At last week’s G20 meeting, delegates agreed to revamp global tax rules to crack down on what accountants are calling a phenomenon of base erosion and profit shifting. There is a wide chasm between outright evasion and modest tax avoidance, but Google’s 0.01 per cent effective company rate is grounds for concern, and undermines public confidence in the tax system. Support for foreign investment is wholly consistent with opposition to extreme tax avoidance. Companies that do not pay their fair share of tax unfairly push the burden on to others.
As disclosed in the company’s US group accounts last week, News Corp received a cash payment of $882 million from a ‘’foreign tax authority’’ in the second half of last year. On Monday, our journalist Neil Chenoweth revealed that authority to be the Australian Tax Office. The payment resulted from $2 billion in claimed deductions previously disallowed by the ATO before it was over-ruled by the Federal Court in July last year.
The issue concerned paper transactions that allowed News Corp’s Australian subsidiaries to record a $2 billion loss while subsidiaries in tax havens posted a corresponding profit. Tax base erosion from profit shuffling by multinational corporations – especially new media companies such as Google – is a key issue for the G20 finance ministers’ meeting to be chaired by Treasurer Joe Hockey this weekend.