AUSTRALIA NEEDS A FAIRER TAX SYSTEM NOW

    TAXATION REFORM NEEDED FOR ALL AUSTRALIAN’S

             IS A TRANSACTION TAX

The following figures are taken from the RBA [Reserve Bank Australia] and

APCA [ Australian  Payments Clearing Association]. These figures are based on

A 12 Month year / 22 day working month.

Transaction Tax Figures shown are calculated on 1.5% percent

                                                 $Millions $Billions

                                                 per/month per/year

RBA

ASX Transactions per/month 96.272 1,155,264

APCA

Cheque Transactions  136 1,632

Direct Entry Credits   310 3,720

Direct Entry Debits    242 2,904

RBA

Card Transactions

ATM             127.2

EFTPOS        79.2

Credit Card  170.4

High Value Clearing Systems

HSVC Transactions 1,672 20,064

Total Estimated Annual Transactions Value = 29,852,064,000,000 Billion

EXPENDITURE

Compare this with the 2008 Federal Governments Budget /Taxes.

Govt. Est Transaction Tax

Expenditure Estimated Expenditure

$Millions $Millions

How the Revenue is Spent:

Community Services/ Culture 6,105 6,105

Energy /Transport/ Infrastructure 8,356 16,712

General Public Services 79,270 79,270

Education / Training 18,764 33,266

Social Security / Welfare 102,439 183,512

Industry/ Workforce 21,963 21,963

Health 46,032 99,595

Defence 17,896 35,742

Total Estimated Gov Expenditure = $292.469.000.000 Billion

Total Estimated Transaction Tax Revenue = $425.106.000.000Billion

If a Transaction Tax of 1.5% is applied – there would be no need for any other taxes. Everybody Wins !

 

 

Overview

The current taxation systems is one of consecutive Governments greatest perpetuated Con jobs on the Australian people, besides being complicated and Generally an administrative nightmare it retards productivity and potential growth especially in manufacturing and Agricultural Industries. This system only favours the multinational corporations and those senior high salary executives, those corporations who pay very little of the total tax budget. Many of these corporations make large donations to the major political parties campaign funds.

It is predicted that Australia will be unable to fund it's future growth requirements of our essential services, unless there are further tax increases ie: 15% GST Ref: 'Transaction Tax' a fairer tax system for the 21 century and beyond.

In 1953 under the then Menzies Government an agreement was perpetuated with a key group representing Transnational Corporations [TNC] or multinationals and the 'Dual Reciprocation' Tax Bill was incorporated, effectively reducing their tax commitment, supposedly to encourage those companies to expand their operations in Australia, as not be disadvantaged having paid tax to parent international operation. This continues today and has not been changed by either major political party this deceit means that over 70% of the Tax revenue collected is from the Australian families that have only 20% of Australian revenue.

1] An article headed : ‘MULTI-NATIONALS PAY NO TAX’ This was an interview by Paul Cleary economics editor Sydney Morning Herald dated 26th Oct 1996 with the then CEO of International Tax Division of the ATO Jim Killaly were he discusses Corporate Tax evasion and the APEC [Asian Pacific economic co-operation] and OECD [Organisation of Economic Co-operation Development] forum that Peter Costello the then Treasurer' attended his story as follows:

 

BILLIONS IN TAX BEING LOST TO MULTINATIONALS

By: Paul Cleary

Economics Correspondent

The vast majority of local and foreign multinationals pay little or no tax in Australia, according to an internal Australian Taxation Office (ATO) analysis which has created a new impetus for the most concerted crackdown to date. The ATO analysis suggests Australia is losing billions of dollars in revenue to multinational, sparking a new push to stem the hemorrage. A key part of the crackdown is a high-level forum of tax officials from around the world which was hosted in Sydney with the aim of boosting international co-ordination. Australia is pushing for greater international co-operation because officials concede that high levels of foreign ownership now pose a risk to Australia's tax base. The head of the ATO's international tax division, Mr Jim Killaly, told the Herald that in 1993-94, 60per cent of foreign-owned and Australian multinationals claimed to be in loss and paid no tax, while the "great bulk" of the remaining 40 per cent claimed to be marginally profitable and paid only a small amount of tax. Nearly all the tax for this category of companies was paid by a small number, he said. This widespread underpayment of tax is explained by the revelation that multinationals, numbering just 7000 claimed $30.5 billion in interest expenses of 60 per cent of total interest expenses claimed by all Australian-based companies. Mr Killaly also revealed that this taxpayer group generated transactions with related companies, including financial transactions of $60.4 billion in 1993-94 and $53.5 billion in 1992-93. The group is defined as companies that have "related-party international transactions", which meant they traded with or shifted funds to related companies overseas.

