10% Income and Business Tax and Multinational Tax Minimisation

Bystander on 28/07/2023 - 15:57

Even before the PwC saga it was well known that multinationals, and others, do whatever they can to minimise their tax bills. Here in Australia the government frequently seems to be one step behind when it comes to getting businesses to pay their fair share of tax.

What would the broader implication be of having a flat 10% foreign exchange tax on every dollar that leaves the country?

The money raised could be used to lower both personal and business tax rates as well as make an adjustment to social security payments. For example have a 10% income tax bracket from c$18,000 up to c$120,000 and a flat 10% business tax rate.
At first glance this would
- allow Australian businesses to compete more fairly with some imported goods, eg. IKEA is known for paying very little local tax, presumably the result of transfer pricing.
- generate more local jobs (if and when the unemployment rate rises).
- make tax minimisation schemes less attractive.
- The cost of imported goods and services will be higher but this will be offset by lower income and business taxes

Financial Tax

Comments

  • GG57 on 28/07/2023 - 16:08
    +5

    Or, we could just tax our resource companies?

    • dtc on 28/07/2023 - 16:58

      10% of all company tax paid in Australia in the 2022 was paid by BHP

    • Bystander on 28/07/2023 - 17:45

      I agree. The resources in the ground belong to all Australians.
      But I also think that a broader resource profit/resource export tax should be done in conjunction with a foreign exchange tax.

      • spc12go on 29/07/2023 - 18:46

        That’s not the right why. The resources belong to the people and the government should won those resources. And give the resources company a % share in the resources they mine not the other way around.

  • mskeggs on 28/07/2023 - 16:08
    +1

    You might be interested in a Tobin tax, or some of the Georgian land taxes, as models for alternatives to income taxes.

    I don’t think the kind of tax you are envisioning would need to be as high as 10%, but if it was, it would stifle a lot of economic activity.

    • Bystander on 28/07/2023 - 16:19

      The Tobin tax is similar but has a different objective.

      10% was just an easy number to work with. It could be set at any other value.

      As for stifling economic activity, can you elaborate?

      • mskeggs on 28/07/2023 - 16:26
        +3

        Because income taxes are only on profit, they don't get paid until you make money.
        An international transaction tax at 10% impacts investment before a profit is turned - e.g. if I want to buy a bulldozer to start a road construction business it costs me more to get into business at all.
        And it is hard to separate 'legit' investment like that versus Google "leasing" it's IP from Bermuda to the Australian subsidiary at a cost of, wow, what a coincidence, the same income they made in Australian ad sales.

        I'm actually not against this idea, but that will be the argument.

        • Bystander on 28/07/2023 - 16:35

          You're right, business taxes are on profit. And an exchange tax would apply to foreign expenditure so it would increase the cost of startup etc.
          My question would be "is it a fair trade off?"

          • netjock on 29/07/2023 - 09:11
            -1

            @Bystander: What are you trading it for?

            It is like government saying super concessions are as much as old age pension. Well dumb dumb that is why you have super concessions so people don't need to be on the pension. Over time your government pension payments will go down and below that of concessions because a lot more people are sell funded.

            Some genius on Twitter threw up that super concessions on investment income is going up. That dumb dumb didn't realise that if more people are growing their super to be self funded retirees of course there is more investment returns using up more concessions.

            The best part is that person says we should abolish super and use the money to pay everyone a flat pension. I guess the pension will go way up and basically eat up those super tax concessions.

            Or you might just trade that for submarines and other vanity government projects that seems to be always over time and over budget 2x if not more.

            • Bystander on 29/07/2023 - 12:12

              @netjock: I'm not discussing superannuation here.
              Maybe you'd like to start a new thread on that topic if it interests you.

  • CrowReally on 28/07/2023 - 16:08
    +1

    What would the broader implication be of having a flat 10% foreign exchange tax on every dollar that leaves the country?

    What does this mean? Aussie retailer buying Chinese merch to import for their shop pays 10% tax on their order? People sending money overseas to family pay 10%? Companies that transfer money overseas have to surrender 10% of it?

    • GG57 on 28/07/2023 - 16:14
      +1

      And Australians going overseas for holidays - 10% on all overseas spend (incl. airfares?)

      • Bystander on 28/07/2023 - 16:23

        Yes. Overseas holidays get taxed more.
        But consumers are paying less income tax and in total should be better off.

    • CrowReally on 28/07/2023 - 16:28
      +1

      Back of envelope, retailer on 25% tax rate orders 100K of stock with 30% markup and no other expenses
      - 100K cash to order stock, sells at 130K [30% of 100k], profit is 30K, tax is 7.5K (business has kept 22.5K of their cash from the sale)

      vs retailer on 10% tax rate orders 100K of stock (with 10% special new tax) with 30% markup and no other expenses
      - 110K cash to order stock [10K being tax], stock sells at 143K [30% of 110K], profit is 33K, tax is 3.3 K + 10K at the ordering stage = 13.3K.
      Business has kept 29.7K of their cash from the sale).

