tag:theconversation.com,2011:/columns/michael-west-339731Dark Money – The Conversation2017-10-17T02:02:06Ztag:theconversation.com,2011:article/858162017-10-17T02:02:06Z2017-10-17T02:02:06ZCome hide with us – bean counters raid big law firms<p>It is strange that none of the major law firms are kicking up a fuss about the exodus of senior lawyers to the Big Four accounting firms. It is a matter of significant public interest and, more to the point, the bean counters are pinching hundreds of millions of dollars of their business.</p>
<p>Aren’t lawyers meant to be special? Don’t they have super powers and privileges and extra obligations of loyalty, which set them apart from other professions? Like the priest with his confessional, a lawyer owes a special duty of confidentiality to the client. </p>
<p>On the face of it, the move by the Big Four global accounting firms seems merely another move to get even bigger in professional services of all kinds, but is there a more contentious motive? Could the incursion be designed also to allow the accounting firms to assert legal professional privilege over tax advice for their multinational clients so they can keep that advice out of the hands of the Australian Tax Office?</p>
<p>The cover of the July edition of the <a href="https://www.lawsociety.com.au/resources/journal/LSJOnline/index.htm">Law Society of NSW Journal</a> promised a feature article “A Close-Up Look at Lawyers: Surprising Trends in the 2016 National Profile of the Profession”. Turning to page 28, it was disappointing to find the bland title “The State of the Profession”. Surely this turf war – the Big Four poaching spree – is the biggest story in the legal jungle at the moment, but it did not get even a passing mention. This writer is no lawyer but, having been promised a “close-up look” and surprising trends, I felt slightly deflated. </p>
<p>There has been no word on the subject either from the owners of King & Wood Mallesons, Ashurst, Freehills, Allens, Clayton Utz and the others. Perhaps they are misunderstood, perhaps they are kindly folk who are relaxed about sharing hundreds of millions in future revenue with the green-eyeshade fraternity.</p>
<p>Apart from a few shiny stories in the business press extolling PwC’s successful headhunting expeditions, the law firms have been strangely silent as PwC has led the charge, luring dozens of lawyers away from the law firms, </p>
<p>The carrots are high salaries and fast-track partnerships. Many senior lawyers in the major law firms have been biding their time at senior associate level for years, watching their hair turn grey while waiting to “make partner”. Some of them never will. Their frustration and the temptations on offer from the Big Four make them relatively easy targets to separate from the rest of the herd.</p>
<p>How is it that the Big Four can offer lawyers so much more money than they could make as a partner in a major law firm? The answer lies partly in the fact that accountants do not owe a “fiduciary duty” to their clients and believe, rightly or wrongly, that they can act for multiple clients on the same transaction.</p>
<p>There is the matter of sheer profitability too. The big law firms don’t publicise their revenues but the Big Four do, just the revenue number. Collectively they posted a humongous A$7 billion in revenues in 2017 in Australia: EY up 10% to $1.63 billion, Deloitte up 15% to $1.76 billion, KPMG up 10% to $1.5 billion and PwC up 10% to $2.12 billion.</p>
<p>Globally, PwC recently posted US$37.7 billion. This lawyer-hunting is a global thing too. The firm now has more than 3,500 lawyers in 90 countries.</p>
<p>The Big Four even have a panellist on ABC TV’s Gruen Transfer, Russel Howcroft, who is <a href="http://www.pwc.com.au/press-room/2016/russel-howcroft-joins-pwc-chief-creative-officer-dec16.html">chief creative officer at PwC</a>.</p>
<p>These are not just accounting firms any more. Their menus are riddled with words like “our multi-disciplinary approach” and such. They provide multiple professional services including audit of financial statements, non-audit assurance, management consulting, tax advisory, tax compliance, economic advice (especially to government), insolvency, mergers and acquisitions support, actuarial, private wealth advisory, financial modelling and now legal services. The latter are by far the most highly regulated.</p>
<p>From a public interest perspective, the dangers are obvious. Between them, the four picked up <a href="https://www.michaelwest.com.au/pwc-gives-bludgers-a-lesson-in-corporate-welfare/">$2.6 billion in fees from government</a> for giving advice. This was over a ten-year period and represents federal government fees alone and excludes the states, which may account for another $2 billion.</p>
<p>Although these firms are not explicitly underpinned by the taxpayer, like the Big Four banks, they have become too big to fail. And conflicts of interest abound. Traditionally, the most obvious conflict has been between audit – which has become something of a “loss leader” – and tax.</p>
<p>This has now been magnified. The latest conflict is that legal professional privilege might be used to hide documents in transactions. It may work along these lines: if the client of the firm wishes to minimise risk in a transaction, let’s say it is in tax structuring, risk that documents might later be used against them in a court case – documents which might be subpoenaed or sought in the discovery process for a trial – the Big Four may get a lawyer involved to ensure documents remain privileged.</p>
<p>If the firm instructs the lawyer to sign the letter of engagement at the outset of the process, then subsequent documents, the firm may well claim privilege.</p>
<p>The prospect of a regulator bringing any action for “rubber stamping” is remote, so the potential for abuse and the temptation to “rubber stamp” are considerable.</p>
<p>The fewer documents that are available for, let’s say the ATO, when prosecuting a case, or in any sort of enforcement action, the better it is for the firm and its clients.</p>
<p>Therefore, we now have a situation where Big Four firms such as PwC may actually sell legal professional privilege as a product. Come hide with us. </p>
<p>So it is that we await with considerable interest for the response of the major law firms. They have remained uncannily meek so far while having their talent raided.</p><img src="https://counter.theconversation.com/content/85816/count.gif" alt="The Conversation" width="1" height="1" />
<h4 class="border">Disclosure</h4><p class="fine-print"><em><span>Michael West has been paid by GetUp! and the Tax Justice Network to conduct a series of analyses of multinational tax avoiders.
</span></em></p>The Big Four accounting firms are headhunting senior lawyers by the score. Could this be a way to assert legal professional privilege over tax advice for their multinational clients?Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/845892017-09-25T10:29:10Z2017-09-25T10:29:10ZTax base eroded by backdoor deregulation of Australia’s labour market and jump in foreign contract workers<blockquote>
<p>The biggest failure of public administration since the formation of the Commonwealth of Australia in 1900. <strong>– Australian Tax Office insider</strong></p>
<p>The result of having the wrong system where taxes are too high and a labour market which is over-regulated. <strong>– Liberal Party insider</strong></p>
</blockquote>
<p>We are talking about the broad, state-sanctioned, backdoor deregulation of Australia’s labour market, which has gathered pace as employers increasingly sign up foreign workers, not as employees, but as contractors.</p>
<p>It is well documented that billions of dollars a year <a href="https://www.michaelwest.com.au/oligarchs-of-the-treasure-islands/">leak overseas</a> via multinational companies and their aggressive tax schemes.</p>
<p>There is, however, another “tax gap” that is not reported but is of national economic and social importance. That is, to coin a phrase, the ABN gap.</p>
<p>The Australian Tax Office (ATO) set up its Australian Business Register around the turn of the century at the instigation of John Howard’s government as a way to help with the registration of business entities.</p>
<p>It is an efficient system. Anybody wanting an ABN (Australian Business Number) can get one online within a few hours. This includes foreign visitors arriving to work in Australia. </p>
