How much tax do multinationals pay?

We keep hearing about those naughty evil multinationals not paying any tax. Well what do the ATO have to say about that?

In 2013, there were over 6,300 businesses reporting international related-party dealings and they collectively paid $40 billion in company income tax. Our focus is to ensure this represents a fair share of tax under current international tax rules.

$40 billion is company tax from multinationals. To get a feel for how much money that is the total company tax take in 2012-13 was $66.9 billion and in 2013-14 $67.3 billion – so some 60% of company tax revenue comes from multinationals.

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22 Responses to How much tax do multinationals pay?

  1. .

    How much tax do multinationals pay?

    Enough.

  2. OK. Nice point, Sinclair.

    But it doesn’t really answer the question “Do MNCs pay as much tax as they would if they could not transfer assets/prices etc elsewhere?” The very NEXT para in the ATO report canvasses this question (in an uninformative way). I don’t know the answer. But I do know it’s an (expensive) competition between accountants/lawyers on both sides as (alas) it is bound to be under our taxation system. While that system is in place, I put not my faith in Princes nor in Multinationals.

    Best wishes, P.

  3. Mike of Marion

    But, but, but, … (ad infinitum)

  4. Sinclair Davidson

    Peter – your question is whether MNCs would pay more tax if we didn’t have a multinational framework of tax treaties that prevent double taxation. In theory, they’d pay more tax. But then we’d have fewer (perhaps no) MNCs and much less economic activity.

  5. Percy

    .

    #1498063, posted on October 30, 2014 at 6:29 pm

    How much tax do multinationals pay?

    Enough Too much

    FTFY Dot.

  6. Motelier

    .

    #1498063, posted on October 30, 2014 at 6:29 pm

    How much tax do multinationalsall businesses under the jurisdiction of the ATO pay?

    Enough.

    Far too much.

    If the punters want all of the rolled gold goodies supplied from the government, then the punters should be willing to pay.

    So far I just hear crickets.

    Control the spending and you get the budget under control

    FFS Hocky and Abbott to have an advisor from small business on their team.

    Small business operators are the only business operators that keep spending under control.

  7. Motelier

    Sorry for the bad formatting there.

    This is really getting to me lately.

    If the government wants to pay for something, and has trouble finding ways to pay for it, then they need to have a really close look at the expenditure side of the balance sheet.

    This is not hard.

  8. MemoryVault

    As a total non-economist type, I’ve asked this twice before, but never really received an answer.
    Why do companies pay tax at all?
    We don’t tax partnerships.
    Net profits from a partnership accrue as income to the individual partners, and is taxed as such.
    Why don’t we treat company profits the same way?
    The savings in tax-compliance record-keeping and paperwork alone would be a large fortune.

  9. Nelson Kidd-Players

    Agreed, MV. Just apply the tax at the point it leaves the company, as a dividend. I know some countries do this. The biggest issue would be the transisition – there would be a big drop in tax received for a year or so. According to the Wikipedia article, Estonia is an example, although they have 33% payroll tax.

  10. 2dogs

    MV, what about non-charity, not-for-profit companies, such as clubs?

    Germany has a situation where dividends are a deduction, so companies only pay tax on retained earnings.

  11. mundi

    The main reason is that it’s too easy to cheat.

    A company can easily pay for meals, accommodation, other perks, that would otherwise be employee taxable payments. Fringe benefits are so easy to cheat its silly. Want a holiday to Hawaii? Just have your business pay it as a meeting of some kind.

    If you could properly tax income, then revenue would actual go up a lot of you removed company tax, as the individuals will have higher tax rates.

  12. JohnA

    MV, any section of the community which is not subject to tax (or taxed concessionally) will become a tax shelter.

    So even in partnerships, when progressive tax scales provide an incentive to save tax by restructuring, partners shifted income into lower-taxed entities – service companies.

    If company entities were free of all tax, we would see an explosion in incorporations by individuals.

