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Economics References Committee
Corporate tax avoidance

McCALLUM, Mr Lance, National Campaign Coordinator, Australian Council of Trade Unions

WATTS, Mr Christopher, Social Policy Advisor, Australian Council of Trade Unions


CHAIR: Welcome. Thank you for appearing before the committee today. I invite you to make a brief opening statement, should you wish to do so, and then we'll open it up for questions.

Mr McCallum : Thanks very much. Unfortunately many businesses already thumb their noses at paying their taxes, exploiting loopholes to offshore profits made in Australia and aggressively avoiding tax. In our view, there can be no disputing the fact that there is one rule for the rich and one for ordinary people and workers in this country when companies don't pay their tax on their massive and ever-increasing profits while workers struggle with record-low wage growth and exponentially increasing cost-of-living expenses. According to ATO data, in the 2015-16 financial year there were 732 companies that paid no corporate tax, despite having a combined income of more than $506 billion. This means that more than one-third, or 36 per cent, of companies with more than $100 million in income paid no corporate tax.

According to our calculations, in the 2015-16 year Australian communities went without potentially $13.4 billion worth of teachers, school infrastructure, hospital beds, nurses and doctors, roads and vital services because large companies are not paying their fair share of tax. These companies that avoid paying their fair share are taking money away from all working people in this country while using our infrastructure, our labour, and our natural resources, only to then send the profits overseas. It's a glaring example of how big business has too much power and gets to play by an entirely separate set of rules to ordinary people.

One of the companies that has not been paying its share has been Exxon. Exxon's business in Australia is owned through shell companies in the Netherlands and the Bahamas. The company failed to disclose this basic fact to this inquiry last year and does not report it in its annual reports filed with the Australian Securities and Investments Commission. Our analysis has revealed that over the 2015-16 financial year Exxon had nearly $6.7 billion in total income but was able to reduce that to zero taxable income and paid no corporate tax. Out of all companies in Australia, Exxon ranked 37th in total income. For comparison's sake, Woodside—an Australian oil and gas company—ranked 35th. With slightly more in total income, Woodside had $7 billion taxable income and paid nearly $73 million in tax.

If we look at previous years of ATO data it's a similar story, where Exxon reports zero taxable income and paid zero income tax. Exxon Australia has generated some of the highest revenues of any company in Australia but has paid zero in corporate tax over the last three years and possibly longer. Yes, Exxon has made petroleum resource rent tax payments on its Bass Strait operations over the years. However, this is not a tax but a profit based royalty payment for the privilege of extracting Australia's finite natural resources. And even with the PRRT, they could not be paying their fair share. On a Bass Strait joint venture between Exxon and BHP, Exxon's PRRT payments are significantly lower than BHP's, even though they each have a 50 per cent interest in the Bass Strait operations.

More broadly, the PRRT itself is not delivering fair results and needs reform, in our view. In 2014-15, PRRT payments fell by more than $500 million despite significant growth in gas production. Multinational corporations like Chevron, Shell and BP made no PRRT payments. Indeed, Chevron and Exxon have not paid any corporate tax over the past two years despite billions in revenue. Only yesterday, there were media reports from a new Oxford Institute for Energy Studies report that stated that Australia would be over $90 billion better off if it adopted European-style tax policies to recoup a fair and meaningful amount of revenue for our natural resources. In fact, according to that report, Australia is on track to eclipse Qatar as the largest exporter of gas by 2020 but is expected only to earn $600 million in 2018, the same amount of revenue the government earns in beer tax every year, compared to Qatar's $26.6 billion in revenue for gas royalties. This is clearly not fair or acceptable. It's not right that companies like Exxon, BHP, Qantas, Boeing, Google, Goldman Sachs et cetera earn billions in profits and pay no corporate tax whatsoever while our communities are in dire need of more teachers, doctors and nurses. We need to close the loopholes, crack down on companies who flout our tax laws and regulations and make them start to pay their fair share.

CHAIR: Thank you. I might kick it off by asking you for your response to this proposition. If Exxon was here, they would probably say to you: 'Look, yes, we may not have paid corporate tax in the last three years, but we've made massive investments in business in Australia. We've had reduced oil prices. There are some logical reasons to why we're not paying company tax.' What would be your response to that?

