On the face of it, you wouldn’t expect an inquiry by the Australian Senate into corporate taxation to provide riveting television.
But that’s exactly what transpired last Friday afternoon. While the rest of Australia was knocking off from work, I sat down to watch the Melbourne hearing of the Senate’s Economics Committee, currently investigating corporate tax avoidance by big corporations.
And what a show it was.
Facing questions were representatives of some of Australia’s biggest corporations, including BHP Billiton, the biggest of them all.
The Senate committee wanted to know how the big mining companies were structuring their tax affairs. Were they, for instance, sending most of their earnings to tax-friendly Singapore, under the guise of a so-called “marketing hub”?
No, said Fortescue Metals. We don’t have a Singapore marketing hub.
Yes, said Rio Tinto. We do. Billions of dollars worth of earnings are being repatriated to Singapore, where the mining giant pays far less tax than it would if those earnings were disclosed in Australia.
How much less? Well, Rio pays a rate of 5 per cent in Singapore, compared to the statutory corporate tax rate of 30 per cent in Australia.
But it was BHP Billiton that provided the most interesting testimony. Does BHP send revenue to Singapore? The Big Australian wouldn’t say.
After much hemming and hawing, BHP refused to tell the committee about its Singapore marketing hub. Nor would it reveal how much revenue was transferred to Singapore, or how much tax it paid there.
“You are testifying before a Senate committee, a senator has asked you a specific question, this is serious,” the committee's chair, Labor's Sam Dastyari, warned BHP.
Showing the respect BHP has for Australia’s elected representatives, BHP’s boss of corporate affairs, Tony Cudmore, basically told Dastyari and the Senate committee to piss off.
“Our position is that's a matter for commercial sensitivity and that's the position we adopt,” Cudmore said.
If you’re wondering why a company that sells lumps of rock needs a marketing office, you can rest assured that it’s not about making iron ore sexy. Instead, the so-called marketing hubs are all about hiding tax dollars.
It works like this: BHP digs up rocks in Australia. The Australian operation sells its minerals to a BHP subsidiary in Singapore. That subsidiary then sells the minerals on to end customers in Japan and China – but with a substantial mark-up.
The “profits” of the Australia-Singapore transaction are not really profits at all – after all, they are merely paper shuffling between two BHP operations. But the mark-up is booked in Singapore, not in Australia, and therefore escapes Australian tax liability.
According to the Australian Financial Review’s Neil Chenoweth, “in the nine years from 2006, that gap or mark-up between what BHP Billiton Marketing in Singapore pays for iron ore and the price its resells it for to customers has totalled $US25 billion.”
The Big Australian has escaped billions in tax liabilities with the deft maneuver. In BHP’s piquantly named Sustainability Report, the corporation records that it paid just $26 million in tax at its so-called “marketing headquarters” in Singapore last year. It paid a suspiciously low $23 million at its Swiss marketing office in Zug.
Yet BHP Billiton Marketing’s corporate profits in Singapore have totaled more than $5 billion since 2006. Corporate profits booked in Switzerland are also largely untaxed, after being paid as dividends to another BHP subsidiary in the Netherlands.
BHP would not detail any of this to the Senate committee last Friday, on the grounds that it was commercially sensitive. The hearing descended into farce when South Australian Senator Nick Xenophon pointed out that Rio Tinto, BHP’s main competitor, had provided its Singapore details. At the time, Mr Cudmore was literally sitting next to representatives of Rio Tinto.
The Committee adjourned for five minutes to meet to decide what to do about BHP’s intransigence. When it re-commenced, Dastyari gave BHP two weeks to provide the information, warning the mining giant that it could be in contempt of the Senate if it refused.
Both Rio and BHP admitted they were the focus of ongoing audits from the Australian Tax Office about how much tax they were paying in this country. Big tech companies like Google, Apple and Microsoft are also in the frame.
Google also sends much of its Australian revenue to Singapore. The tech giant's favourite dodge is to charge its Australian subsidiary for licence fees and intellectual property. This leaves but a tiny paper profit remaining in Australia, requiring miniscule Australian tax payments.
For those who watch corporate tax avoidance closely, the revelations of the Singapore marketing hub tax dodge come as no surprise. Companies have been routinely laundering their corporate profits through secrecy jurisdictions into low tax havens for decades. One of the best investigations remains Nicholas Shaxson’s ground-breaking book, Treasure Islands, in which News Corporation appears regularly.
But if corporate tax avoiding is par for the course, what is surprising is the public response to the revelations. The scale of corporate tax avoidance has been covered extensively in the mainstream media, and has clearly struck a chord among ordinary voters.
Privately, Labor sources have told New Matilda that they are surprised at the attention the corporate tax inquiry has received, and by the intensity of public feeling about corporate tax avoidance.
Corporate tax is an issue that is now running well ahead of the politicians, who are scrambling to catch up to voter sentiment. It’s an international phenomenon: in Britain, for instance, the conservative government of David Cameron has implemented a so-called “Google tax” to force tech companies to pay tax on the digital goods they sell to British consumes. Meanwhile, British Labour has made tax dodging by big companies and wealthy foreigners a major election issue.
Back in Australia, Joe Hockey has raised the possibility of an Australian version of the Google tax, even though it may well fall foul of international tax treaties.
CEOs and business lobbyists are constantly lecturing us about how Australia needs to balance the budget and restrain government spending on welfare benefits. Ordinary voters can spot the hypocrisy a mile off.
Just last week, a group of business lobby groups were warning that “we cannot continue to mortgage our nation’s future on the questionable assumption that we may be in a better position to fix the budget on the never-never.”
As Richard Cooke remarked last week, the influence of corporations in this country is endemic. “That’s how things work in Australia,” Cooke wrote. “Want a review of welfare? Ask a mining executive. Want to set your tax policy? Ask a mining executive. Want to know the future of education? Ask a mining executive, who will then consult with some more.”
Tony Shepherd, a poorly-performed Transfield chair and former Business Council of Australia lobbyist, was the man picked to head up the government's draconian Commission of Audit. Andrew Forrest, the billionaire boss of Fortescue Metals, headed up a welfare review that recommended quarantining welfare benefits to the poor and to Indigenous Australians. But when it comes to paying their fair share, big businesses consistently find mean and tricky ways to escape their tax obligations.
Given their outspoken calls for welfare and tax reform, it’s not surprising that voters are starting to take an interest in just how honest business leaders are when it comes to their own tax arrangements.