The Paradise Papers showed that for the super-rich and major multinationals, fancy structures in offshore tax havens are the way they roll.

As the week went on, the Queen was seen investing in a dodgy hire-purchase company through a Cayman Islands fund, Formula 1 star Lewis Hamilton was pictured in his jet bought through the Isle of Man in an apparent tax dodge; Nike was exposed as shipping its profits through the low-tax jurisdiction of the Netherlands and big miners were revealed as the author of a new trick to cut their taxes.

Almost all the money went through tax havens, such as exotic locales in the sunny Caribbean or the stormy Channel Islands, with their exotic tax structures and, in the case of Bermuda, exotic local dress sense.

(What was with the Bermuda shorts and knee-high black socks seen on Four Corners’ Paradise Papers on Monday night?)

Picking through the documents in a database made available to Four Corners and its partner the International Consortium of Investigative Journalists by German newspaper Suddeutsche Zeitung, it was easy to form the view the super-rich and big multinationals live by a very different set of rules to those of everyday Australians.

The following fixes, views and thoughts were expressed by tax activists, tax experts and parliamentarians after a week of revelations in the Paradise Papers:

Is life too easy for multinationals?

Jim Killaly, a former deputy commissioner of the Australian Tax Office and a visiting fellow of the Australian National University’s Crawford school of public policy, sees little reason for multinationals to be given a free ride on certain tax rules.

He says the debt levels of 60 per cent debt to 40 per cent equity allowed in current policy settings are uncommercial and allow multinationals to game the system.

The gaming includes big companies taking on eye-watering levels of debt from their parents, allowing them to claim oversized interest payments back to their parents and in the process shipping what should have been taxable profits out of Australia.

The thinking behind the tax rules are making Australia attractive for foreign investors, but Mr Killaly sees Australia as pretty attractive any way.

“How much do you have to give away to be attractive, and are we giving away too much?” he said.

“We’re leaving too much on the table.”

The Federal Government says thin cap rules were tightened in 2015 and are in line with the Organisation of Economic Co-operation and Development recommendations.

Newly introduced multinational anti-avoidance legislation (MAAL) has made life uncomfortable for some multinationals.

At least 34 including Google and Facebook have either restructured or intend restructuring their business because of the law, which is designed to stop profits being shifted offshore.

How about a bounty for whistleblowers?

The fact that recent public discourse about tax havens has been based on two successive leaks, the Panama Papers and the Paradise Papers, speaks to the power of information being disclosed.

US authorities encourage such disclosures by offering a bounty to whistleblowers disclosing information that leads to successful prosecution of misbehaving companies.

In the case of the securities regulator the bounty is 10 per cent to 30 per cent of the monetary sanctions from the prosecution.

Since it was introduced in 2012 there has been $US111 million paid to 34 whistleblowers.

In Australia, a parliamentary joint committee report released in September recommended regulators could pay a “reward” to whistleblowers, based on a percentage of the penalty and consideration of the circumstances of the whistleblowing.

Current proposed reforms in Australia focus on protection and compensation for whistleblowers exposing financial misconduct.

Draft legislation released last month also creates new protections for tax whistleblowers.

“They can now come forward with confidence that they will be protected under a comprehensive and robust legal framework, knowing that they will have access to redress if they are victimised as a result of blowing the whistle,” a spokeswoman for Revenue and Financial Services Minister Kelly O’Dwyer said.

How do you stop ‘manufactured complexity’?

In the view of Mr Killaly, big multinationals thrive on “manufactured complexity” that has a simple purpose: avoiding tax.

Mr Killaly asks why, when there are 1,400 major company groups in Australia with revenues above $200 million, there are 7,500 “tax reporting entities”.

“I certainly ask the question why do you need more than one [for each major company group],” Mr Killaly said.

The Paradise Papers also revealed spaghetti junction diagrams of large companies signed off by big law firms and big accounting firms.

Crossing borders, touching down in tax havens and introducing complicated financing structures, they are no doubt perfectly legal — but they also give every appearance of “manufactured complexity”.

Without a single set of clear, public accounts showing the tax position of each major company group, ordinary Australians have little chance of understanding the revenues, taxable profit and tax paid by big companies.

“[The Paradise Papers show] billionaires are above the law and one of the ways they are able to maintain their position above the law is through secrecy,” said Tim Buckley, a director of the Institute for Energy Economics and Financial Analysis.

“And that’s what tax havens are all about: how do you hide the money from the public?

“One of the ways to deal with this issue is to introduce country-level accounting so companies can be held accountable in the countries they operate in.”

Does the ATO have enough teeth?

Labor senator Chris Ketter, the chair of the Senate economics committee charged with the continuing investigation into corporate tax avoidance, says Australia is making “glacial progress” on fighting tax avoidance.

And he answered a simple “no” when asked whether the ATO has enough resources to take up the fight.

The minister’s spokeswoman disagrees, pointing to $679 million spent forming a Tax Avoidance Taskforce.

She also highlights doubled penalties for tax avoidance schemes and the new laws including the MAAL and a diverted profits tax.

“All of which ensure the ATO is equipped to crack down on tax avoidance,” the spokeswoman said.

The ATO’s estimate of a $2.5 billion “tax gap” between what big corporates should be paying compared to what they are paying prompts Mr Killaly’s interest, who argues it could be a multiple of that figure.

Mr Killaly has a nice anecdote about his view of the Australian Tax Office’s role: “You’ve got to be like a blue heeler constantly going after a creature that’s got a mind of its own, and it’s big and strong.”

“I’m not sure the blue heeler is getting enough of a feed and enough help at this stage.”

‘Tax avoidance is not a victimless crime’

The erosion of trust in the system — dubbed a “democratic deficit” by tax activists — has sparked legitimate questions about the central social contract regarding tax, questions that were echoed in comments on Paradise Papers stories throughout the week.

Boiled down, those questions were: “How do they get away with it?”

On the bright side, the ATO reports $4 billion in extra tax collected from corporates than they originally paid in the most recent tax year, and a further $1 billion from wealthy individuals.

But those kinds of payments show the size of the prize.

And closer to home: “If they don’t pay their taxes, why should I pay mine?”

“Multinational tax avoidance is not a victimless crime,” Senator Ketter said.

“It’s the ordinary people who end up picking up the tab and it’s less that’s available to governments to spend on schools and hospitals.”

And he sees a system that lifts the cloak of secrecy from multinational companies and wealthy individuals as a key step forward.

“We know that companies will go to extraordinary lengths to hide what they are doing,” he said.

“Once you expose it, open it up to public gaze, then it creates enormous pressure on them.”

And what about jail terms?

“I tell you what, sometimes you feel that is warranted,” Senator Ketter said.

Topics: tax, government-and-politics, fraud-and-corporate-crime, corruption, law-crime-and-justice, australia

First posted Fri at 2:02pmFri 10 Nov 2017, 2:02pm