Question

The purpose of the task is for you to demonstrate high-level critical reflection and analytical reasoning skills in the context of the application of Australian taxation law and taxation law policy. You must undertake academic research which demonstrates the following:
1. An in-depth your understanding of how the specific tax law applies,
2. The policy context of the law and if relevant how other jurisdictions deal with similar issues,
3. Critical reflection as to whether the law achieves its stated purpose aligns with principles of good tax policy or could be improved/amended. These critical reflections should be supported by the research you have undertaken as well as your own independent thought.

Topic:

International Tax Avoidance – The avoidance and/or minimization of tax by large multi-national corporations are of great concern to Governments and tax administrators. Identify and discuss at least one common method multi-national corporations might use to avoid tax in Australia. Then identify and critically evaluate at least one current strategy implemented by the Government and/or the ATO that is used to prevent this.

Answer 1

International Tax Avoidance has become a growing phenomenon for the Multi National Corporations who are paying next to nothing taxes and basically shifting their taxable income to the other rtax safe heaven countries. This leads to tax avoidance but more than that the countries that need to tax these transactions for their domestic benefit are unable to tax them and benefit their general public.

Australia has also suffered the same fate as various countries are facing today. By taking advantages of the tax laws and the tax loopholes especially many multinational corporations in Australia are able to siphon off there taxable income to other countries and they avoid paying tax so much so that many of these corporations end up declaring tax losses in the country. Even companies that have been domestically formed in the Domicile of Australia also end up shifting their profit base and pay lower taxes. As per the ATO many well known corporations are using one of the most foolproof and a LEGAL way to avoid paying tax and that is known as PROFIT SHIFTING METHOD.

One such fine example of a company that has been founded in Australia and paid no tax is Glencore though they keep on generating $15 Billion annually. So how do this profit shifting method works. To put it down simply `most of the multinational comapnies by structuring transactions between their subsidaries located in tax heaven or the low tax countries move their profit to them and reduce their taxes in the high tax paying countries. further they move their large amount of debts to these countries so that overall their tax reduces even further and in some cases even lead to loss. Australian tax system gives a better deduction of debt and interest and hence moving your debt bases here make sense for these companies. This leads to continous movement of money to and fro around the globe so that the benefit of the the tax loopholes and tax breaks can be maximised. Most of the comapnies often restructure the transactions by introducing various shell companies in between so that the web becomes as complex as possible. One should note that opening shell companies is not an illegal act but utilising the said company to do illegal acts that makes a problem. The most beautiful explanation is that the above arrangement is completely LEGAL and no civil or criminal proceedings can be bought forth on these companies.

Now moving on to the next part of the question that wants us to state what action has the Australian Government and the ATO has taken to avoid these tax lapses is the formation of the OECD agreement. OECD stands for Organisation of Economic Cooperation and Development a fundamental step taken in the G 20 meetings. By this agreement the various countries who are the members of the G 20 have agreed upon the to bring together a network of tax laws that shall hit upon these multinational corporations and there practice of shifting tax bases to other countries so that they can make these companies get taxed in the country where they are operating as well as the country they desire to shift their profits to. However as far as Australia has been concerned or any other country these actions shall take time to fructify as these corporations often take help from various political leaders as well and help them in their respective campaings by donating significant amount of money. Hence until a firm stand is not taken by the ATO these actions shall remain only on paper and shall not ructify.