Mr Greg Crough of the Australian National University, a leading authority on transfer pricing who has been engaged by the ATO as a consultant for several years, says that profit shifting costs Australia well over $1 billion a year. In an interview  Mr Killaly said a "conservative" several hundred million dollars a year was being lost and that is posed a "significant risk to revenue". But this estimate was based on a sample audit of only 120 companies. Now, with figures showing that most multinationals pay little or no tax, Mr Killaly declined to make public his estimate of the revenue loss. He said this was now part of his advice to the government. Mr Killaly said it appeared that many companies were systematically avoiding tax. "The symptoms that we're seeing out there now do test credibility, and if you look at the performance of major corporations...for every $100 they spend they get back less than $100. In other words they are systemically losing money, and at face value are not viable in any commercial sense." Tax officials from the Asia Pacific Economic Co-operation (APEC) forum and the organisation for Economic Co-operation and development (OECD) attended a forum addressed by the Treasurer, Mr Costello. The summit focused mainly on transfer pricing and other forums of tax minimisation. Transfer pricing involves minimising Taxation by artificially charging high prices or operating costs to subsidiaries in Australia. Tax Office will target transfer pricing of income and expenses for cross-border activity between companies in the same multinational group.

In foreshadowing the symposium, Mr Costello said 60 per cent of world trade was the result of intra-group flows within multinationals. Achieving this proper allocation should mean the prices paid for goods and services between associated companies are market prices (or arms-length prices, in the parlance of international taxation.) Mr Killarly has a real passion for this field. He believes a proper assessment of international pricing by some companies can bring about a better understanding of where value is being generated within a large company "Transfer pricing is a wonderful thing in a way because it makes everybody focus on the business. If you look at functions, assets and risks, you as a finance director or me as a tax official get a much better sense of what adds value. "We've seen cases where, as a result of doing a functional analysis, they get a 're-engineering' process focusing on things that really add value. In an interview earlier this year, the ATO said the amount being lost was a "conservative" several hundred million dollars a year and that it posed a "significant risk to revenue" This estimate was based on a sample audit of 120 firms. Now with figures showing that the great bulk of multinationals pay little or no tax, Mr Kilaly says the revenue estimate is part of his advice to Government. Mr Greg Crough of the Australian National University says well over $1 billion is being lost annually. A preliminary assessment by the ATO shows most Australian companies are not paying attention to the tax consequences of their international operations and that "major" adjustments have been made, Mr Killaly says "As an administrative issue, we're seeing that a lot of companies are not properly addressing transfer pricing.

They don't have a methodology. They don't keep the documents. "Now I'm not saying everybody is a cheat. They're not. And I'm not saying everybody is deliberately trying to shift profits. They're not. But with large cross-border flows and with poor processes, there is a significant risk of underpayment of tax, and that's what we're trying to address." But at the core of what is undoubtedly the greyest area of tax administration is deliberate avoidance. Mr Killaly says: "The symptoms that we're seeing out there now do test credibility, and if you look at performance of major corporations some of them have Berry rations that are very high." (These rations, designed by a US professor of the same name, look at investments as expenses and attempt to analyse the notional return on those investments.) He adds: "Some companies are operating on Berry rations of less than 100, which means for every $100 they spend they get back less than $100." The ATO has already begun to demand information from all companies on transfer pricing by inserting questions in tax returns for multinationals (Schedule 25A) from December 1995. It inserted questions asking whether an "international arms-length methodology" had been used to set or verify transfer prices. A simple yes or no was all that was required. The 25A questions were aimed at gaining an overall "qualitative and quantitative" understanding on "what might be the degree of compliance", and also following up individual companies with audits, Mr Killaly says. ' We're looking at the size of cross-border flows, the nature of transactions and the processes the tax-payers are adopting'. KPMG's tax partner, Mr Richard Buchanan, argues the question has "been likened to the recent Saddam Hussein plebiscite - the response was largely predictable".

"The resounding 'no vote' from last year provided the evidence needed to maintain the ATO's rage, so to speak, on transfer pricing," Mr Buchanan says. The introduction of  Schedule 25A twice the size of the self-assessment tax return. The information required is aimed at providing the Commissioner with "a pattern of taxpayer behaviour which will, eventually, be translated into future audit activity", Mr Buchanan says. The typical ATO target is not just the transnational behemoth - medium-sized trading companies seem to be just as important. "If you ask me who do I think the relevant taxpayer group is in respect of transfer pricing, I would say it's people who have significant cross-border dealings," Mr Killaly says. "We're focusing on material risks. We're looking at the size of cross-border flows, the nature of transactions and the processes that the taxpayers are adopting in terms of selling and reviewing their transfer prices. "If they're got high flows and poor processes, or if they demonstrate a penchant for actives in tax havens, or if they get involved in complicated transactions that don't appear to have a business purpose, or if they're in a long-term loss position, then we'd certainly want to have a closer look at that company." He says the pattern of growth in Australia's trade indicates that middle-size firms are making the major gains in export performance. The ATO Accepts the cost of complying with this new regime will not be insignificant and that records of many companies will not be perfect. Mr Killaly promises to be lenient if they have made a fair effort.