      Yup, business ends up with more cash while 'paying' more tax overall because they've passed on the 10% forex ordering cost to their customers.

      • GG57 on 28/07/2023 - 16:55
        +1

        It gets complicated, doesn't it.

        Whereas taxing resource companies is reasonably straight forward.

      • netjock on 29/07/2023 - 09:06
        +1

        OP doesn't realise 10% GST us basically a tax on everything. I think OP is basically raising GST to 20%

        OP not the brightest but then maybe OP works for Big4 consultancy and trying to put a presentation together for the government on the next big con.

        • Bystander on 29/07/2023 - 12:06

          fyi
          The GST is applied to most purchases of goods and services made within Australia.

          A foreign exchange tax is applied to all financial transactions that result in money leaving Australia.

          They're completely different.

          • netjock on 29/07/2023 - 22:07

            @Bystander: Given other than food everything else is imported how do you think we're paying for those imported products genius?

            • Bystander on 30/07/2023 - 00:00

              @netjock: Your tone comes across as both angry and rude.

              Imported goods will be more expensive but as previously mentioned it is counterbalanced by lower taxes and greater support for others.

  • dtc on 28/07/2023 - 17:00

    Until all the other countries put a 10% tax on Australian exports

    • Bystander on 28/07/2023 - 17:04

      I expect that they would like to have reciprocal arrangements.
      The model should still work in that scenario.

  • KaTst3R on 28/07/2023 - 17:07

    What would the broader implication be of having a flat 10% foreign exchange tax on every dollar that leaves the country?

    There is already withholding tax on payments to foreign entity.

    • Bystander on 28/07/2023 - 17:34

      And yet this hasn't helped to reduce tax minimisation schemes. eg. it didn't stop PwC advising it's customers on how they can work around new government legislation.
      I'm looking for something that captures more of the businesses that are not paying their fair share.

  • netjock on 28/07/2023 - 20:02

    What would the broader implication be of having a flat 10% foreign exchange tax on every dollar that leaves the country?

    Problem is whether the dollars will come into the country when you consider this.

    One thing they taught in finance is currency swaps. If you are in the capital controlled country like China: if you need to get CNY out you find someone who needs to pay someone in China. Then you pay them while they pay you outside of China with a non capital controlled currency.

    • Bystander on 28/07/2023 - 20:51
      -1

      Yes, if left unchecked that would be an obvious loophole. There would need to be legislation to say that currency swaps must be declared and where it is seen that they are being used to avoid tax the ATO has the power to act accordingly.

      • netjock on 29/07/2023 - 09:04
        -1

        I don't think you know the problem of what you are proposing. If you are going to put 10% tax on spending money overseas then why should the money come into the country in the first place. No money = no money to spend overseas anyways.

        Every country that has capital controls are basically either Communist or dictatorships that basically going down the drain.

        Australia is bad enough already (two industries are mineral exports and construction). Say RIO and BHP can sell our minerals and warehouse their money offshore and only bring back what they need to pay for stuff here or pay for stuff overseas to be shipped here. No money is moving near Australia.

        All your are seeking to punish is people who live in the country. Successive governments have done it well. Don't need you to put the final nail in.

        • Bystander on 29/07/2023 - 12:20
          -2

          Money will always come into Australia. We export and we are a safe country to invest in.

          The people in Australia will benefit from significantly lower income and business taxes as well as increased support for others.

          • netjock on 29/07/2023 - 22:06

            @Bystander: That is what people probably said about Rome and any empire that ever existed.

            increased support for others

            Who are these others we're talking about. Or you just running out of reasons.

            If unemployment is at 3.5% and people are homeless there is a rental crisis I don't think dropping taxes to 10% is going to fix that.

            You are just trying to build an express way to an end goal where as the solution is actually a lot more complex.

            Put a tax on this and drop a tax on that, then sit back and the market will solve itself.

            Did dropping rates to 0.1% and mortgage repayment holidays solve toilet paper shortage of Mar 2020? It didn't help get more materials onto building sites, neither did it get the ports in China working at full capacity and shipping containers into the right places. Cost of building new homes has gone up 20-40% but it doesn't get more tradies and materials on site.

            You can't solve things by just throwing more money at it.

            • Bystander on 30/07/2023 - 00:01

              @netjock: Given your tone and lack of rational input I don't think it's worth replying to you anymore.

              • netjock on 30/07/2023 - 13:43

                @Bystander: If it doesn't fit the narrative then disregard the input. Sounds like our politicians.

                Raising taxes and dropping taxes without solving fundamental issues is just shuffling dollars. It is like first home buyer grants that turn out to be property seller grants.

                Nothing to do with tone. I just deliver it to you the same: flat.

                Everyone thinks they got some genius single headline idea. But you know why no other country's done it. Because enough of them know it won't work or they'll just disadvantage themselves unilaterally. Ireland had lowest tax rates in the EU and they became a tech tiger economy of Europe but then came 2008/9 and see Ireland implode.

                Iceland thought they could become a financial services power house. See how they imploded in 2008/9 too. You can't grow a single industry and not get exposed to the economic cycle. UK financial services imploded too.

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