Mr McCallum : When it comes to oil and gas operations, in terms of the global market, particularly here in Australia in the domestic gas markets, we've seen the domestic gas price increase by a very, very steep amount, so companies who are supplying gas domestically here in Australia are enjoying larger margins on gas prices than they ever have before. That is something that would more than buttress any movement in international gas markets. When it comes to infrastructure investments et cetera in Australia, of course there needs to be a fair system so that companies that are investing in Australia are able to claim appropriate deductions that enable their ongoing sustainability and viability, but I think it would be fair to say that it's not fair and it's not an appropriate balance when there can be a company that's taking in close to $7 billion in revenue that isn't paying any corporate tax. Being able to reduce $7 billion in revenue down to a taxable income of zero is something that I don't think is appropriate.

CHAIR: Let's move to the reporting and transparency here. What do you think needs to be done to improve reporting on this and what's your view of the content of their ASIC filings?

Mr McCallum : I think we might hear from many stakeholders and certainly in written submissions that Australia needs mandatory disclosure and reporting for resource companies. I overheard the previous witnesses refer to the other 30 countries internationally which have implemented legislation which provides the public with project-by-project information on all payments to governments. Australia is lagging behind internationally, frankly. We've got countries like the United Kingdom and Canada and the European Union that have been able to implement these disclosure laws. We think—and it's in our written submission—that Australia should be following suit. It's not happening to an appropriate standard. To further increase the transparency of the PRRT, we think that the value and calculation method of wellhead gas should also be made public and that the current practice, where prices are calculated behind closed doors and where there is no market really to compare with these, is inappropriate.

CHAIR: You've made some comparisons with Woodside. What about comparison with, say, BHP and their tax arrangements? They both have a 50 per cent stake in the Bass Strait operations. How would you compare the two?

Mr McCallum : I think it's really a good question to ask a representative of Exxon how they can be in a 50 per cent joint venture partnership with BHP on their Bass Strait operations and yet pay significantly less under the petroleum resource rent tax regime than their partners, when they're both in the same country operating under the same laws and the same regulations. Part of the answer for that may lie in the different calculation methods that are available under the PRRT calculation or assessment regulation. But, if that is the answer that Exxon is going to give, as I suspect they might, then that just reinforces the fact that there needs to be a review and a tightening up of how PRRT is calculated.

CHAIR: Just in relation to tax havens, you've made comments about the fact that this company uses the Netherlands and the Bahamas. How did that information come to light?

Mr McCallum : The Australian Council of Trade Unions is a member of the Tax Justice Network. Obviously, we are very active publicly when it comes to matters of the inequity that exists in our tax system, and corporate tax avoidance is a major issue that we campaigned on and are active in trying to address. There was a report that was published at the end of last year by the Tax Justice Network that looked specifically into Exxon's arrangements, and we're relying on the information that was brought to light in that report as well as other reports, crosschecking it with known information that's been issued from the company, also in terms of their previous statements to this inquiry. It was only after, if memory serves, ExxonMobil Australia's parent company was searched in the overseas company register that it was revealed that the ExxonMobil Australia group of companies had ultimate owners over in the Netherlands and the Bahamas.

CHAIR: What information is publicly available to tell us whether that's true or not? Is there anything in Australia that points us in that direction or do we have to rely on what's being reported overseas?

Mr McCallum : To our knowledge, we have to rely on what's reported overseas, and that's why there needs to be a greater level of disclosure domestically here in Australia. If the company isn't reporting in its annual reports in information to ASIC that it's ultimately owned by a group of companies that is registered in overseas tax havens, clearly there needs to be something done about that. Similarly, when there's a parliamentary inquiry such as this where a company like Exxon is participating and isn't being as fulsome as it could be in disclosing that fact, which I don't believe they have done today, then I think that that's a problem.

CHAIR: The ACTU deals with lots of companies?

Mr McCallum : Yes.

CHAIR: Given all the testimony we've heard and the submissions we've received, how would you characterise Exxon as a corporate citizen?

Mr McCallum : A very, very bad corporate citizen, a rapacious employer, somebody that isn't obviously paying their fair share for the privilege of extracting our resources, and I think that Exxon really is not stepping up to the mark and delivering for the people of Australia.

