Multinational tax take bleeds after huge ATO staff cuts

iPhone 6
Transfer pricing? There’s an app for that.


The axing of 4400 jobs at the Australian Taxation Office (ATO) has hit the government’s ability to police corporate tax avoidance and emboldened corporations looking to shrink the amount of money they pay, the union representing Tax Office staff has told a Senate hearing into corporate tax avoidance has heard.

The Community and Public Sector Union (CPSU) on Thursday entered the fray over how little onshore tax companies like Google, Microsoft and Apple pay in Australia, warning that the government’s capacity to enforce collection had been harmed by the pursuit of budget and job cuts.

As the government’s tax receipts continue to fall, the argument that depleting resources from the agency tasked with enforcing and collecting corporate taxation obligations has started to gain currency as a potent symbol of misapplied cost cutting in the public sector.

Now the CPSU is sheeting home the otherwise hidden cost of ATO job cuts as the government looks at ways of reining-in profit shifting by technology based companies that generate tens of billions in local sales and then largely neutralise tax obligations through complex offshore company structure arrangements.

“Frontline officers fighting tax evasion tell us that transfer pricing, profit shifting and the use of multiple trust structures were amongst the most prevalent forms of tax avoidance. The cards are stacked against tax officers and in favour of those who seek to avoid paying their fair share. That is not the right way round. It’s a rort that should end immediately,” said CPSU President Alistair Waters.

The CPSU’s role in the tax row is being closely watched by multinationals because it is one of the only organisations that can put forward the frank views of otherwise gagged employees in its role as an industrial representative.

Although the union has a vested interest in preventing job cuts, it still offers a window into the situation on the ground at the ATO and revenue problems the government may face in the future.

One area of acute embarrassment for the government is that around a quarter of the ATO’s redundancies have come out of the audit area – skills that take years to develop and are quickly snapped up by private sector employers looking to be as tax effective as possible.

“CPSU members report that [the level of audit job cuts] has significantly impacted the ability of the ATO to investigate matters. Quite simply, they report that fewer audits are being conducted (impacting negatively on revenue), and there is reluctance to review and/or audit larger and more complex entities,” the union’s formal submission to the inquiry said.

“Cases that should normally be followed up vigorously are being allowed through: I know of examples where cases are compromised on the basis of ‘we don’t have the resources to deal with it’. Management are telling people that we will only pursue cases of extremely high amounts so even where clear tax avoidance and illegality is identified, staff are being told by managers that it is not worth it so taxpayers are getting away with these behaviours,” the CPSU submission said.

The CPSU’s president puts it more bluntly.

“Cutting the guts out of the agency that is responsible for bringing in much-needed revenue makes absolutely no sense at all. We are calling on the Government to restore funding in the upcoming Budget to ensure that Tax staff can do their job and provide the revenue that society needs to fund the ever-increasing demand for services. Demand for services continues to rise, while the number of staff goes down. It doesn’t add up,” Mr Waters said.

Treasurer Joe Hockey has conspicuously flagged his intention to bring big multinationals like Apple and Google to book on tax obligations, with ATO head Chris Jordan warning that he was within his rights and willing to correct evidence from companies to the tax avoidance inquiry if he believed it to be false.

Executives from Google, Apple and Microsoft have all been dragged before the tax avoidance inquiry to give evidence as Labor, The Greens, independent Senator Nick Xenophon and other Upper House members seek to extract answers on how around $60 billion a year in revenue generated in Australia manages to take a flight out of the country for liability purposes.

While technology companies have for decades used arms-length resale and transfer pricing arrangements for decades, the increasingly rapid shift to the digital economy has revenue agencies around the world playing catch-up.

The CPSU’s President Waters is calling on the Senate committee into corporate tax avoidance to “close off ss25-90 of the Income Tax Assessment Act 1997, the clause that facilitates corporations to artificially reduce taxable profits.”

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