The Great Multinational Tax Rort: how we're all being robbed

by Martin Feil (Contributor)

Enough is enough In 2011, Amazon paid an effective tax rate of 0.5 per cent on its UK earnings of £3.35 billion. In 2013–14, Apple Australia paid around $80 million in income tax on revenue of over $6 billion.Multinational corporations have avoided trillions of dollars of tax over the past 25 years. Tax avoidance is legal, but its massive abuse by multinationals has had a devastating effect on governments around the world, and has placed an unbearable burden on individual taxpayers and on honest local competitors.Multinational corporations generate profits in around 180 countries around the world. They work hard to avoid, reduce, or delay their tax obligations for as long as possible, and they generally succeed. Sometimes they pay nothing or, at best, the percentage of their multibillion-dollar incomes that they pay in tax is a lot less than the percentage an individual worker pays.Four accounting firms ― PricewaterhouseCoopers, Ernst & Young, KPMG, and Deloitte― are the global accountants and tax advisers for the multinationals. They have been paid over $500 billion in the past 25 years to prepare annual accounts and to manage the multinationals’ tax affairs. The favourite tool of the ‘Big Four’ accountancies to minimise tax for their multinational clients is transfer a complex and confusing array of methodologies and strategies that works to reduce tax or even avoid tax payments altogether.The Great Multinational Tax Rort explains how transfer pricing developed, and describes the strategies and tactics that the Big Four global accounting firms use on behalf of their voracious clients. Written by Martin Feil, one of the few independent experts on transfer pricing and profit repatriation by multinationals ― a former poacher turned gamekeeper ― this is a call to arms for citizens and governments to restore a fair taxation system.

Genres: Nonfiction

256 pages, Paperback

Published November 10, 2016

Reviews

[Andrew Davis · Rating 3 out of 5]

Three stars with some reservations. On a plus side - a very interesting subject with references to Australian context. On the negative side quite a few repetitions and sometimes a bit unclear explanations. For example, I had to refer to the other sources as well to understand Google tax avoidance scheme.
The Big Four global accounting firms using tax heavens for their big customers:
1. Deloitte Touche Tohmatsu
2. PricewaterhouseCoopers
3. Ernst&Young
4. KPMG
The author brings up a legal case of Chevron been sued by Australian Taxation Office about evading tax by setting up its investment loan as follows. Chevron had created a US subsidiary of its Australian company in the state of Delaware, which borrowed $2.45 billion at an initial interest rate of 1.2 per cent and then lent the money to an Australian entity at an interest rate of 9 per cent. It turns out ATO has won the case in the Federal Court in October 2015 and Chevron will have to pay a fine of up to $322M. Chevron said they would appeal, but as per November 2016 nothing has been lodged with the High Court of Australia.
Base Erosion and Profit Shifting – relates to instances where the interaction of different tax rules leads to double non-taxation or less than single taxation. It also relates to shifting profits away from jurisdictions where the activities generating those profits took place.
Internet purchasing constitutes 15% of the Australian retail market.
Manufacturing contribution to GNP has fallen from 27% in the 1970s to 8% now.
Credible estimates say that around 20 to 30 trillion US dollars are held in 100 tax havens around the world.
From 2016 a new tax law amendment came into effect. It’s called “Combating Multinational Tax Avoidance” Act. It compels them to the same standards of disclosure as local companies who are listed publicly on the Australian Securities Exchange. It is to ensure that any foreign company with more than $1 billion in revenues files proper financial accounts, not the skimpy "special purpose" variety so often designed to conceal devious tax schemes.
Apple’s total revenue in 2014-2016 was about $23 billion per year. For that time they paid about $80M in tax – about 3% of their revenue.
Apple’s tax avoidance can be summarised as follows:
Apple Inc, which is based in California, set up two companies in Ireland: Apple Sales International and Apple Operations Europe. They hold the intellectual property to Apple products and brands outside of North and South America. All sales of Apple products in Europe went to these companies, so the bulk of all profits made in Europe ended up in Ireland. Apple and Ireland agreed on a system that channeled “most profits…away from Ireland to a ‘head office’ within Apple Sales International. Apple had been given a tax rate as low as 0.005 percent at some points, far lower than the already-low Irish corporation tax rate of 12.5 percent.
Google tax avoidance is conducted as follows:
1. Google Ireland Ltd collects its revenue from Europe and other countries, which accounts for 88% of its overseas revenue. It employs 2000 people in Dublin, who sell advertising. It pays 12.5% on its profits. Profits are very small as most of the money is sent further to Netherlands and Ireland does not tax payments to other EU countries. Google pays about 1% of its revenue in tax.
2. Bulk of the money from Ireland is received by Google Netherlands Holding BV, which is a shelf company and has no employees.
3. Money is sent straight to Google Ireland Holdings, which is set in Bermuda, and no tax is paid.
4. Small amount of money is sent then to Google California to pay for the intellectual rights. This is then combined with all Google expenses in the US to arrive at small profit which is taxed at 35%.

[Hayes · Rating 3 out of 5]

Could benefit from some more case studies to illustrate the points.
Would be interesting to have the full numbers, particularly around if protectionism results in a better price for consumers - a point largely overlooked.
Ending veers a bit off track and more into Feil's idea of Australia.