Senator HUME: The committee today is discussing the imperative for those on very high incomes to pay appropriately high tax. For the benefit of Hansard, that was a nod. Conversely, I note that the ACTU is very passionate that those on low incomes are not penalised. You did mention the progressivity of the tax system in your submission. They are paying less tax, obviously, than those on particularly high incomes. That is another nod, for the benefit of Hansard.

Mr McCallum : Yes—I am listening.

Senator HUME: The ACTU, as do we, want people on low incomes to share more in the nation's wealth. Yes?

Mr McCallum : Yes.

Senator HUME: Therefore it is good for people that are on low incomes to participate in wealth ownership to own shares, potentially.

Mr McCallum : Yes.

Senator HUME: It is good for people on low incomes to own shares in companies that raise revenue and derive their income in Australia.

Mr McCallum : I am waiting. Yes. I am listening.

Senator HUME: Do you think pensioners own shares?

Mr McCallum : If you are going to ask me today in a Senate inquiry regarding corporate tax avoidance about dividend imputations, I am not sure that I am going to be able to assist you, Deputy Chair.

Senator HUME: I would have thought that who pays what tax on company profits is highly relevant to today's discussion.

Mr McCallum : I think what is relevant to today's discussion is the actions of companies and whether or not they are paying the appropriate amount of corporate tax in Australia, or, particularly in today's hearing, as I understand, to look at the petroleum resource rent tax. If you want to have a discussion about the personal income tax arrangements of citizens of Australia, I am not going to be able to assist you, I'm sorry.

Senator HUME: That is not necessarily for you to say. You have mentioned the progressivity of the tax system and inequality in your submission. You mentioned the word 'fair' 11 times in your opening statement and in your first answers to questions from Senator Ketter. Are you aware and do you believe it is fair that 230,000 pensioners will have their tax refunds stolen from them under Labor's policy announcement yesterday?

CHAIR: Deputy Chair, we are here to talk about corporate tax avoidance.

Senator HUME: Exactly—tax paid on company profits.

CHAIR: When there is no corporate tax paid it is hard to provide a refund

Senator HUME: Do you think it is fair, Mr McCallum, that a corporate super fund will get the full benefit of franking credits while low-income earners will have theirs taken way from them?

Mr McCallum : I think it is unfair that you are asking somebody who is not from the Australian Labor Party to answer a question in relation to a policy that they announced yesterday, which, in my opinion, is outside of the ambit of today's hearings. As much as I would like to assist you, I am sorry, I can't.

Senator HUME: The ACTU's Sally McManus was free to comment upon it yesterday. I assume that you and she would discuss these issues.

Mr McCallum : I am more than happy to answer questions about that in a Senate hearing that is about that.

Senator HUME: Let me be a little bit more specific to the ACTU then. Do you think it is fair that unions will be able to get the full benefit of franking credits, including those refunds, when many of the union members that you represent and those on low incomes will be denied those refunds?

Senator CAMERON: I can't remember franking credits when I was national secretary!

CHAIR: I think we are straying a little bit off the topic.

Senator HUME: Given that it is taking money from the ACTU's members, are you telling the Labor Party potentially to dump this policy?

Mr McCallum : I am not telling the Labor Party to do anything. You seem to be suggesting that or trying to put those words in my mouth; I am sorry.

Senator HUME: No, I am just asking whether you are.

Mr McCallum : I am not telling the Labor Party to do anything, Senator.

Senator HUME: Are you aware that 97 per cent of individuals that receive those franking credit refunds have incomes below $87,000?

Mr McCallum : I am not an expert—

Senator HUME: In tax?

Mr McCallum : in an analysis of a policy that was announced yesterday by the opposition.

Senator HUME: You are an expert in tax, otherwise you wouldn't be appearing before this committee today.

Mr McCallum : I am appearing before this committee today because I pay more tax than a company like Exxon, which has over almost $7 billion worth of revenue. Everybody that is an employee in this room is most likely paying more tax than that. That is what I am here for today, and I think that more than qualifies me to have an opinion about corporate tax evasion in Australia.

Senator HUME: Interesting. Are you aware, Mr McCallum, that half of all refunded franking credits are paid to individuals with incomes below the tax-free threshold of $18,200?

CHAIR: Deputy Chair, if you have more questions in relation to that, you might want to put them on notice to the witness.