<p>The question is, is it too efficient? And to what extent is it eroding Australia’s tax base and affecting the existing labour market?</p>
<p>One insider at the Tax Office told me businesses were hiring tens of thousands of workers, instructing them to get an ABN, paying them less than the award – an estimated 40% less on average – than they would if they employed unionised labour on PAYG terms. Union sources confirm the rising numbers of foreign workers are <a href="https://www.tradeunionroyalcommission.gov.au/Hearings/Documents/2015/Evidence18June2015/V1-Tab015.pdf">undercutting awards, and the tax take</a>, in agriculture, construction and the meat industry. </p>
<p>By the time a foreign worker, often from China, has worked for two years and not paid tax (it is incumbent on the contractor with the ABN, rather than the employer, to pay income tax), the worker has often returned overseas and the Tax Office is compelled to write off the “tax debt”.</p>
<p>The interesting aspect of all this is the absence of political debate and media coverage. It is fair to say that many on the right would deem the deregulation of the workforce to be a good thing to keep wages competitive for business. But Labor and the Greens? There has been little in the way of outcry from the left. While people on the ground in the union movement are reporting <a href="http://www.smh.com.au/nsw/exploited-chicken-processing-workers-owed-thousands-20140819-105vy2.html">serial abuse of the ABN system</a>, the upper echelons of the Labor Party have not been vocal, despite the undeniable ramp-up of foreign contracted labour.</p>
<p>In the face of budget cuts over the past five years, the Tax Office too has been mute. So how big is this problem? </p>
<p>One source said:</p>
<blockquote>
<p>The ABN system has become a giant hole in the side of the Australian taxation system, allowing billions to escape taxation to the benefit of less ethical employers, criminals and other assorted tax evaders.</p>
</blockquote>
<p>Whether the tax gap from this ABN rort is in the “billions” or $1 billion is hard to tell. The Tax Office doesn’t calculate the number or, if it does, it is not saying. But the figure must be large.</p>
<p>According to the ATO’s deputy registrar of the Australian Business Register, Michelle Crosby, there are about 7.2 million active ABNs. She said: “Over 800,000 of these were cancelled (last year) after we received evidence that the ABN holder was no longer carrying on an enterprise or through an active review of their ABN entitlement.</p>
<p>"The ATO has an extensive review program for areas identified as high-risk. We pay close attention to new ABN registrants in high-risk industries such as building and construction, ABN holders who are on a student, working holiday or expired visa, and ABNs that have previously been cancelled and then reactivated soon after.”</p>
<p>Of the 855,000 ABNs issued in 2016/2017, around 16% were issued to visa-holders.</p>
<p>Crosby said:</p>
<blockquote>
<p>If a visa-holder is carrying on an enterprise in breach of their visa conditions they are still entitled to an ABN. The registrar’s powers to refer these breaches to the Department of Immigration and Border Protection are limited,.</p>
</blockquote>
<p>Since 2013, average annual growth in new ABN registrations ran at around 10% a year, with sole traders consistently accounting for around 60% of registrations.</p>
<p>The size of this market is mind-boggling: there are some 7.2 million active ABNs against a total workforce of 12.2 million. And some 2 million “redundant” ABNs have been removed from the system since 2014/2015, according to Tax Office data.</p>
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<p>This is not the end of the story. As contractors, ABN holders <a href="https://theconversation.com/being-exploited-and-breaching-your-visa-the-limited-choices-of-the-food-delivery-worker-8258">do not get worker’s compensation, leave and other benefits</a>. They get whatever deal is struck with their employers and that can be $7 an hour.</p>
<p>Superannuation is an interesting aspect. Anecdotal evidence suggests many foreign workers may not even be aware of super entitlements. As the employer collects this super of behalf of the worker, there is a pool of money – who knows how large – that defaults to government in unpaid super.</p>
<p>Of the total Commonwealth tax base of $370 billion, corporate income tax contributes $75 billion versus $200 billion for individuals. So PAYG is the biggest component of the nation’s tax base and that tax base appears to be under threat.</p>
<hr>
<p><em>This column, co-published by The Conversation with <a href="http://www.michaelwest.com.au/">michaelwest.com.au</a>, is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p><img src="https://counter.theconversation.com/content/84589/count.gif" alt="The Conversation" width="1" height="1" />
Workers are getting ABNs and being employed as contractors responsible for their own tax payments. This is undercutting conditions and eroding the most important part of the nation’s tax base.Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/834332017-09-04T08:35:53Z2017-09-04T08:35:53ZAnother day, another scandal: CBA blames customers for identity theft<p>Barry Lakeman has had a gutful. “I’ve got bone cancer,” says the 59-year-old farmer from outback Western Australia. “The chances of pulling through are about 60/40.” Worse, he says, his son is disabled. He has epilepsy and a brain tumour and requires special medical treatment.</p>
<p>On top of all this, Lakeman is a victim of identity theft. Last month, local police called to ask him if he’d lost his gun licence. They had found it, they told him. It displayed his photo but the licence number didn’t match. “It was a forgery … the number at the top of the card was different from the number on my card.”</p>
<p>Lakeman’s banking documents were found in a gutter in Victoria three years ago. Today, an officer from the Commonwealth Bank called him and suggested he or his wife Karen had taken the documents to Victoria themselves; that they’d lost them.</p>
<p>“There were other incidents,” says Lakeman. “In 2015, a company in Victoria rang me and said, ‘We have finished the canvas for your caravan.’ … I don’t even own a caravan.”</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/184590/original/file-20170904-9717-6wrwhu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Barry and Karen Lakeman.</span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>That year, the Northam police, southeast of the WA town of Toodyay where the Lakemans now reside, told him they were investigating the identity theft. They were assisted by Geoff Shannon, the principal of Unhappy Banking, who took the case to the Financial Ombudsman Service (FOS), a bank-funded scheme to resolve customer complaints about banks.</p>
<p>“It doesn’t look like an isolated incident,” says Shannon. “There are credit cards and so on, identities for sale on the dark web and we know people were quietly sacked from BankWest (owned by CBA) in 2014 for selling documents.”</p>
<h2>Cover-ups compound the mistakes</h2>
<p>Emails from a BankWest source, obtained by michaelwest.com.au, describe a meeting that took place at the bank’s headquarters in WA on November 14, 2014. </p>
<p>“This week we were all ushered into a meeting and asked to sign a confidentiality form about what was discussed in the meeting. We were informed nothing in this meeting would be put in writing as they did not want a paper trail,” said the email.</p>
<p>“We were informed in the meeting that a large number of staff had just been sacked due to fraudulent activity, essentially some were ripping off customers, some were ripping off the bank. As you can imagine this is very hush hush and they would be really pissed off if the media found out.” </p>
<p>Detailed questions were put to Commonwealth Bank about the meeting and claims, contained in the emails, that staff had sold confidential customer documents. The bank declined to respond. The bank also declined to respond to questions about the Lakeman case, saying it did not talk about individual client matters.</p>
<p><a href="https://thewest.com.au/news/wa/fake-police-id-gold-bars-for-sale-on-dark-web-ng-b88528968z">A report</a> in The West Australian in July this year said counterfeit BankWest credit cards and utility bills were openly for sale on the dark web.