    Australia and other countries shield the home (“principal private residence”) from many tax imposts. This results in money going towards homes rather than into business reinvestment. Is that particular distortion what we want? Imagine if interest on borrowings secured over a private asset were quarantined to that asset, and if the private home (“ppr”) was treated as an investment property…a different pattern of cash flows would result.

    What 2dogs reports about Germany demonstrates an incentive to distribute earnings rather than retain them. This may have a distorting effect on company entities’ patterns of retained profits and re-investment in their future growth.

    For every action there is a consequence.

  13. JohnA

    mundi, a number of your examples display a looseness with the truth, and if given sufficiently sharp scrutiny, might bring into question the declaration signed in each tax return that everything has been fully disclosed and truthfully declared.

  14. another name

    Recently I did some work for a firm where I had reason to see the tax records of an $80M company. This company relies on government funding for a lot of it’s activities. However, part of their activity runs in competition with private enterprise and in a smaller community they are pushing people out of business. Perhaps the most distressing thing that I saw, was that the employees of that company, with an average range of wages between $75 – $350K, however when it came to the group certificates the amount of tax that they paid was minimal. The company avoids payroll tax, because of their NFP status, but then their employees can rort the system so that they pay next to nothing in payg. If the ATO cracked down on this, then part of our funding issues would be fixed.

    Couple this, with firms that are run by religions and the tax take goes down even further. One just needs to look at the Bretheren & their range of businesses as an example.

  15. MemoryVault

    I’d like to thank everybody for the time and effort taken to address my query. Having said that, I’m sorry, but none of the supplied reasons hold water once examined critically.

    2dogs
    Not for profit organisations and charities don’t pay company tax and don’t distribute profits as dividends to shareholders anyway, so are irrelevant to the question.

    Mundi
    The behaviour you describe occurs anyway (politicians are past masters at it). At the moment nobody in private enterprise worries about it much, because it is seen as “cheating the tax man”, which is something of a national sport. However, if the company didn’t pay tax, that money would be coming out of shareholders’ pockets, and I think they would take a dim view of managers who allowed it to continue to any great extent.

    JohnA
    The point you make about tax shelters is valid, but isn’t that precisely the mess we have now?
    Surely it can’t be that difficult to define funds as either for the benefit of the company, in which case profits generated are not taxed, or for the benefit of an individual, in which case they are taxed as income. For example:

    Company A buys a house and rents it out at market value. The rent forms part of the eventual profits of the company which are distributed as dividends to shareholders, who pay tax on it as income.

    Company B buys a house and provides it rent free to its managing director. The value of the foregone rent at market value is income to the managing director and is taxed along with the rest of his income. Ditto for cars, bikes, planes, trains, holidays and anything else that reduces dividends to shareholders to provide benefit to an individual. How hard could it be?

    The only point where company dividends would be taxed is where they were being paid to an overseas entity. However, as both company and personal income tax would be a lot lower than now, there would be a greater incentive for overseas entities to invest in Australia. There would be an even greater incentive for such entities to re-invest profits back into Australian business, as such re-investment would eliminate paying tax on the profits altogether.

  16. Ant

    To paraphrase the Goanna:

    “You’d have to have rocks in your head to pay more than I do given how you a-holes piss it away.”

  17. Percy

    Why do companies pay tax at all?

    Because fair share!!

    Which is a load of shite. While there might be some argument for companies to be taxed enough to cover their cost to government (compliance costs etc), there is no justification for government ripping as much as it does from companies each year.

  18. ChrisPer

    The emphasis of the progressives (sorry, leftfilth) seems to be entirely redistributive now. While the rhetoric is about 1%ers and multinationals, the facts on the ground are that anyone above about $75K is paying for 50% of the population to have pensions, dole, free education adn free healthcare. And that applies to a single salary, might have a wife at home with four kids but get treeated the same as two DINKS each on the same amount.

    Whenever a benefit is given, those that pay the most tax (ie pay for the benefits) are vilified while being angrily denied what others feel entitled to for no merit whatever.