Senator HUME: I will have plenty of questions to put on notice. Can I ask you about the related party loans that Exxon have taken out.

Mr McCallum : Sure.

Senator HUME: You have claimed in your submission that they are taken out in excess of market rates. What basis do you make that claim on?

Mr McCallum : There are several reports in relation to—

Senator HUME: From the Tax Justice Network?

Mr McCallum : Yes, that's right.

Senator HUME: I think those claims have been proven to be unfounded.

Mr McCallum : I would have to agree to disagree with you in relation to that, Senator.

Senator HUME: What if Exxon came out today and told you what rates they were taking out those—

Mr McCallum : We will be taking a close look at whatever Exxon says today.

Senator HUME: And you will retract that statement if that is the case?

Mr McCallum : We will take a close look at what Exxon says today.

Senator HUME: Thank you, Mr McCallum.

Senator MARSHALL: I also probably pay more tax than Exxon do. I have seen letters from the Australian tax office to individual PAYE payers in this country—employees who pay as you go—saying that you have claimed more than the average for your profession in deductions; therefore, you are going to be audited. I think I, like most Australians, just assume that there is a regulatory system that ensures that people, companies, and organisations pay their fair share of tax. That is an assumption we make because we see it. We all know people who have been in that situation. There are people in the tax office doing that work. How can it be that the Australian tax office simply allows what is on the surface and all the evidence shows that the logic applied to this is not to pay their fair share of tax? Is it the fact that the laws are just fundamentally flawed or is it that the companies are smarter than the tax office or is that the tax office is just generally incompetent?

Mr McCallum : Obviously the tax office as a government department can only enforce the regulations and the laws of the government of the day and work within that framework to the best of their ability. There is the regulatory and legal environment when it comes to the levers that an organisation like the tax office is allowed to pull, so that includes deterrents like the amount of fines that can be issued to corporations that might be in breach of their obligations; we think they are too low. We think the tax office itself is underresourced. It does not have the appropriate amount of people. They could do with extra expertise so that they are able to regulate these large companies a lot better in terms of their tax compliance. It has to be said that the ATO has suffered massive staffing losses over the past five or so years in terms of thousands of people don't work there anymore. So there really is a resourcing issue there. I think the most important thing is that a good legal and regulatory framework is implemented by the government of the day so that organisations like the ATO can go out there and have the right tools and have the right resources to be able to ensure that compliance activities meet the expectations of the public.

Senator KITCHING: I want to go to a comparison, because recently Glencore ended a 230-day lockout. I thought that they're a foreign company, and we welcome foreign companies to invest here, but it would be good if they could understand Australian values. I think one of those values is that we do not break people, when there is an industrial dispute, by locking them out of their workplace. I think that equally there is a view that foreign companies, if they come here, should pay tax—the appropriate amount of tax as set by the government of the day. By comparison, even though ExxonMobil have an Australian entity, it's really quite un-Australian not to pay tax, isn't it? So there's a lack of understanding of the values of Australia, such as the 'fair go' value and being a fair and equitable player in the field. Would you say that's right? How do you think that that should then be reflected in legislative change?

Mr McCallum : I would absolutely agree with that statement. If companies that have revenues that top $7 billion aren't paying any corporate tax, that doesn't pass the pub test. It doesn't pass a basic commonsense test of: do you think that's fair? You have these companies whose employees are paying more tax than they are. They're not the greatest employers. I think that, certainly based on the amount of opinion polling that's been done with respect to corporate tax avoidance in Australia by organisations that are active on that issue, they all clearly indicate that the wider view of the Australian public is that they don't think that corporations and big business are paying their fair share. Some of the polls indicate that over 75 per cent of the people that were interviewed think that corporate tax avoidance in this country is an issue that needs to be addressed.

What's particularly frustrating about it is that there are known answers out there, in terms of solutions that have been implemented in other countries that can help. Particularly with respect to the petroleum and gas industry here in Australia, the government commissioned their own review of the petroleum resource rent tax last year—colloquially referred to as the Callaghan review. That independent review issued its report to the Treasurer; I think it was around June.

Senator KITCHING: June last year?

Mr McCallum : June last year. It made a suite of recommendations, and the government issued an interim response that said it was considering or was open to most of the recommendations, except for the first recommendation, which was really the most important one, around technical issues of gas transfer pricing et cetera. Since then, we still haven't had an official final response from the government. It would appear, unfortunately, that the government's sitting on the reform of the PRRT.