This story came hard on the heels of revelations that Medicare details could be bought on the internet. </p>
<p>Whether the BankWest credit cards and Lakeman’s personal documents were stolen by the same people is uncertain. But it was just a few days later that the bank called the Lakemans and told them their documents had been found by the side of the road in Victoria.</p>
<p>“It was November 26, 2014. I was out harvesting and we were waiting for the contractors to come in and the phone went. It was a phone call from the local bank manager,” says Lakeman.</p>
<p>“He told me they had had a phone call from Alexandria in Victoria. We were told ‘All your banking documents, your ABN, your phone number, all your details have been found beside the side of the road.’</p>
<p>"How did they get there?” I asked.</p>
<p>“Have you and your wife been to Victoria?”</p>
<p>“Not for three years.”</p>
<p>“Your wife must have taken them over there and left them there.”</p>
<p>“I went off my head,” said Lakeman. “It’s 4,000k away. We were never told who found them or when. It really hurt us because when we tried to move and buy a house there was a black mark against us. It affected our credit rating.”</p>
<p>Lakeman is not happy the bank is still running the line that he and his wife might be responsible for their own identity theft.</p>
<p>The CBA is by no means alone in being vulnerable to the identity theft of its clients. All banks are surely susceptible to the same risks. The broader issue is how they handle it. Mistakes happen, it is cover-ups that are avoidable.</p>
<p>As the government continues to hold fast in the face of rising community calls for a royal commission into the banks, it has emerged that the CBA’s money-laundering scandal appears to have been accompanied by a cover-up.</p>
<p>Bank executives were told about deficiencies in their transactions monitoring in 2015. They spent the next two years <a href="https://www.michaelwest.com.au/do-not-stuff-up-this-institution-narev-told-the-inside-story-of-australias-biggest-money-laundering-scandal/">fobbing off investigations</a> by the Australian Federal Police and AUSTRAC.</p>
<p>The bank is <a href="https://www.michaelwest.com.au/banks-regulators-and-the-reverse-nuremberg-defence/">used to getting its own way with regulators</a> and, according to sources, felt it could contain the problem. AUSTRAC finally got fed up and filed a lawsuit against the bank. </p>
<p>CBA has sought to contain or cover up all its scandals. It threatened to pull its advertising from Fairfax Media when the financial services scandal broke – it tried to contain it. It tried to contain Storm Financial Group, Comminsure and then the massive money-laundering scandal now afoot – 55,700 breaches.</p>
<p>And now there is identity theft on top. “Why didn’t they call the fraud squad, or the police?” asks Barry Lakeman.</p>
<p>A good question, indeed. </p>
<hr>
<p><em>This column, co-published by The Conversation with <a href="http://www.michaelwest.com.au/">michaelwest.com.au</a>, is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p><img src="https://counter.theconversation.com/content/83433/count.gif" alt="The Conversation" width="1" height="1" />
One bank customer whose identity was stolen asks: ‘Why didn’t they call the fraud squad, or the police?’ It’s a very good question.Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/819972017-08-04T06:50:37Z2017-08-04T06:50:37ZBottom of the canal: Pfizer’s billion-dollar tax ploy<figure><img src="https://images.theconversation.com/files/180839/original/file-20170803-28984-16qhxo6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Netherlands is where nearly $1 billion from Australia was sunk into two companies liquidated three years later.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/alex-de-haas/36088478232/in/photolist-WZ1TgW-WSNFc9-WVtBLm-VQkdkN-dLNwwk-Xau3R6-mMW8DJ-mnpY7m-mDPjkg-mphNDr-mgFJWB-mcgLZt-miDrdU-rBEMpr-W6M86y-nw5ijj-mu8hte-m8QR8V-WVtCru-hMfmj5-m3Bpga-n2LAvf-pQYUFg-mbYkE3-m5rFgr-H6kWQt-DzYdrU-qqzGa2-p2ztZV-77UBiR-nicJ1p-m9VfGX-qJiCQG-VnV6c8-HY7tNW-S7MHhQ-SUSUuR-W92NK7-VfWzYG-TUD9K3-D1pPwo-dsdb2E-Athcd-qZhkiK-Xbt4hU-Tdjni9-SSkaTT-hMf33Y-q558LZ-VkYHiS">Alex de Haas/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>Pharmaceutical giant Pfizer has engaged in a series of paper transactions to create a A$936 million loss in Australia. It is, for all intents and purposes, a billion-dollar exercise in tax avoidance.</p>
<p>Pfizer and its auditor KPMG, the “Big Four” global accounting firm, refused to comment on the transactions or to defend them when presented with questions by this columnist. Pfizer was contacted on numerous occasions and refused. Both parties refused to return emails and phone calls.</p>
<p>These are transactions housed within a byzantine corporate structure. We will outline, in brief, the series of transactions with Pfizer associates in the Netherlands which led to this “bottom of the canal” tax scheme, then provide the background to the company’s activities.</p>
<h2>The sequence of transactions</h2>
<p>2011: Pfizer Australia Investments Pty Ltd issues $728 million in shares to Pfizer companies in the Netherlands, the US and Luxembourg.</p>
<p>Pfizer Australia Investments (PAI) then uses the cash from this share issue to buy two subsidiaries incorporated in the Netherlands. These are called Pfizer Australia Investments B.V. and Pfizer Pacific Cooperatief U.A.</p>
<p>There is no record of these two companies in Pfizer’s global accounts before December 31 2010.</p>
<p>2014: PAI issues more shares and invests another $208 million in the two Dutch companies. This brings the total investment in these companies to $936 million. </p>
<p>By the end of 2014, the Dutch subsidiaries have been liquidated with zero return for PAI. The financial effect of this round-robin transaction is that share capital of $936 million has been created in Pfizer’s Australian entity and losses of $936 million are recorded in Australia.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/180837/original/file-20170803-29048-1dkax8i.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/180837/original/file-20170803-29048-1dkax8i.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180837/original/file-20170803-29048-1dkax8i.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1030&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180837/original/file-20170803-29048-1dkax8i.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1030&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180837/original/file-20170803-29048-1dkax8i.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1030&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180837/original/file-20170803-29048-1dkax8i.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1294&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180837/original/file-20170803-29048-1dkax8i.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1294&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180837/original/file-20170803-29048-1dkax8i.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1294&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Michael West/Rachell Li, Sydney Democracy Network</span></span>
</figcaption>
</figure>
<p>This ring-a-ring-a-rosy has all the hallmarks of a transaction designed to create almost a billion dollars in losses which can be used for tax purposes in Australia. The Australian company has “invested” almost a billion dollars into two overseas companies which were suddenly liquidated – with no value left for shareholders. Nothing is heard of them since.</p>
<p>It brings to mind the infamous <a href="http://www.smh.com.au/business/tax-avoidance-as-bad-as-bottom-of-the-harbour-schemes-20150209-13adf3.html">Bottom of the Harbour</a> tax schemes of the 1970s and ’80s where the financial engineers – aided by the top end of the accounting community – made investments in companies, stripped those companies of their assets and left nothing for the taxman.</p>
<p>In Pfizer’s case, almost $1 billion of cash was “invested” in two companies in the Netherlands which went belly up within three years. That left the Australian entity – indeed Australian taxpayers – carrying the can for its losses as the freshly created $1 billion in share capital is now sitting pretty for tax-effective distribution to Pfizer overseas.</p>
<h2>A company with form</h2>
<p>Pfizer <a href="https://www.michaelwest.com.au/big-pharma-shuffles-the-tax-pill/">has form</a> on such transactions.</p>
<p>Back in 2011, another Pfizer entity, Pfizer Australia Holdings, created new share capital of $733 million after it bought two subsidiaries from Pfizer Inc. The two subsidiaries were acquired for hundreds of millions of dollars.</p>
<p>Pfizer issued shares, rather than paid cash, to buy these assets from themselves. So, new shares were created at a value of $733 million. This enormous price relied on a fancy asset valuation for the intangible assets held by these subsidiaries, notably “product development rights” of $461 million. These were the main assets acquired. </p>
<p>By 2014, share capital of $408 million of this new share capital had been returned in cash, repatriated to Pfizer companies overseas. And the product development rights had already evaporated (amortised) by $161 million. </p>
<p>Share capital created, assets written off, again. This is the Pfizer pattern. Share capital is created and its assets vanish.</p>
<p>On December 1 2014, yet another Pfizer entity here, Pfizer PFE Pty Ltd, acquired the Innovative Products Oncology and Consumer business from Pfizer Australia Holdings for nil consideration. This included the mysterious product development rights. Nil consideration. These are the rights valued three years earlier at $461 million.</p>
<p>Traditionally, when one company acquires a business from another company, one company is the buyer and the other company is the seller. This immutable principle of commerce does not necessarily pertain to Pfizer.</p>
