The Two Major Parties are selling us out.
I’ve spoken about this topic many times before but it’s worth repeating because the two major parties aren’t doing anything about it.
Our taxation system encourages foreign investment over domestic investment by letting multinationals avoid paying tax in Australia.
This is just a straight out betrayal by our politicians who should be advocating for multinationals to pay more tax on profits sent offshore.
I’ve spoken to Frydenberg and Chalmers about this and neither of them have done anything about it.
They have no idea and no solutions.
It’s why the major parties can’t be trusted to put the people first.
Senate on 11/09/2024
COMMITTEES – Economics References Committee
Senator RENNICK (Queensland) (17:35): The other thing we need to look at in this country is that we have an onshore tax rate of 30c, and that’s before franking credits, which I’ll come to in a minute. Depending on the withholding tax treaty that you’re dealing with and depending on where that money is sent, that withholding tax rate on profits transferred offshore can be between zero and 15c in the dollar if it’s with one of our recognised trading partners. That is basically encouraging any company to either set up a subsidiary offshore or transfer their profits offshore. That is ridiculous.
We saw it a few years ago with the iron ore companies. Obviously, if they kept their earnings here in Australia, they’d pay 30c, so they decided to set up a marketing hub in Singapore whereby they could pay marketing fees to Singapore. What Singapore knows about marketing iron ore is beyond me—it’s not like they’ve ever had any iron ore—but suddenly BHP, Rio and Fortescue decided that they needed to set up a marketing hub in Singapore. Of course, that was nothing more than a tax dodge. I’m glad to say that the tax office did get onto those iron ore companies about it and they’ve shut them down.
But this sort of behaviour goes on all the time. We’ve seen it with Pfizer, for example. Their operating profit ratio is seven per cent, despite the fact that their worldwide operating profit is 40 per cent. Of their $1.4 billion in sales, about $1 billion of it got transferred to Ireland. Why Ireland? Why that money needed to go to Pfizer Ireland, who I doubt would actually have a manufacturing plant, is beyond me—other than the fact that Ireland has a company tax rate of 12 per cent. So it’s very simple logic. If you get a tax deduction here, you save 30c in the dollar. If you send the money to a low-income tax jurisdiction, you pay 12c there.
Many people will say, ‘You can’t have withholding tax on profits sent offshore because you’ll have double taxation.’ That’s not the way it works. What you’ve actually got to look at is the cumulative rate of taxation. If there’s a withholding tax rate of 10c here in Australia, on profit-centre Ireland, which has a company tax rate of 12c, the cumulative rate of taxation is 10c plus 12c, which is 22c. It’s less than 30c. So there’s an eight-cent arbitrage there—for the sake of paying a lawyer to set up a subsidiary, putting an office over there and effectively transferring profits offshore. That sort of behaviour goes on quite a lot. While I know the tax office does a very good job and tries very hard to crack down on it, they literally cannot keep up with the amount of international transactions going on.
That is why the very easy way to do all this and deal with this in a heartbeat is to effectively increase the rate of withholding tax on all profits sent offshore. There are more tax treaties than you can poke a stick at, unfortunately. I haven’t been able go through all of them, even though after I finished my masters of tax law I actually went back and did another subject at the University of Sydney just to come up to speed with it. But you just can’t keep up with this sort of stuff.
Put a higher withholding tax rate offshore and lower the company tax here so that we encourage people and companies to retain their earnings here in Australia rather than shift the profits offshore. You will find that, like anyone that understands a balance sheet, if you increase your retained earnings, you’ll have a higher capital account and you’ll need less debt. So it’s actually one of these things that will help reduce foreign debt in this country.