Over 30 countries have mandatory disclosure reporting for oil and gas and other extractive industries. We've referred to that. That could be applied here in Australia. Domestically, we have an independent report that was commissioned by the government and that's made recommendations that the government is yet to respond to. So the ball's really in the government's court on this one.

Senator CAMERON: I just have a quick question. I see that the ATO is quoting the OECD as saying that the revenue lost to base erosion is US$100 billion to US$240 billion. Have you seen that figure before?

Mr McCallum : No. Sorry. I haven't.

Senator CAMERON: Exxon have put out this tax transparency code. Have you seen that?

Mr McCallum : I'm aware of it, and some time ago I briefly looked at Exxon's response to that.

Senator CAMERON: What they say is:

"The reality is any company that cheats on its tax does not stay in business for long," said ExxonMobil Australia Chairman Richard Owen.

"Shades of dishonesty simply invite demoralising and reprehensible judgments that ultimately destroy reputations.

Are you part of these reprehensible judgements?

Mr McCallum : They're very flowery words. But when it comes to the voluntary code around disclosure and reporting I'll simply say this: there's enough trouble with large corporations—particularly ones in the oil and gas industry, like Exxon—actually complying with, and meeting the obligations that exist under, the current laws and regulations. In my view, when I looked at Exxon's voluntary disclosure under the code, it was consistent with their behaviour in terms of not meeting their obligations under the existing laws, and I don't think that a voluntary code goes anywhere near far enough to bringing these kinds of companies to heel.

Senator CAMERON: If Exxon are prepared to use loopholes in the industrial laws to have a small group of workers determine a new contract for workers at Exxon and then impose that on a new contractor, what does that say about their position on tax? If they're not prepared to even look after their own workforce—

Senator HUME: Chair, I think if my questions on company taxes and how they are applied are irrelevant to this inquiry, well then I would have thought that industrial relations are also irrelevant.

CHAIR: Some licence was given to you to ask a couple of questions, so I'm going to extend the same liberties.

Senator CAMERON: And don't do a Michaelia Cash on me!

CHAIR: Mr McCallum, would you like to respond to Senator Cameron's question?

Mr McCallum : These companies in their activities through their supply chain in Australia have subsidiaries and contractors that are having a small group, say five labour hire employees from an entirely different state, sign an industrial agreement which then will see an existing workforce—in the case of some of Exxon's subsidiaries a workforce of 200—with wage reductions of 15 to 30 per cent as well as the introduction of FIFO arrangements for two weeks on/two weeks off, and the employees have no options. Yes, this is just another example of how corporations are willing to exert their power to the detriment, in this case, of the workers and to the detriment, in the case of tax avoidance, to the Australian public, in order to avoid their responsibilities under our existing laws and regulations—whether it is tax, industrial relations or employment law.

Senator HUME: So it's the vibe, Mr McCallum?

Senator CAMERON: They've also said:

We have always considered our ethical reputation for scrupulous dealing is itself a priceless corporate asset.

They are not dealing ethically with their own workers, they are not being scrupulous in their dealings with their own workers, so that corporate asset is being abandoned there. Given this lack of transparency in their tax affairs, would it be fair then to say that if they won't treat their own workers properly, if they're not scrupulous and they're not ethical in the treatment of their own workers then that would be part of their approach on tax as well?

Mr McCallum : Absolutely. I would say that their actions—with regard both to their tax compliance and how they're treating their workforce—don't match their rhetoric.

Senator KITCHING: I always like when people have skin in the game, because I feel like they're serious players. Would it help if perhaps not just the directors of an entity have liability if they didn't pay tax? So let's say there was a penalty regime in place for not paying tax, do you think it would also be good if the beneficial owners—which I believe should be actually disclosed on the ExxonMobil filings, but I'm not sure they are in all cases—should also be subject to a penalty regime if they're found to have avoided tax?

Mr McCallum : Yes, I think that would assist. When you say 'ultimate beneficiaries' I think a primary goal should be a global beneficiary.

Senator KITCHING: Thank you.

CHAIR: Thank you, Mr McCallum and Mr Watts.

Proceedings suspended from 09:30 to 09 : 45