<p>Pfizer Australia Holdings describes the transfer of this Innovative Products business as a “distribution”, a “transaction with owners in their capacity as owners”, according to its statutory financial statements.</p>
<p>In reality it is no such thing. Pfizer PFE is not an owner of Pfizer Australia Holdings. It holds no shares. It is merely a related party with a common ultimate parent in the US, Pfizer Inc.</p>
<p>Behind this narrative of a “distribution to owners” is tax. When you make profits of hundreds of millions of dollars, avoiding the 30% corporate income tax rate is big business. </p>
<h2>Then and now</h2>
<p>In 2007, Pfizer Australia Holdings was at the helm of Pfizer’s tax consolidated group in Australia and prepared “General Purpose” financial statements, full financial statements and full disclosures.</p>
<p>In 2008, it switched to preparing “Special Purpose” financial statements with far less disclosure, especially about income tax. KPMG’s 2008 audit report gave this special purpose report a clean bill of health even though required disclosures of changes in accounting policies were not made.</p>
<p>From 2009 to 2012, Pfizer Australia Holdings paid franked dividends to shareholders of $576 million; that is more than half-a-billion dollars going overseas. This is the good stuff, though, the above-board stuff, dividends paid out of profits already taxed in Australia. </p>
<p>After 2012, Pfizer ran out of Australian profits to distribute. It had hit the “patents cliff”. The blockbuster drugs Lipitor and Viagra were coming off patent and being challenged by generic competitors. Pfizer’s sales peaked at $2.2 billion in 2012. This used to be the biggest pharmaceutical company in the country. </p>
<p>Yet Pfizer had hit another cliff. The company was running out of Australian profits to distribute as dividends. It needed another way to rake the money offshore. And it came in the guise of return of share capital – better than dividends as there are far lighter tax obligations.</p>
<p>In 2014, a return of capital of $408 million was made offshore. And now, in 2016, Pfizer has made sure, through transactions with associates in the Netherlands, that there is another billion dollars <a href="https://www.michaelwest.com.au/sham-how-multinationals-duped-us/">ready to go offshore</a> when the US overlords make the call.</p>
<p>Two things stand out, two takeaways from the “magic pudding” of Pfizer share capital creation and its bottom-of-the-canal tax scheme.</p>
<p>One, PAI’s audited financial statements claim that two Netherlands subsidiaries were incorporated in Australia. We can find no record of this.</p>
<p>Two, in 2014, PAI invested $208 million in the two Netherlands subsidiaries that were liquidated in the same year for no return. What is an observer to make of that?</p>
<hr>
<p><em>This column, co-published by The Conversation with <a href="http://www.michaelwest.com.au/">michaelwest.com.au</a>, is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p><img src="https://counter.theconversation.com/content/81997/count.gif" alt="The Conversation" width="1" height="1" />
<h4 class="border">Disclosure</h4><p class="fine-print"><em><span>Michael West has been paid by GetUp! and the Tax Justice Network to conduct a series of analyses on multinational tax avoiders.</span></em></p>Pharmaceutical giant Pfizer has engaged in a series of paper transactions to create a A$936 million loss in Australia – effectively a billion-dollar exercise in avoiding tax.Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/814822017-07-24T21:27:10Z2017-07-24T21:27:10ZNew Zealand steamrolls Australia on the pharmaceutical paddock too<p>It’s a good thing for the baby boomers that young people have been locked out of the property market. If Gen X and Gen Y were allowed to fritter away their earnings on mortgage repayments, selfishly amassing their own wealth, they would have less money to subsidise pharmaceuticals for the baby boomers as they hit the outer years.</p>
<p>The Pharmaceutical Benefits Scheme (PBS), once a reasonably efficient beast which cost taxpayers $6.5 billion a year, is likely to surpass $11 billion this year. Most of it goes to Big Pharma, but just how much is hard to tell.</p>
<p>Transparency, from both government and industry, is poor. So it is that Australian taxpayers are held ransom by the power of the pharma lobby, its large political party donations, and the timidity of government to negotiate hard on behalf of its citizens.</p>
<p>With the Bledisloe Cup season almost upon us, it will not cheer Australian rugby supporters to hear that the Kiwis are trouncing us on the pharmaceutical benefits paddock too. Yes, <a href="https://grattan.edu.au/report/cutting-a-better-drug-deal/">we pay three times as much</a> as the Kiwis.</p>
<h2>Australia’s most costly drug revealed</h2>
<p>The cost of Australia’s most expensive drug was finally revealed over the weekend – not by government, and not by a drug company, but by an infectious diseases expert at an AIDS conference in Paris.</p>
<p>Professor Margaret Hellard of the Burnet Institute showed the listed price of Harvoni, the hepatitis C “blockbuster” drug, at US$5,799. The total taxpayer subsidy works out at $A59,079 for a standard 12-week treatment.</p>
<p>Looking at Hellard’s chart, the listed price for a 12-week course of Harvoni (branded sofosbuvir/ledipasvir) is US$91,589 in the US and US$900 in Egypt, where hep C infections run at 10%. Australia is the third-most affordable on the chart – after Egypt and India – but in South America prices remain at more than US$50,000.</p>
<p>Globally, access to this critical cure for hep C is simply unattainable in many poor countries where people are dying daily of the disease.</p>
<h2>R&D comes second to share buybacks</h2>
<p>From an Australian perspective, the immediate public policy issues are price, transparency and accountability. As a rich nation, Australia can still fund blockbuster drugs publicly, but growth in the PBS is unsustainable in the longer term and Big Pharma – heavily subsidised on one front and heavily avoiding tax on the other – is “gaming” government.</p>
<p>In its defence, industry contends the costs of research and development are high, but a study this month found the 18 drug companies listed on the S&P 500 Index spend more money buying back their own shares on Wall Street and paying dividends than they spend on R&D.</p>
<p>The trade-off between shareholders, taxpayers and patients is <a href="https://www.ineteconomics.org/research/research-papers/us-pharmas-financialized-business-model">out of whack</a>: US$516 billion spent on dividends and buy-backs versus US$465 billion spent on R&D over the ten years to 2015. </p>
<p>Gilead Sciences was a major culprit, splashing US$27 billion on buybacks and US$17 billion on research. Buybacks are a capital management initiative that manipulates a share price higher and therefore executive bonuses too. They do nothing for taxpayers and very little for people dying of a disease who can’t afford the cure.</p>
<p>Citing a share market research firm, The New York Times <a href="https://www.nytimes.com/2017/07/14/business/big-pharma-spends-on-share-buybacks-but-rd-not-so-much.html">reports</a> that some US$390 billion in share buybacks have been announced this year, US$13 billion more than at the same time in 2016.</p>
<p>Meanwhile, in Australia, the same Big Pharma companies operate effectively in the dark. A <a href="https://www.michaelwest.com.au/exposed-how-johnson-johnson-cut-its-risk-in-vaginal-mesh-lawsuit/">study by michaelwest.com.au</a> found most of them file Special Purpose financial reports, which allow them to conceal related party transactions with their associates offshore. </p>
<p>As regulators and the Australian Accounting Standards Board dither on closing financial reporting loopholes, many of these pharma giants have switched from the more meaningful General Purpose reports to Special Purpose reporting – all with the trademark connivance of the Big Four global accounting firms.</p>
<p>In the case of <a href="https://theconversation.com/gilead-and-the-billion-dollar-odyssey-80961">Gilead’s hep C cure</a>, it is a sorry state of affairs that basic information about a drug that is so critical to public health and so costly for taxpayers could be withheld for so long from medical professionals and patients.</p>
<p>The financial reporting needs fixing too. The companies fail to properly disclose how much money they make from government. They even fail basic reporting standards.</p>
<p>With enough patience it is possible to find information in the PBS on particular companies and how much they make, but the information is often old and does not drill down clearly to the particular PBS item.</p>
<p>Novartis tops the most recently available list, costing government almost A$800 million for its 3.5 million prescriptions sold. The figures that really stand out, however, are “government cost per script” of $21,572.75 per script for Gilead Sciences and $1,740.04 per Abbvie scipt.</p>
<p>According to Dr James Freeman, who started up a “buyers’ club” to help patients access hep C drug Harvoni at far lower prices, some 34,200 patients were treated in the first year out of about 250,000 infected: “So we only managed 14%.”</p>
<p>“In the context of a real capped price deal, I would have expected that the government would have spent $20 million to $50 million on a TV advertising blitz to maximise uptake,” said Freeman. “We see this for depression, asthma, haemochromatosis. We have not seen it for HCV drugs.”</p>
<hr>
<p><em>This column, co-published by The Conversation with <a href="http://www.michaelwest.com.au/">michaelwest.com.au</a>, is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p><img src="https://counter.theconversation.com/content/81482/count.gif" alt="The Conversation" width="1" height="1" />
