Treasurer Joe Hockey has said Australia is “losing control of our destiny from a taxation perspective” because of “holes” in the tax treatment of multinational corporations, as a parliamentary committee prepares to grill global companies about the tax they pay and former tax officials warn that the tax office has lost the expertise to tackle the problem.

Despite Hockey’s concerns, the government rejected a recent suggestion from Labor to save $1.9bn over four years from multinational companies which avoid Australian tax by loading debt into their Australian operations, although it did make some changes to the so-called thin capitalisation rules last year.

The laws were designed for a Woolworths, a Coles, a Myer. They never contemplated the Googles or the Yahoos. Joe Hockey

The Coalition is also moving to exempt 700 private companies from new tax transparency rules because of fears it could jeopardise their safety and possibly lead to kidnappings.

Hockey’s tax discussion paper proposes “a lower corporate tax rate” as one way to tackle the problem because it “would reduce the incentive for tax planning and profit shifting from Australia.”

“This would potentially reduce the revenue that is lost to tax planning and allow the resources devoted to tax planning and compliance activities to be used more productively in the economy,” the discussion paper says.



The paper also highlighted that “recent reforms have tightened Australia’s thin capitalisation rules to stop multinationals claiming excessive debt deductions and closed other loopholes in the tax system” and the fact that “the ATO also has several compliance programs specifically addressing global tax structuring arrangements by multinational companies.”

But as he released the discussion paper, Hockey suggested more needed to be done.

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“Every day someone comes up to me and says, ‘What about Google, what about Ikea, what about all these other companies that are providing services to Australia and may not be paying their fair share of tax?’,” he said.



“These large companies take the view that they’re complying with the laws, and they may well be. But the problem is, the laws have holes because the laws were designed for a Woolworths, a Coles, a Myer, and other traditional operators. They never contemplated the Googles or the Yahoos, or the emergence of Uber or Airbnb and the like. So it’s a patchwork of taxation, which means inevitably that we’re not collecting the revenue that we should be collecting and that we want to collect, that is fair.”



Representatives of Apple, Google, Microsoft, News Corporation Australia, BHP Billiton, Rio Tinto and Fortescue have all agreed to attend next week’s hearings of the Senate economics committee, set up after a report by the Uniting Voice union and the Tax Justice Network which claimed Australia could be losing up to $8bn a year in tax revenue because of tax minimisation by ASX 200 companies. Many of the companies dispute the calculations in the report.



Leaked Luxembourg tax deals also exposed the complex schemes used by some Australian companies to drastically shrink their tax bills.



It is understood mining companies Glencore and Adani have been asked to give evidence but have not yet confirmed they will attend.



But former tax office officials say the complexity of tax law and a lack of resources at the tax office make cracking down on tax avoidance extremely difficult.



“In the case of large entities and multinationals, the difference between judicious ‘tax planning’ and ‘tax avoidance’ is usually blurred. Proving avoidance is very difficult and the ATO has mostly been unsuccessful at it,” one former official, Martin Lock, said in a submission to the committee.



“The tax revenue at stake from ‘unacceptable’ tax planning outcomes allowed under clear law or overlooked by grey law undoubtedly runs into billions of dollars,” he said.



“In 2014, the large business and international tax area of the ATO lost many – probably most – of its most knowledgeable and experienced tax technical staff. Even before then, only a mere handful could legitimately claim to have a well-rounded, deep working knowledge of Australia’s corporate and international tax laws.



“A few academics in Australia do have that level of knowledge but it is unlikely any Treasury staff do. Those with the fullest understanding of the corporate and international tax laws are the global tax advisory firms – the recognised leaders in corporate and multinational tax planning and minimisation.”



The recent Labor proposal regarding companies avoiding Australian tax by loading debt into their Australian operations suggested that, instead of being able to choose between a number of ways to make their tax calculations, companies would be forced to calculate their debt to equity ratio as an average of their global operations. It was heavily criticised by business organisations and major accounting firms.



Hockey said he had been advised by Treasury that “the proposal in relation to thin capitalisation will cost jobs … because if you make it more expensive for international businesses to operate in Australia, they will simply reduce their operations, as we have seen with car manufacturing companies.”

