggest businesses, came from foreign owned businesses; while inward investment created or safeguarded over 100,000 jobs.
The UK tax authorities have raised more than GBP1.5bn since March 2010 through increased efforts in tackling transfer pricing. The transfer pricing rules aim to ensure that multinationals pay the right amount of tax by determining the taxable profits of each company as if it were an independent entity trading on arm’s length terms with other members of the same group.
The Guardian, London

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IMF BACKS WIDENING GST AS LEADERS REJECT NICK GREINER CALL

David Uren and John Ferguson, The Australian, 6 November 2012

THE International Monetary Fund has backed shifting the burden from income taxes to the GST to lift economic growth, as a forthcoming OECD report shows Australia makes less use of consumption taxes than almost any other country in the developed world.
Wayne Swan and Tony Abbott yesterday rejected calls last week by review chairman, former NSW premier Nick Greiner, for a debate on the scope and rate of the tax.
The new IMF study shows high-income countries would raise their long-term economic growth rate by 0.1 per cent for every 1 percentage point shift from income taxes to consumption taxes. The study is the most comprehensive undertaken, including 69 countries over 20 years, and was designed to settle the debate about the effectiveness of consumption and property taxes.
Advance figures from the OECD’s review of global tax trends show Australia has the fourth lowest level of consumption taxes in the developed world. However, the Treasurer said yesterday shifting the tax base to make greater reliance on GST would be inequitable. “We believe that the GST, by lifting it and broadening the base will hit people, particularly battlers, really hard and that’s not a priority of this government. We support working families in Australia to ensure that they have a fair go in the tax system,” he said.
The Opposition Leader said the case for change had not been made. “We have no plans to change the existing system and we don’t think the government does either. We think the existing system is the system we should stick with,” he said.
Tasmanian Labor Premier Lara Giddings backed Mr Greiner’s call to explore options to grow the GST pool. “The collapse in GST receipts as a result of low consumer spending in recent years is the key reason for the state government budget challenges. While there are signs of recovery nationally, confidence remains fragile,” she said.
Victoria and NSW demanded the transfer of GST funds to be made on the basis of a population-based distribution with the commonwealth topping up the fiscally vulnerable jurisdictions.
Victoria, Queensland and Western Australia also rejected changing the rate and scope of the GST, arguing it was not as urgent as dealing with the disadvantages faced by the bigger states.
It is understood that the Greiner review rejects the claims by WA that it is being penalised by the system, saying its share of GST revenue has been reduced because its revenue from mining royalties and other sources thanks to the resources boom. But the review accepts it has become increasingly difficult for the states to manage their budgets because of the variation in GST receipts from one year to the next.
Last year’s budget forecast GST payments to the states of $48.3 billion but the final budget outcome released last month showed actual payments were only $46bn. The review says Canberra has greater capacity to absorb this volatility than the states. It’s understood the review recommends altering the way the GST is collected on online sales.

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ONLINE GST REPRIEVE FOR LOCAL RETAILERS

Pip Freebairn and Michaela Whitbourn, Australian Financial Review, 5 November 2012