<h4 class="border">Disclosure</h4><p class="fine-print"><em><span>Michael West was commissioned by GetUp! and the Tax Justice Network to investigate multinational companies operating in Australia and their tax affairs. </span></em></p>Drug prices in Australia are three times higher than in New Zealand. A key reason is the lack of transparency about taxpayer subsidies for Big Pharma and the companies’ own finances.Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/809612017-07-13T06:45:56Z2017-07-13T06:45:56ZGilead and the billion-dollar odyssey<figure><img src="https://images.theconversation.com/files/178009/original/file-20170713-9462-6z59kg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Despite global outrage at the cost of its Hepatitis C cure, Gilead reaps huge profits – aided by Australian taxpayer subsidies.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/nickstcharles/12492466274">Nick St Charles/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Like its Big Pharma peers, Gilead Sciences enjoys lavish taxpayer subsidies via the Pharmaceutical Benefits Scheme (PBS). It also makes large profits, but it pays little in the way of income tax in this country. So, like its peers, Gilead is doubly subsidised by Australian taxpayers: low income tax, high PBS.</p>
<p>Yet this US drug company has surpassed its peers in the pursuit of corporate welfare. It has set prices so high for <a href="https://theconversation.com/weekly-dose-sofosbuvir-whats-the-price-of-a-hepatitis-c-cure-63208">Sofosbuvir</a>, its “blockbuster” treatment for hepatitis C, that very few people in the world can afford to pay for the drug without monumental government subsidies.</p>
<p>Global Justice Now, a UK activist group, estimates somebody dies of hepatitis C every 79 seconds; in that time Gilead makes US$26,068 selling Sofosbuvir. More than 1.4 million people have died since Gilead took its hep C cure to market in 2014.</p>
<p>But what a cure it is. The success rate is 95%. Sufferers don’t need to take the drug for their whole life, just for a 12-week course of pills. This drug is capable of eradicating a disease that kills nearly 500,000 people a year and infects more than 150 million people worldwide … were it not for the money.</p>
<p>Only wealthy patients and wealthy countries like Australia have the wherewithal to pay for it. And Australia, with its “soft-touch” PBS scheme which is unsustainable and skewed heavily in favour of drug companies, is a prime target for Gilead.</p>
<h2>The high cost of a cure</h2>
<p>The Australian government forked out A$1 billion in just four months last year to subsidise hep C cures Ledipasvir and Sofosbuvir. These were the two most costly items on the PBS. This A$1 billion paid for just 43,000 prescriptions, prescriptions that would have cost the customer A$1,000 a pill had taxpayers not picked up the bill.</p>
<p>The extreme price of Gilead’s hep C cure led Dr John Freeman to set up a buyers’ club, <a href="https://fixhepc.com.au/">FixHepC</a>, so his patients could import a generic hep C treatment from Asia and pay $US2,000 rather than the $US84,000 Gilead was charging for the treatment in America.</p>
<p>Freeman’s son, Dr James Freeman, said this week he was apprehensive at first about importing a far cheaper generic from Asia but felt, as a doctor, he first owed a duty to heal his patients. It was the patients who imported the drug and the results were stunning, at a fraction of the price.</p>
<p>Patients of the Freemans were able get around patent laws on a personal use basis. Gilead, which has a 20-year IP stranglehold on the drug, is not happy about generic interlopers in its hep C market – though the company declined to respond to questions for this column.</p>
<h2>A takeover windfall</h2>
<p>The rationale for keeping drug prices high while allowing those who can’t afford to pay to die is primarily one of risk, capital and markets. Unless there is a significant financial reward for developing pharmaceuticals, companies will not invest and therefore cures will not be found. But where is the line to be drawn between profits and peoples’ lives?</p>
<p>James Freeman says, in the case of Gilead and its hep C drug, Gilead has overstepped that line. It didn’t develop the drugs, it acquired them in a takeover bid and then jacked up the prices.</p>
<p>Typically, a new drug costs between $US90 million and $US300 million to develop. Instead of developing the drug itself, Gilead acquired Nasdaq-listed stock Pharmasset for $US11 billion. It was framed as a “high-risk” acquisition at the time as Pharmasset had steered its drug through Phase II clinical trials but was yet to get approval from the US Food and Drug Administration.</p>
<p>“Patent laws are supposed to help incentivise research and development by ensuring profits for new drugs. But Gilead did not invent Sofosbuvir,” wrote Freeman in a paper on the hep C cure. “The research for the drug was partly funded by American taxpayers and the investment that Gilead made in buying the rights for the drug was more than made back in their first year of its sale. So most of the money you pay for the drug now goes to marketing and to paying dividends to the shareholders gathering in California right now.”</p>
<p>Gilead got Phase III trials done, had the drug approved, and the rest is history.</p>
<p>“In the third quarter of 2013, Gilead had US$2.36 billion in cash and convertibles on its balance sheet,” says James Freeman. “Now they have US$32 billion. They only have one blockbuster so they have US$30 billion in cash profit.”</p>
<h2>Huge profits, little transparency</h2>
<p>This sort of astronomical profit – a profit heavily subsidised by Australian taxpayers via the PBS – suggest Gilead should be accountable for its corporate activities in this country.</p>
<p>Like many Big Pharma multinationals that operate in Australia, however, Gilead produces only “Special Purpose” financial statements, a statutory report that relies on the assumption that there is only one stakeholder interested in Gilead’s financials.</p>
<p>This is wrong. It is a narrow and arguably erroneous view of accounting standards; creditors, taxpayers, patients, myriad parties are interested in Gilead’s financial statements.</p>
<p>The reason for producing Special Purpose reports is reduced disclosure, secrecy. There is zero disclosure, for instance, of Gilead’s related party transactions with its parent company in Ireland – likely there are IP or service charges to Ireland – or with the ultimate parent company in the US. The accounts fail to provide a “true and fair” picture of Gilead’s financial position as required by accounting standards and the Corporations Act.</p>
<p>An analysis of its financial statements shows that although Gilead booked A$2.3 billion in cash receipts from its customers in Australia last year, it paid just A$2.8 million in income tax over the past six years. Tax as a percentage of revenue is 0.82% – less than 1% of sales – after billion-dollar subsidies via the PBS.</p>
<p>Further, deep in the intestines of the notes to the financial statements is a provision to pay the Department of Health A$1 billion. Never mind that this provision does not show up in “provisions” on the balance sheet – we have come to expect this sort of lousy accounting – but there is no explanation of the group’s arrangements with the government.</p>
<p>On the face of it, Gilead owes the government A$1 billion but does not deem that the government is entitled to an interest in its financial statements, ergo Special Purpose reporting.</p>
<p>Gilead’s revenue last year was A$483 million – it had soared from $186 million the year before – but it booked A$2.3 billion of cash receipts from Australian customers. How is it that cash of A$2.3 billion amounts to five times disclosed revenue? No doubt there are complex rebate arrangements, though these are not explained by Gilead or its auditor EY.</p>
<p>Neither is the government’s reporting of its PBS arrangements adequate. Again, cloaked in secrecy. The PBS spend has almost doubled in a decade from A$6 billion to A$11.5 billion and is headed higher. The long-term cost of health care appears crushing and a first step to averting this impending crisis in funding is transparency and disclosure.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/178006/original/file-20170713-11517-vyrse4.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/178006/original/file-20170713-11517-vyrse4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/178006/original/file-20170713-11517-vyrse4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=458&fit=crop&dpr=1 600w, https://images.theconversation.com/files/178006/original/file-20170713-11517-vyrse4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=458&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/178006/original/file-20170713-11517-vyrse4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=458&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/178006/original/file-20170713-11517-vyrse4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=576&fit=crop&dpr=1 754w, https://images.theconversation.com/files/178006/original/file-20170713-11517-vyrse4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=576&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/178006/original/file-20170713-11517-vyrse4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=576&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Gilead revenue, tax paid and cash receipts, and government PBS spending (in A$ million – note break in Y axis)</span>
<span class="attribution"><span class="source">David Balcombe/ASIC company extract and www.pbs.gov.au</span></span>
</figcaption>
</figure>
<p>As for Gilead’s social licence to operate in Australia, it hangs by a thread. This is a company that should be deemed an agent of its foreign parent and taxed as such. </p>
<p>The case of Gilead and Sofosbuvir is far from unique, says Dr James Freeman. “Across the world, hundreds of millions of people are priced out of accessing the medicines they need by big pharmaceutical companies with monopolies over essential medicines.</p>