"Fundamentally, I'd say 'do the best you can with the data that's reasonably available to you". Tax advisers say the ATO's policy is probably the most advance of any tax administration in the world apart from the US Internal Revenue Services. The approach centres on an economic analysis rather than a strict reading of prices. The ATO has also taken a leading international role in the development of transfer pricing guidelines. For the past three years, it has had officials attending an OECD taskforce that is revamping international guidelines first written in the 1970's. Recently, the OECD released two more transfer pricing guidelines that helped address two of the   most nebulous aspects of international taxation: intra-group services and intangible property. The symposium held during this time were aimed at strengthening the degree of uniformity with Australia's major trading partners. Mr Killaly says the ATO cannot act alone. "The more you get that international uniformity, the more business certainty you get and the more integrity you get." "The more you get that international uniformity, the more business certainty you get and the more integrity you get about appropriate shares of profit and appropriate shares of revenue." The ATO assessment involves a financial ratio analysis rather that relying strictly on comparing arms length prices. Tax advisers have raised problems with comparing prices in the Australian context because of the small size of the economy. Mr Crough says transfer pricing is becoming more complex because the prices of many goods include fees for royalties and management fees. This is particularly the case for Australia, with a large proportion of our imports made up of finished goods.

"When you are importing branded products there's a question of how much you pay for them," he says. Mr Killaly says: "You can't simply take it on price. You must look at comparability, and comparability drives you down the road to doing some sufficient level of benchmarking." the ATO would look behind the pricing and see how the business was financed and the trademarks associated with each product. "We will do the financial ratios just the same way a prospective investor would. And we would be looking at whether the results of those financial ratios stack up in relation to their reported tax performance, in terms of their taxable income." The results and actions taken have been very slow.

 

2] ATO continues to TARGET BUSINESS TAX HAVENS

Interview by Australian Financial Review reporter Fleur Anderson dated 31st August 2006 with the current CEO of the ATO Michael D'Ascenzo into his current investigations of business tax liabilities, called operation Wickenby although saying that his departments tax recoveries would be good, the costs associated with these recoveries was considerable, complicated and time consuming. Mr D'Ascenzo stated that the estimated $300 million tax revenue expected to be collected was only the tip of the iceberg of the total of tax havens currently used by foreign corporations and big business in Australia. He said that the government was aware of the use of 'Transfer Pricing System' to reduce their Australian Tax commitments. Transfer pricing is a method commonly used by large corporations and big business where the parent company invoices export Product A at cost to oversea's office in low tax haven, This office invoices same product A at a higher price to Australian company, Australian company sells product A to wholesaler at same price, therefore Australia company declares little or no profit to ATO. The real profit has been taken up by parent company and their tax is paid at a much lower rate. Mr D'Ascenzo stated that ATO was also very concerned at the potential tax revenue losses they believe exists with large businesses of issues of interest free loans to off shore company's the continued use of service arrangements and commissions paid to subsidiaries and cross boarder financial transactions.

He estimates that the taxable revenue loss to Australia could be up to $ 360 Billion per/year. These findings are in fact not new, and will put the ATO commissioner on a collision course with the federal treasurer, as he along with his ministers would be well aware to these tax concession arrangements, and associated large donations by those businesses to the Federal Government. The deception by current and previous governments will continue to allow the rich to become richer and penalises the worker and small business and retards growth. We must have a fairer Tax System such as a 1.5% Transaction Tax where everybody pays. Make no mistake this Transaction Tax system would re-vitalise the economy, and ensure Australia's future as into the 21st century and beyond as a truly Independent country free of debt. Everybody Win's. Why then does the Federal government and the Opposition not endorse a Transaction Tax? Traditionally, Big business and large international corporations donate Millions to the major political parties in return for concessions like tax havens, and the threat of moving business offshore to OECD countries as more cost effective. Remember we have had 100 years + major political parties, its time for change we can start the process now vote for those candidates who will pursue sound economic and public policies for the benefit of all Australians and Australian families into the future.

 

 

 

 

 

 

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