The federal government’s GST review is expected to recommend expanding the GST net to catch $4.2 billion in online sales, in a bid to shore up ¬collapsing federal tax revenues. A move to tax overseas internet sales, by either lowering the $1000 tax-free threshold or imposing the tax on offshore suppliers, would be backed by local retailers, which have long complained that they are put at a competitive disadvantage at a time when online shopping is growing.
The report has been handed to Treasurer Wayne Swan and comes as Deloitte Access Economics forecasts the government’s taxation revenue will already fall short of Treasury estimates and push the budget into deficit this year. Finance Minister Penny Wong acknowledged pressures on revenues but ruled out widening the base or lifting the rate of the GST, as urged by former NSW premier Nick Greiner on Friday.
GST distribution put in ‘long-term context’
Mr Greiner, who along with former Victorian premier John Brumby and Ferrier Hodgson partner Bruce Carter led the GST review, told The Australian Financial Review that the review panel’s final report did not make any recommendations about the scope or rate of the tax. “The report is greatly circumscribed by the terms of reference,” he said. “I made some comments of my views.”
But he added there was a chapter in the report which put GST distribution in a “broader, long-term context”.
The GST review’s earlier report warns the government is losing $1.7 billion in tax each year under existing rules. The Productivity Commission found in late 2011 that lowering the tax-free threshold to $100 could collect around $500 million but would cost twice as much to implement. A federal taskforce is reviewing ways to make parcel processing more efficient; it reported in September that imposing GST on imports over $500, would lower handling costs.
Research commissioned by the GST review proposes various options for expanding the GST net, including that collecting tax from non-resident suppliers, or from Australian recipients who are registered for the tax.
Asked whether the report would recommend or call for a consideration of lowering the tax-free threshold for online purchases, Mr Greiner said: “We do deal with the question, yes.” He said the report would also consider the interaction between the federal mining tax and state royalties. “We obviously do because . . . there’s a specific term of reference that’s basically about that,” he said.
Wong says ‘budget on track’
Senator Wong hinted the budget surplus could be abandoned and fiscal policy eased if global conditions worsen. She said the budget was “on track” but refused to give an iron-clad guarantee the government would achieve its surplus, saying the fiscal policy would be set in line with economic conditions. “We’ve always taken the approach that our budget settings – fiscal policy – has to respond to economic circumstances, has to look to the economy and jobs, and that’s what we’ve done,” she said.
The mining tax would collect just $2 billion dollars in 2012-13 before state royalties were refunded to companies after reaping nothing in its first quarter, while company taxes would also fall short of Treasury estimates, Deloitte predicts.
In its latest update on the budget released today, Deloitte Access Economics predicts the government will end up with a cash underlying deficit of $4.2 billion in 2012-13, rather than the $1.1 billion surplus predicted by Treasury’s budget update. “We’ve done that in the GFC when we acted to ensure people didn’t end up on the unemployment scrap heap as we’ve seen in Europe, and we’re doing it now.”
Ms Wong said a Labor government would not raise GST because it was a “values issue” owing to its regressive nature. Changes to shore up the fiscal position would focus on tightening up eligibility for government payments rather than lifting taxes.
GST change ‘inevitable’
The head of the federal government’s business tax working group, Chris Jordan, told the AFRthat change to the GST was inevitable in the longer term, echoing earlier comments by former Treasury secretary Ken Henry. Mr Jordan said that while GST reform was unlikely in the short or medium term, it had to happen in his lifetime. “We can’t just keep saying we should do this because it’s not going to happen in the medium term, but in the long term it’s got to be looked at because we will face an increasingly difficult maintenance of our corporate tax base in an incredibly mobile world,” he said.
The business tax working group was not permitted to recommend changes to the GST regime to fund a cut in the corporate tax rate, and was unable to recommend a trade-off.
Former federal treasurer Peter Costello said late last month that the rate and base of the GST were adequate but Labor had failed to close holes punched in the revenue base by various court decisionsIt is unclear when Mr Swan will release the GST report or implement the recommendations.
Mr Richardson said GST collection had been weak for several years as it is levied on the weak parts of consumption but that was set to change. “The fact is things are about to get a lot better for the state’s coffers because a recovery in housing construction, which has been weak for years, will turbo charge revenues,” he said. Housing construction is set to pick by 9.4 per cent next year, after just 0.5 per cent this year, encouraged by low interest rates, he said.