<p>"It’s estimated that 10 million people across the global south died from AIDS-related diseases while big drug companies tried to block the production of ‘generic’ versions of drugs that could be used to cheaply treat patients. In the UK the annual NHS drug spending has gone up by £3.8 billion in the last five years and the NHS increasingly has to reject or ration new drugs because of their costs, leaving patients without access to new treatments.”</p>
<hr>
<p><em>This column, co-published by The Conversation with <a href="http://www.michaelwest.com.au/">michaelwest.com.au</a>, is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p><img src="https://counter.theconversation.com/content/80961/count.gif" alt="The Conversation" width="1" height="1" />
<h4 class="border">Disclosure</h4><p class="fine-print"><em><span>Michael West has been paid by GetUp! and the Tax Justice Network to conduct an analysis of the tax affairs of 20 multinational companies.</span></em></p>How much can a multinational take before its social licence to operate in this country expires? How much corporate welfare is too much?Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/800762017-06-26T09:30:46Z2017-06-26T09:30:46ZRumours of the death of multinational tax avoidance are greatly exaggerated<p>The Australian government took out newspaper ads earlier this month boasting of unequivocal victory in the fight against multinational tax avoidance.</p>
<p>It is no small irony that taxpayers have forked out for this bald-faced lie. “Multinational corporations earning Australian dollars now pay their fair share of Australian tax,” decreed the ad.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/175556/original/file-20170626-326-bw1mdo.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/175556/original/file-20170626-326-bw1mdo.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/175556/original/file-20170626-326-bw1mdo.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=910&fit=crop&dpr=1 600w, https://images.theconversation.com/files/175556/original/file-20170626-326-bw1mdo.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=910&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/175556/original/file-20170626-326-bw1mdo.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=910&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/175556/original/file-20170626-326-bw1mdo.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1144&fit=crop&dpr=1 754w, https://images.theconversation.com/files/175556/original/file-20170626-326-bw1mdo.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1144&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/175556/original/file-20170626-326-bw1mdo.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1144&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Australian government advertisement falls a long way short of telling the whole truth about multinationals’ tax.</span>
<span class="attribution"><span class="source">Commonwealth of Australia</span></span>
</figcaption>
</figure>
<p>Hardly. While it is true that the Australian Tax Office (ATO) and the federal government have reaped more income tax from multinationals this year than they had earlier anticipated, this is a fight that has only just begun.</p>
<p>Were it not for increasing community awareness of multinational tax avoidance – the world’s biggest rort – and rising concern over tax fairness, things would be worse. So the positive perspective is that, yes, inroads are being made via the <a href="https://www.ato.gov.au/General/New-legislation/In-detail/Direct-taxes/Income-tax-for-businesses/Diverted-profits-tax/">diverted profits tax</a>, the ATO’s <a href="https://www.ato.gov.au/general/Tax-avoidance-taskforce/">tax avoidance task force</a> and the <a href="https://www.ato.gov.au/General/New-legislation/In-detail/Other-topics/International/Toughening-the-multinational-anti-avoidance-law/">multinational anti-avoidance law</a>, which was enacted late in 2015.</p>
<p>Tax Office people privately confide, too, that another A$2 billion may drop this year. That’s A$2 billion on top of earlier expectations – A$1 billion from tightened enforcement and another A$1 billion from “behavioural” factors: better behaviour by some multinationals, in other words.</p>
<p>As the swathe of December year reports have flowed through this month and last, it is evident that some companies such as Google and Facebook have been paying more tax, albeit slightly more and still well short of reasonable amounts.</p>
<h2>Same old tricks</h2>
<p>Others, such as oil giants Exxon, Shell and Chevron, digital players Booking.com, Airbnb, Expedia and eBay, and assorted others such as American Express are up to their same old tricks. We are presently analysing Big Pharma, a sector that is swimming in taxpayer subsidies thanks to the Pharmaceutical Benefits Scheme (PBS) and then has another bite of the cherry via transfer-pricing shenanigans as well.</p>
<p>To a couple of serial offenders, Goldman Sachs and News Corporation. The 2016 financial statements for “Goldies”, as the Giant Vampire Squid is affectionately known in financial markets, are utterly inadequate.</p>
<p>For a start, they are not even consolidated, so don’t provide a true picture of the profitability of Wall Street’s famous, or infamous as many would put it, investment bank. Its head entity in Australia, Goldman Sachs Holdings ANZ Pty Ltd, discloses revenues of just US$24 million, the same as the prior year and well shy of the US$45 million booked in finance costs. Then the profit and loss statement shows an income tax “benefit”, yes benefit, of US$2.4 million, compared with last year’s benefit of US$18.5 million. There was a bottom-line loss in both years.</p>
<p>On this, it would appear that Goldman has paid zero tax in the past three years in Australia. Travelling along to the cash-flow statement, though, they disclose US$286 million was paid in tax last year (down from tax received of US$8.5 million). But when you get to the notes to the accounts it shows an income-tax benefit of US$2.4 million.</p>
<p>All of this is meaningless, of course. As the accounts are not consolidated, they don’t disclose what has been going on in the whole group. Further, tax may have been paid in Hong Kong, the domicile of the immediate parent, or elsewhere.</p>
<p>The usual feature of high finance charges and large related party loans are there, not to mention “service fee expenses” with related parties. Merchant banks such as Goldman Sachs, being banks, get away with a lot on the tax front.</p>
<p>Our very own Macquarie Bank had a keen reputation for tax structuring until it got pinged by authorities three years ago. In 2008, it even recorded a tax rate of 1.7% after a jumbo “tax arb” transaction, a currency swap so successful that it delivered a profit of A$850 million in Asia and a matching loss in Australia.</p>
<p>So a <a href="https://www.michaelwest.com.au/macquarie-banks-humungous-tax-bill-catches-eye/">billion-dollar profit bore almost no tax</a>.</p>
<p>At least Macquarie pays homage to financial accounting standards and doesn’t file a pitiable and arguably non-compliant set of accounts like Goldman. ASIC could issue an edict tomorrow, if it had the courage and a burst of energy, decreeing that any multinational company operating in Australia had to file <a href="https://theconversation.com/big-four-accounting-firms-avoid-scrutiny-in-multinational-tax-avoidance-54879">proper “General Purpose” accounts</a>. </p>
<h2>Feeling the heat</h2>
<p>This brings us to the entity formerly identified as the nation’s <a href="http://www.smh.com.au/business/comment-and-analysis/how-news-corp-ended-up-being-the-nations-no1-tax-risk-20150511-ggz1hg.html">number one “tax risk”</a>, Rupert Murdoch’s News Corporation. That mantle has probably gone to Chevron now. After being rapped over the knuckles by the <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Corporatetax45th">Senate Inquiry into Corporate Tax Avoidance</a> two years ago, News has begun to pay more tax: A$110 million last year. </p>
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<p>The main ruse was to create A$7 billion in “goodwill” in 2004 via a string of related party transactions and then to <a href="https://www.michaelwest.com.au/rupert-murdochs-us-empire-siphons-4-5b-from-australian-business-virtually-tax-free/">rip out A$4.5 billion in profits to the US</a>. </p>
<p>News is still deploying this “repatriation of capital” subterfuge to this day. This practice may be legal but it is unethical. The creation of “internally generated goodwill” could be described as suspect in the least. A “<a href="http://www.smh.com.au/business/rupert-murdochs-us-empire-siphons-45b-from-australian-business-virtually-taxfree-20150405-1meu0l.html">magic pudding</a>” was the way former University of NSW accounting academic Jeffrey Knapp labelled it.</p>
<p>Over the ten years to 2015, Rupert Murdoch’s companies paid income tax equivalent to a rate of 4.8% on A$6.8 billion in operating cash flows, or just 10% of operating profits.</p>
<p>The basic numbers for the past two years are: A$110.5 million tax on revenues of A$3.1 billion and profit of A$156 million. In
2015, it was A$109 million tax paid on revenues of A$2.95 billion and profit of A$287 million.</p>
<p>They are still aggressively debt loading, however, or giving themselves loans from overseas so they can rip out interest before paying tax. The critical numbers are A$2.6 billion in related party borrowings on which they paid A$130 million to themselves in related party interest charges offshore. Overall, debt jumped from A$2.4 billion to $4.3 billion.</p>
<p>A A$411 million loan to Foxtel, which News owns with Telstra, remains. The interest rate on this loan is 10.5%, more than double what the average wage earner pays on a mortgage. This is another ruse to avoid tax. </p>
<p>All in all, it’s a better effort from News, but the evidence on multinational tax avoiders is in. There is improvement, but still a very long way to go.</p>
<hr>