    Earn reasonable pay for spending 2/3 of your life in a shithole while your family copes without you? RIGHT, hand over your money or we jail you. Want equal access to Govt colour tv bonus – or paid parental leave, equal to leftfilth public servants and ABC presenters? HELL NO you are the filthy rich just FOAD.

    Are you one of the 1%? If you are a lefty LGBT giving millions to pondscum, FANTASTIC. If you are a miner trying to get a fair place in public discourse, FOAD!

    Why cant people smash back at these twisted values?

  19. Petros

    Another Name, how do the employees rort the system to pay very little PAYG?

  20. Percy

    another name

    #1498713, posted on October 31, 2014 at 9:04 am

    This company relies on government funding for a lot of it’s activities. However, part of their activity runs in competition with private enterprise and in a smaller community they are pushing people out of business.

    If the Government cracked down on this then part of our funding issues would be fixed. The rest of your post then becomes irrelevent.

  21. JohnA

    MV, you said:

    “Company B buys a house and provides it rent free to its managing director. The value of the foregone rent at market value is income to the managing director and is taxed along with the rest of his income. Ditto for cars, bikes, planes, trains, holidays and anything else that reduces dividends to shareholders to provide benefit to an individual. How hard could it be?”

    How hard? Merely repealing the Fringe Benefits Tax, then enforcing the original s25 (IIRC) of the old ITAA which said that assessable income must include the value of all benefits received by the employee in connection with their employment. Deceptively simple, but it sure as hell generated a lot of ATO vs taxpayer battles over the valuation, the connection with employment etc., not to mention the opportunities for bending the presentation of the facts.

    The fundamental problem is “my money” vs “your money” mentality: aka greed or covetousness. That doesn’t even get near the Goanna’s point about being less than generous because of the government’s inadequate policing of its own spending.

    But MV, I agree that the tax shelters represent a mess, it’s just that you missed my first point: there will ALWAYS be shelters if there is sufficient incentive to reduce the impact of tax upon a taxed entity. So concessions, graduated tax scales and all the like will ensure that there is always a tax advice industry, with a vested interest in complication, rather than simplification.

  22. Kingsley

    I believe Australia has a huge opportunity in company tax. As I understand it, it is down to just us and the Kiwis who still genuinely frank company dividends. This means in the long run we don’t actually tax company profits as it ultimately is allowed as a credit in the shareholders tax return when those profits are paid out as a dividend. Even to the point that if you are in a tax bracket below 30% you get a refund.

    Hence whilst there would be some short term cashflow pain Australia could drop company tax literally to zero with no real drain on treasury coffers.

    Think how attractive a place Australia would be to invest then. First world country in Asia Pacific, geo politically very safe location, English speaking, educated workforce ( albeit a bit expensive) English common law based legal system etc.

    The wonderful bit is no other country bar NZ could follow us. For all other competing nations, even those with lower headline rates, they ARE living off company tax and desperately need it. We have a huge advantage here we are not taking.

    Even within the domestic situation it is still a great outcome. Whilst you retain profits and are using capital to create jobs and earn more profits no tax to pay. Pay it out and consume yes you do. If a company pays a dividend to another company no tax to pay, it will only results in tax if then paid out to an individual tax payer.

    Even if individuals found ways to incorporate is that really a sin? Whilst the money is retained in company and paying tax it is doing the wonderful job of being invested, even if it is just cash in a bank and being on lent to someone else to invest. Individuals would still need to pull out the money they need to live and enjoy life and on that they would pay tax normally.

    There would need to be a heavy focus around companies lending to shareholders rather than paying funds out as dividends but as any of the other accountants reading this will tell you there is already very rigorous legislation ( Div 7A) around shareholder loans now.

    So why don’t we use this built in advantage of our existing tax system to create an investment tsunami in this country? That will utterly dwarf the short term cashflow loss of going to zero company tax rate.

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