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‘DRACONIAN’ ATO ACCUSED OF BULLYING TAXPAYERS

Greg Hoy, ABC News, 1 November 2012

The Australian Tax Office (ATO) has been accused of bullying and making it incredibly difficult for Australians to recover money in situations where they have been over-taxed.
There is no question that the ATO has an important job to do, but there exists little recourse for Australians when something goes awry with their tax return.
Under Commissioner Michael D’Azenzo, the ATO’s 22,000 staff processed 15.6 million tax returns last year, collecting $273 billion for government. But what about the lone taxpayer who has been left high and dry by an unjustified and miscalculated tax bill?
Architect Gary Kurzer thought he had found his slice of paradise – a place to live and invest for his and his partner’s superannuation. The Kurzers borrowed to buy two adjacent units near the beach, but as building expenses grew the bank forced them to sell before the units were completed. “There was no profit at all. We had to pay interest for nearly a year without generating any income,” he said. But the Australian Tax Office took a very different view; as the Kurzers’ paradise was lost, a seemingly endless battle began. It was a bitter dispute Mr Kurzer ultimately won, but one he says ruined him financially regardless. “The original amounts of money they claimed we owed were $207,000 in GST and profits on $605,000 and eventually it came down to we had a tax liability of $8,000,” he said.
“I think it’s iniquitous anyone should be put through a process, lose all of their assets, 40 years of work, your superannuation assets, your health.” The law in Australia simply is that you are guilty until you prove yourself innocent – at your expense – for whatever length of time it takes to defend yourself.”
‘Draconian powers’
Through the ages, the taxman has borne the brunt of endless ridicule. Critics abound, although most will not speak publicly for fear of recrimination.
Andrew Haines is a South Australian policeman who emigrated from England five years ago. As the Tax Office grew suspicious about money he had brought with him after selling his assets in England, he recently got an invoice and a rude shock. “It was for $367,000. They’d worked out this was foreign sourced income,” he said. “All I got was a bill very nicely backdated in interest and backdated levy-care charges and they wanted the money in four weeks. “I worked out my wages wouldn’t keep up with the compounded interest rates. In terms of bankruptcy and whether or not they could take my house off me, it really was a stressful moment in our lives.
“The Tax Office has amazing and draconian powers. But with that comes responsibility.”
Ron Pattenden and his lawyer David Hughes have fought the Tax Office for eight years over revenues from Mr Pattenden’s insurance business based in Vanuatu. The legal battle has so far seen Mr Pattenden’s tax bill slashed from $15 million to zero.
“There’s so many people just running scared against the ATO,” he said. “It’s true they can do horrid things to people. They’ve done horrid things to me – cost me relationships.
“But people like Gary Kurzer where it cost him his family, his business, his home and destroyed him – mental breakdowns. These people should be made accountable.”
Mr Hughes says people have to come forward about their experiences with the ATO. “The Tax Office will continue to be emboldened by the fact people don’t challenge them and as a result the assessments will just get worse and worse in order to raise as much money as they can, or the other alternative is for more and more people to become bankrupt,” he said. “The taxpayer first of all has to come up with the money in order to be able to stay alive long enough to have the fight. Then they’ve personally got to fund the fight themselves. “[Meanwhile] the tax office has all of the resources of the Australian Government funded by other taxpayers, including the ability to hire QCs and fight the matter in court at a virtually unlimited rate.”
Exhaustive tussle
The ATO would not comment on Mr Kurzer’s case or others like it. Nor would it respond to criticism that it can be overly aggressive and simply unfair in its assessment of tax liabilities, hefty penalties and demands for payment.
Mr Kurzer’s exhaustive tussle with the taxman has lasted five years, at the end of which his energy and finances were spent.
ATO investigators stopped taking his calls, but then in his darkest hour came a stroke of luck. With one last call by sheer fluke, ATO Commissioner Michael D’Ascenzo himself picked up the phone. “I asked if he would be prepared to listen to my circumstances and he kindly agreed. He then appointed the Assistant Deputy Commissioner to do a review of my case,” he said.
“I got a letter from her that the tax office had made errors to about the sum of about $354,877. She apologised that they’d made these errors.” Mr Kurzer’s tax bill was reduced to $8,500. After all the pain and suffering he had been through, he was then told he would be entitled to compensation under the Government’s Defective Administration or CDDA Scheme.
There was, however, a catch. “The scheme itself said that the amount of money that can be paid for compensation is unlimited. The Tax Office informed me that the maximum amount of money they ever pay under a CDDA claim is $70,000,” he said.
The ATO made a small compensation offer on the condition he accepted within five days and signed a confidentiality agreement – an offer he declined. “The quantum of money they offered didn’t even pay for my credit card costs to pay for my accountant and my lawyer,” he said.
“The personal costs just in money terms we’ve lost all of our investment – I have a possession in the Supreme Court for my home. I’ve had to sell my shares. I’ve had to sell personal assets just to keep going over the last few years.”
To ensure the ATO does not abuse its enormous power, Inspector General of Taxation Ali Naroozi must review ATO procedures and recommended necessary changes to government.
“Sometimes they are just enforcing the laws that we have and you can kind of understand why those laws are there,” he said. “But they can be harsh in circumstances or the way that they are enforced can at least appear to be harsh.”
Tax Ombudsman
So, you may well ask, where was the Tax Ombudsman in such matters.
We had a meeting with the Ombudsman – it’s like getting to the angel Gabriel. You’ve got to have a real good case to get there,” Mr Pettenden said.
Over the years, Mr Kurzer repeatedly asked for help from the Ombudsman’s office. “The Ombudsman looks good on paper but it’s discretionary as to whether he takes your case,” he said. “In our case he’s declined to take our case, and the very best outcome is even if the Ombudsman issues a very damning report, it goes back to the Tax Office, who are under no obligation to accept the findings.” And that is what happened to Mr Pattenden. Even worse was what came next.
“Apparently the report was that damning toward the ATO that they sent it to the ATO for right of reply … and again, months and months and months went by then we finally got a report that had been reworked or doctored based on the answers from the ATO,” he said. “On requesting the original report [I'm] sad to say it wasn’t available. Quote: ‘It’s been typed over and we’ve lost it’.” Under freedom of information laws, Mr Pattenden’s lawyers asked for confirmation the Ombudsman’s original letter to the ATO was destroyed and the electronic copy overwritten. On both questions, the Ombudsman replied: “This is correct.”
“It’s a pretty unsatisfactory state of affairs,” said Mr Pettenden’s lawyer, David Hughes. 7.30 asked the Tax Ombudsman’s office if such lost letters to the ATO are a regular problem and is still awaiting a reply.
It would be incorrect to assert the ATO loses more cases than it wins; quite the reverse is true, except in the High Court. But is it simply the case that he with the best lawyers wins?
“There should be fairer balance,” said Mr Hughes. “There should be a more fair address between the Tax Office and the taxpayer in battling matters in court and if you have a look at the Federal Court lists, lots of people and lots of companies are falling over simply because they can’t afford to fight.”

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