<p><em>This column, co-published by The Conversation with <a href="http://www.michaelwest.com.au/">michaelwest.com.au</a>, is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p><img src="https://counter.theconversation.com/content/80076/count.gif" alt="The Conversation" width="1" height="1" />
<h4 class="border">Disclosure</h4><p class="fine-print"><em><span>Michael West has been sponsored by GetUp! and the Tax Justice Network to conduct an analysis of the tax affairs of 20 multinational corporations. </span></em></p>The Australian government took out ads this month boasting of victory in the fight against multinational tax avoidance. It is no small irony that taxpayers forked out for this bald-faced lie.Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/797672017-06-21T01:21:30Z2017-06-21T01:21:30ZCanavan offers to fund gas exploration, but what do we get in return?<p>Federal Resources Minister Matt Canavan is not only espousing a A$1 billion taxpayer leg-up for Indian coal magnate Gautam Adani to build a rail line but has now called for <a href="http://minister.industry.gov.au/ministers/canavan/media-releases/new-study-assess-gas-potential-offshore-south-east-australia">public money to be deployed for gas exploration</a> in southeast Australia.</p>
<p>It is not as if Exxon and BHP, which operate offshore gas rigs in the Gippsland basin, or other big gas players for that matter, need help from taxpayers for their exploration. But the minister wants to lend them a hand anyway.</p>
<p>Before readers draw the conclusion that spraying taxpayer funds about on gas exploration is the apogee of corporate welfare, it is worth saying that Geoscience Australia has a good track record of hydrocarbon exploration and one which has encouraged investment in the sector over the years.</p>
<p>Still, the question ought to be asked: is it necessary to spend public money on things that will confer a private benefit? Which brings us to the flip-side of public benefits and tax.</p>
<p>As consumers open up their power bills this winter and stagger across the living room in “bill shock” to turn down the heater, they may well be reminded that the largest oil company in the US, Exxon, has paid almost no tax in three years on more than A$25 billion in revenues in Australia. Meanwhile, domestic gas prices have tripled.</p>
<p>ExxonMobil Australia has got away with this by “debt-loading” itself with A$17.6 billion in related party loans so A$600 million gets funnelled offshore before tax is paid on it. Its auditor is PwC.</p>
<p>Rival oil giant Chevron, whose 2016 financial statements lobbed in recent days, shows an income tax refund last year of US$89.6 million (tax paid last year US$47.5 million).</p>
<p>Interestingly, the revenue for Chevron Australia Holdings is US$1.6 billion and finance charges from its US parent company were just shy of revenue at US$1.4 billion thanks to interest on the leviathan US$30 million in related party borrowings. Its auditor is PwC.</p>
<p>Chevron <a href="https://theconversation.com/chevron-a-game-changer-for-multinational-tax-avoiders-76587">lost Australia’s biggest ever transfer pricing case</a> in April and was ordered by the Federal Court to pay A$340 million in taxes and penalties. It is seeking leave to appeal to the High Court as much is at stake. The case revolved around a money shuffle in which Chevron borrowed money in the US at less than 2% and lent it to its Australian business at around 9%.</p>
<p>But that was just US$2.5 billion in loans. There is another US$30 billion to be assessed so the stakes are very high. Unlike Exxon, Chevron’s projects are in the ramp-up or development phase and are selling into an oversupplied global market.</p>
<p>There seems no relief on the horizon from rampaging energy costs. A <a href="http://ieefa.org/wp-content/uploads/2017/06/Australias-Export-LNG-Plants-at-Gladstone-The-Risks-Mount-_June-2017.pdf">report</a> by gas analyst Bruce Robertson of the Institute for Energy Economics and Financial Analysis demonstrates that even though wholesale gas contract prices have soared as high as A$20 a gigajoule in Australia – the Japanese have been paying a third of that for Australian imported gas – the gas producers are not doing it easy. Such is the <a href="https://www.michaelwest.com.au/gas-the-crisis-of-guile-and-greed/">debacle of the Gladstone LNG projects</a>.</p>
<p>Santos scrambling to buy gas from other producers – to make good on its Gladstone LNG export commitments – has made it the pariah of the sector. Unfortunately for Santos it may have to tap the market in another capital raising.</p>
<p>Robertson points to the need for a further billion-dollar write-down to the GLNG asset value and says Santos is in a bind. It’s share price is low, at $3, so a capital raising is expensive and dilutive. It has US$2 billion in cash but US$5 billion in debt, operating costs of US$2 billion and equity of US$7 billion.</p>
<p>Equally worrying is the ebullient oil price forecasts that underpin profit estimates. Oil is now trading below US$50 a barrel. </p>
<p>“In 2022, official forecasts (Office of the Chief Economist) are some US$7.10 below those used by Origin and over US$15 below those used by Santos,” says the report.</p>
<p>“If oil prices fall by US$5/bbl in all years, the value of GLNG declines by US$439 million … If Santos used official Australian government forecasts, write-downs of over US$1 billion would need to be made to its GLNG venture.”</p>
<p>This is bad news for beleaguered Santos shareholders who were hit up for a A$2.5 billion rights issue only two years ago. It’s also bad news for Australian gas customers as Santos, and Origin for that matter too, will want to keep domestic prices as high as possible. </p>
<hr>
<p><em>This column, co-published by The Conversation with <a href="http://www.michaelwest.com.au/">michaelwest.com.au</a>, is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p><img src="https://counter.theconversation.com/content/79767/count.gif" alt="The Conversation" width="1" height="1" />
<h4 class="border">Disclosure</h4><p class="fine-print"><em><span>Michael West has been funded by GetUP! and the Tax Justice Network to conduct an analysis of the tax affairs of 20 multinationals which include ExxonMobil and Chevron.</span></em></p>Federal Resources Minister Matt Canavan is not only espousing a A$1 billion taxpayer leg-up for Indian coal magnate Gautam Adani to build a rail line but has now called for public money to be deployed…Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/789282017-06-06T10:00:31Z2017-06-06T10:00:31ZNo flies on Australia’s richest union<p>Imagine a company that received millions of dollars in government grants each year, paid no tax as it held charitable status, owned recruitment agencies and also owned a law firm that fought against penalty rates for young workers and workplace leave for victims of domestic violence.</p>
<p>There is such a company. It is called the <a href="http://www.nswbusinesschamber.com.au/">NSW Business Chamber</a> Limited. Its financial statements show the chamber recorded revenue of A$190 million last year, of which $5.8 million came in government grants.</p>
<p>It is difficult to tell without more intimate knowledge, but the accounts suggest the folk at the chamber may be living high on the hog. </p>
<p>“Direct salary and other costs of providing services” was $101 million last year (up sharply from $78 million in the prior year). A further $68 million was “employee benefits expense”, while the bill for cars was $2.8 million. The travel and entertainment chit was $2.5 million.</p>
<p>Chief executive Stephen Cartwright said today that the NSW Business Chamber had a strong focus on assisting SMEs (small to medium-sized enterprises) and conducting not-for-profit work such as training and apprentice schemes and advocacy. It was a “union” of sorts, he said, and like other unions it was a not-for-profit organisation. </p>
<p>Asked whether it was appropriate for the chamber to be claiming tax subsidies and government grants in view of the fact that it owned a law firm and recruitment agencies run to make a profit (and which, by their chamber parentage, immunised them from tax), Cartwright said these businesses helped to finance programs such as the chamber’s boot camp for unemployed youth in Western Sydney. </p>
<p>According to its financial statements, the chamber’s “core mission” is to “create a better Australia by maximising the outcome and potential of Australian businesses”.</p>
<p>There is a broader public interest issue at play here. While
other unions are struggling financially, the chamber is sitting on a plush investment portfolio of $184 million in shares, bonds and trusts, besides $13 million in cash.</p>
<p>The chamber owns the law firm, Australian Business Lawyers & Advisors Limited (ABL), and although ABL does not file financial accounts – as these are consolidated in the chamber’s accounts – it does appear to have a robust workload.</p>
<p>This week, ABL’s chief executive, Nigel Ward, and director of workplace relations, Luis Izzo, won a case in the Fair Work Commission that reduces penalty rates for workers in the hospitality industry.</p>
<p>These were big proceedings, which ran for 39 days, featured 130 lay witnesses, a dozen expert witnesses and nearly 6,000 public submissions.</p>
<p>The Australian Charities and Not-for-profits Commission (ACNC) regulates charities at a federal level. Its records show the chamber was registered in 2014 under the criteria “purposes beneficial to the general public and analogous to the other charitable purposes”.</p>
<p>While pursuing charitable purposes, ABL, on behalf of the chamber, has appeared in a raft of common issue proceedings in recent years acting for employers against union and employee claims including: </p>
<p>• award flexibility</p>
<p>• leave for blood and bone marrow donors</p>
<p>• casual and part-time employment</p>
<p>• family and domestic violence leave.</p>
<p>In the latter proceedings, the ABL’s Nigel Ward opposed an ACTU claim and argued against leave entitlements for victims of domestic violence. </p>
