I have to say this is one of the most surprising discussions I’ve ever had in estimates.
I was completely shocked to discover in estimates that Australia hadn’t renegotiated its Tax Treaty with Ireland since 1983.
Why this is incredible is that Ireland has reduced its tax rate from 40 cents to 12.5 cents in that time.
Ireland is notorious for being a tax haven so why hasn’t Treasury done something about this?
What’s even more surprising is that Ireland offer a tax credit for the withholding tax rate paid in Australia.
I thought the total tax paid was 22.5 cents if profits were paid to Ireland. I.e. the 10 cent withholding tax in Australia plus the company tax in Ireland of 12.5 cents.
It now seems it may be 12.5 cents if the withholding tax is offset as a credit.
It’s a bit rich to argue Australia has a high corporate tax rate if Treasury aren’t keeping up to speed with withholding tax rates. Corporate taxes should include withholding tax rates as well given that most withholding taxes are paid corporations, especially foreign ones.
PeopleFirstParty.au is the only party that knows how to stop offshore profit shifting. None of the others, major or minor, have a clue about how Australians are being ripped off.
It’s time to end the rorts by lifting the withholding tax rate on profits sent offshore.
Economics Legislation Committee
06/11/2024
Estimates
TREASURY PORTFOLIO
Australian Charities and Not-for-profits Commission
Senator RENNICK: Hi, guys. I’ll just follow up on Senator McKim’s questions about profit shifting, and I’ll pick on one particular withholding tax rate, and that is in regard to Ireland. The withholding tax rate for Ireland is 10 per cent on royalties. Ireland has a company tax rate of 12½c, so 10 plus 12½c less the 30 cent tax deduction here gives someone who wants to shift profits to Ireland a 7½c arbitrage. Why have we got such a low withholding tax rate on royalties paid to Ireland, knowing that a number of multinationals use that to shift profits offshore?
Mr Hirschhorn: I might make the comment that Australia’s 30 per cent corporate tax rate used to be in line with OECD averages and is now a relatively high rate. I think the comment that was quoted before, from Ms Saint says, was that when we have a high corporate tax rate and other countries have lower corporate tax rates, there are incentives to what we would describe as transfer misprice. The tax system is based a transfer pricing, but what we’re concerned about is transfer mispricing. To your comment: I suspect that in Ireland the arbitrage is actually higher than that, because in Ireland they would likely get a credit for our withholding tax.
Senator RENNICK: Oh, right. Okay.
Mr Hirschhorn: I would say that withholding rate is in line with the treaty network. Why that is the case is more a policy question.
Senator RENNICK: Okay. Sorry. I haven’t got a lot of time. What’s stopping us, as an independent sovereign country, from resetting our treaty with Ireland to say: ‘There’s a clear arbitrage here. We’re going to lift the withholding tax rate to, say, 20c so that the cumulative tax rate is 32c, so that we actually discourage our profits earned here going offshore’? Do we have the power, as an independent sovereign country, to do that?
Mr Heferen: That’s a policy question.
Ms D Brown: It’s probably a question for Treasury, Senator Rennick.
Mr Robinson: Perhaps I can help you with that one. Under the network of double tax agreements that we have with countries, many of those are longstanding. Just during that discussion I was checking the date that we agreed a DTA with Ireland, and it was 1983. So that’s quite a longstanding treaty, and that withholding rate on royalties of 10 per cent would have been negotiated as part of the negotiation of that treaty. For Australia to change withholding rates in respect of flows of payments to another jurisdiction that are governed under a double tax agreement, we would essentially need to engage in a renegotiation of the DTA and seek to vary it as part of the process.
Senator RENNICK: How hard is that? In 1983, Ireland didn’t have a company tax rate of 12½c. What mechanisms do we have so that, when these countries on the other half of the tax treaty lower their tax rates with a view to attracting capital, we automatically go: ‘Hang on here! A plus B minus 30 is tax arbitrage’? What are we doing to stop the leakage of profits offshore? What active steps do you guys, Tax or Treasury—I don’t care who—take to stop the leakage profits offshore, notwithstanding that most politicians don’t understand this? They’re not watching this stuff. I do, but most of my colleagues don’t. That’s okay. They can’t keep their eyes on everything. It’s up to you guys, as the guardians, to stop those profits from going offshore.
Mr Robinson: I’ll give you a two-part response. Treasury is very active in the OECD around the base erosion and profit-shifting program. We’ve been quite active through that. Successive governments have implemented a range of measures that have largely emanated from the OECD work to try to address base erosion and profit-shifting issues.
In relation to specific DTAs, we review the program periodically and provide advice to government, and it’s then up to government to agree to a program. We currently have a program which has us pretty full on tax treaty negotiations and renegotiations out to the end of 2027.
Senator RENNICK: Okay, because you can google ‘PwC tax treaties’ and they’ve got, for a whole list of countries, dividends, interest and—what was the other one?—royalties. Do you guys keep a spreadsheet like that, where you go and add it all up to see whether or not it’s less than 30 per cent, to detect these arbitrage opportunities?
Mr Robinson: I would say that in our broader scanning of tax developments globally we do keep an eye on it. Whether we have a specific spreadsheet or not, I don’t know, but we do make an effort to keep an eye on developments globally.
