Home' acuity : Acuity Oct 14 Contents ELLEN FANNING
is a leading Australian journalist. She moderated a
panel discussion exploring the complexities of taxing
multinational enterprises at the recent Public Sector
Symposium held by Chartered Accountants Australia
and New Zealand in Canberra.
conditions that apply between the
parties and how those conditions take
place and how the transactions take
place. [Then] at the end of the day... the
ultimate tax liability... is usually decided
by economic experts at ten paces.”
Professor of taxation at the University
of Sydney Graeme Cooper agrees.
“ Transfer pricing is a kind of cult,”
Cooper says. “It’s a ghetto. It’s a whole
bunch of self-referential people all
talking to each other. They’ve all drunk
the Kool-Aid. They all understand the
transfer process. And then somebody
from outside – let’s call them a judge
comes and looks at this and says: ‘I
don’t understand why you’re taking
the interquartile range and weighting
it for movements in the commodity
prices that occurred on Thursday
and dividing by the number of bars
in the National Anthem to get a range
that goes from $8 to $637.’ That’s what
transfer pricing is.
“ There must be a better way,”
Cooper says. “We are actually saying to
a vertically-integrated multinational:
‘You’re not vertically integrated.
Pretend you’re not.’ It’s just ridiculous.
And until transfer pricing is kind of
exploded, set on fire, reconceived
from the ground up, we’re going to be
having these fights all the time.”
Earlier this year in Sydney, the G20
finance ministers tried to cut through
the complexity by signing up to the
principle that “profits should be taxed
in the place where the value is created
or the economic activities occur”.
But in the digital economy that
activity may not occur in a bricks and
mortar office, but somewhere in “the
All of which leaves a revenue collector
reaching for reference works on
quantum mechanics when dealing with
digital taxpayers, as Konza freely jokes.
“And their answer to me when I say,
‘Where do you do business?’ is ‘You
know Heisenberg’s theory says we
can’t define both the direction and
location of a particle at any one point
“ This kind of exchange just kind
of clearly raises the difficulty with
[slogans],” says Cooper.
“We’re good with... slogans, you
know: Stop the Boats, Scrap the
Tax, Tax Economic Activity Where
It Occurs. ‘ Tax economic activity
where it occurs’ is blancmange. You
can’t attach any real meaning to
that concept and so we are trying to
breathe life into a creaky old corporate
tax system that modern public finance
theory says should not exist.
“One part of the OECD is saying:
‘We’ve got to preserve the corporate
tax, we’ve got to do it through BEPS’,
and another part of the OECD is
saying: ‘By the way, taxes on corporate
profits are really, really inefficient
“Is there a risk that the cure will be
worse than the disease in countries
like Australia and New Zealand,
where a greater compliance burden
may bring very few extra dollars into
the tax coffers?”
and destructive of growth’. And until
we kind of bite the bullet on the fact
that the corporate tax is probably
a doomed species, it’s the betamax
recorder in the world of the blu-ray.
Until we bite the bullet on that and
have, for example, serious property
taxes or a marginal increase to our
consumption tax base or we play with
serious wealth and inheritance taxes
then we are just going to keep having
this fight about trying to keep the life
support machine on.
“It’s giving us some money for the
moment but God help us when it really
finally collapses,” laments Cooper.
For Treasury’s Heferan and his
political masters – working on a tax
reform white paper to be delivered at
the end of 2015 – shoring up a leaking
system that still delivers billions of
dollars in corporate tax revenue every
year is very much worthwhile.
“Corporate tax matters for us more
than other countries because we collect
so much. Much more than any other
country relative to our tax base, our
overall tax collection,” Heferan says.
“So it’s a big deal for us. We can’t let
it wander out the door.”
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