<p>Cartwright “strongly disagreed” with the proposition that arguing against entitlements for low-paid workers and victims of domestic violence was not a charitable exercise.</p>
<p>“We are required to be there by the Fair Work Commission,” he said. “It’s a necessary part of the workplace relations system … Our job is to go down there and act in the best interest of the country and employment. Without this, capital walks away.”</p>
<p>On the matter of how businesses operating for a profit could be consolidated into the chamber’s accounts and therefore not pay tax, he said this practice was appropriate as the cashflow was expended in not-for-profit activities assisting the chamber’s 13,000 members.</p>
<p>The $2.8 million expense for motor vehicles was for a fleet used by customers, often in regional areas, Cartwright said, and executives did not have company cars.</p>
<p>The chamber’s auditor, PwC, picked up $437,000 last year and $565,000 the year before and appears to have a conflict of interest in that its non-audit fees for tax advice and such exceeded its audit fees.</p>
<p>The chamber has also made political donations disclosures over the years. Both major parties have been beneficiaries, with the bulk of donations going to the Liberal Party. It has also funded election advertising in NSW. However, Cartwright said the chamber was “fiercely non-political”. </p>
<hr>
<p><em>This column, co-published by The Conversation with <a href="http://www.michaelwest.com.au/">michaelwest.com.au</a>, is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p><img src="https://counter.theconversation.com/content/78928/count.gif" alt="The Conversation" width="1" height="1" />
The NSW Business Chamber insists that arguing against entitlements for low-paid workers and victims of domestic violence qualifies as a charitable exercise.Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/756172017-05-30T11:01:01Z2017-05-30T11:01:01ZTax take shrinks as online accommodation agents rake it in<blockquote>
<p>This is a huge market and no one knows how it all works except the mug operator who washes the linen, cleans the toilets and battles with being recognised by Google to compete with these guys … and pays income tax on every dollar earned.</p>
</blockquote>
<p>Duncan McIntyre is the owner of Mt Martha Villas, a B&B on Victoria’s Mornington Peninsula. Like thousands of hotel and short-stay operators across the nation, McIntyre is alarmed at the growing market power of online travel agents (OTAs). </p>
<p>When the OTA market began around 2000, online accommodation sites were efficient. They dealt with the overhang of inventory – spare rooms, that is – and they matched the travelling public with B&B operators for a small charge. Now, says McIntyre, the market has consolidated and foreign, tax-avoiding multinationals are calling the shots, driving up prices.</p>
<p>Another beachside apartment operator on the New South Wales South Coast – she didn’t want to be named for fear of reprisal – says the OTAs stop her from discounting.</p>
<blockquote>
<p>The fees can be up to 30% per cent (to get premium position on an OTA website) and they don’t allow you to compete (on price) with them.</p>
<p>As a small business, we are beholden to list with these sites as they obviously have power in Google rankings, and we would disappear without such listings.</p>
</blockquote>
<p>Both operators talked about tax. Online accomodation websites are booming yet their billions of dollars in income, income that used to flow to Australian companies and contribute to Australia’s tax base, now almost entirely bypasses these shores.</p>
<h2>Heading for a virtual duopoly</h2>
<p>The two leaders in the accommodation space are Booking.com and Expedia, with more than 18,000 in listings daily. An investigation of their financial statements shows the former books its sales directly to The Netherlands and the latter directly to the US; so no GST and virtually no income tax.</p>
<p>The chief executive of the Accommodation Association of Australia (AAA), Richard Munro, says the gross value of the accommodation bookings market is A$15 billion to A$17 billion. The two top players command roughly one-third, or A$5 billion in gross spending (30% market share of total bookings, or almost <a href="http://www.hmaa.com.au/Portals/34/FINAL%20ACCC%20submissions-%20AAoA.pdf">85% of online bookings</a> in Australia).</p>
<p>Assuming average commission rates to Booking.com and Expedia of 15% of each sale, says Munro, these two players alone rack up annual sales in Australia of more than A$750 million.</p>
<p>Here is the punchline though. This A$750 million or so in sales is nowhere to be seen. Last year, Bookings.com disclosed revenue of just A$16.2 million, according to its skimpy financial statements filed with the corporate regulator, while Expedia booked $$93 million. Almost all revenue in both instances came from offshore parent companies in “service” arrangements.</p>
<p>Over the past three years, Booking.com has paid a mere A$2.46 million in tax in Australia, despite its offshore associates raking in A$1 billion or so in revenue.</p>
<p>Expedia’s financial statements are so lame they don’t disclose tax in the cash-flow statement, nor in the notes – nothing to see there. They have booked a tax expense, but expense is an estimate not a payment.</p>
<h2>A familiar tax-avoidance structure</h2>
<p>All this is now convention, a well-trodden path of accounting and disclosure chicanery pioneered by Google, eBay and Facebook on the advice of the Big Four accounting firms. </p>
<p>These are the hallmarks of the US digital giants: </p>
<ul>
<li><p>zero income made in Australia actually booked in Australia</p></li>
<li><p>ditto GST</p></li>
<li><p>pitiful amounts of tax paid, and then only in recent years</p></li>
<li><p>a skinny board, a triumvirate of directors: typically two offshore and one in Australia with a low profile</p></li>
<li><p>a small CBD head office in an accountancy firm</p></li>
<li><p>market domination.</p></li>
</ul>
<p>As much as tax is a challenge for regulators, there is also a critical antitrust consideration. The two big players in the space have been gobbling up smaller pretenders, consolidating the market, forcing prices up, forcing small hotels, motels and B&Bs to deal with them or be left with little opportunity to access eyeballs on the world’s greatest monopoly, Google.</p>
<p>The Australian Competition and Consumer Commission (ACCC) is believed to be still investigating competition issues. Expedia
has been pouncing on a slew of rivals. It now owns Travelocity, Orbitz, Hotels.com, Wotif, Lastminute, Hotwire, Trivago, CheapTickets and eBookers.</p>
<p>There was outrage last year as <a href="http://www.traveltrends.biz/ttn555-hotelier-outrage-over-accc-rate-parity-agreement-with-booking-com-and-expedia/">hotel operators slammed the ACCC</a> for striking a “secret” deal with the duopoly which stopped hoteliers from offering cheaper prices online.</p>
<h2>What can authorities do about this?</h2>
<p>While the industry brawl over pricing parity rages on, authorities could do some simple things to enhance accountability by these conniving tax avoiders. For one, the Tax Office could force – as it has done with Google and Facebook – the OTAs to bring their revenue onshore to be taxed, instead of letting them <a href="https://www.michaelwest.com.au/sham-how-multinationals-duped-us/">pretend their Australian businesses are really Dutch or American</a>.</p>
<p>These multinationals, like the others, command puppet regimes across the globe. Their real directors, the “shadow directors”, are offshore, so their companies should be treated as such, as undisclosed agencies, and taxed accordingly.</p>
<p>As usual, the accountancy profession is miserably failing to uphold standards, and their multinational clients aren’t compelled to file proper General Purpose financial reports rather than the feeble Special Purpose reports designed to conceal.</p>
<p>Booking.com – auditor Deloitte – lists an address in Martin Place, Sydney. In 2016, it disclosed A$7.1 million in dividends to its Dutch shareholder Booking.com NV. The ultimate shareholder is US giant Priceline Inc.</p>
<p>Besides its one Australian director, Eve Crestani, Booking.com’s directors are a Jupiter Tsui, resident of Singapore, and Johannes Wilhelmus Pieter Maria Trass, resident of Holland.</p>
<p>It’s a similar deal for Expedia, registered address Bird & Bird Martin Place, Sydney. Two US directors, one Australian. </p>
<p>The only mention of tax in the notes to the latest accounts is a small increase in “foreign tax payable” of A$976,000.</p>
<p>In the case of both companies, it seems the costs were bulked up to minimise profit and therefore tax paid. Expedia shows a A$34 million marketing and advertising budget and a jump in “other” expenses from A$2.7 million to A$8.8 million last year.</p>
<p>It was a mistake for the ACCC to have permitted Expedia to have swallowed Australian business Wotif three years ago. </p>
<p>Australian authorities have allowed predatory, secretive overseas businesses to plunder their tax base while penalising thousands of Australian accommodation operators thanks to onerous commissions and diminishing competition from a duopoly.</p>
<hr>
<p><em>This column, co-published by The Conversation with <a href="http://www.michaelwest.com.au/">michaelwest.com.au</a>, is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p><img src="https://counter.theconversation.com/content/75617/count.gif" alt="The Conversation" width="1" height="1" />
<h4 class="border">Disclosure</h4><p class="fine-print"><em><span>Michael West has received funding from GetUp and the Tax Justice Network to analyse the tax affairs of 20 top multinational companies operating in Australia.</span></em></p>Australian authorities have allowed predatory online travel agents to shrink their tax base while penalising Australian accommodation operators thanks to onerous commissions and vanishing competitionMichael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.