Why the government needs to target corporate tax dodgers

For some time now, we’ve heard of giant multinational corporations operating in Australia, but paying no tax.

Today, the Australian Tax office (ATO) released the tax details (total revenue, taxable income and tax paid) of more than 1,500 companies for the 2014 financial year.

A surprisingly large number (467) has zero taxable income, despite generating revenues of more than $100 million. Collectively, the 467 companies saw revenues of close to $310 billion, yet paid zero tax. 579 companies with combined revenues of over $400 billion paid no tax, whether they declared taxable income or not.

The Commissioner of Taxation, Chris Jordan said, “Some foreign-owned companies are overly aggressive in the way they structure their operations. We will continue to challenge the more aggressive arrangements to show that we are resolute about ensuring companies are not unreasonably playing on the edge. If they do, they can expect to be challenged.

Companies that reported billions in revenue but zero taxable income include General Motors Australia, Vodafone Hutchison, Lloyds, Virgin Australia Holdings Limited (ASX: VAH), Qantas Airways Limited (ASX: QAN), oil giants ExxonMobil Australia, Chevron and Puma Energy, Spotless Group Holdings Ltd (ASX: SPO) and Healthscope Ltd (ASX: HSO).

Ford Motor Company of Australia generated close to $3 billion in revenues, but had taxable income of just over $7 million and paid no tax. Boeing saw more than $1 billion in revenues, had taxable income of $53 million, but paid no tax.

Of course, paying no tax doesn’t necessarily mean that the companies are avoiding tax. There are legitimate reasons for paying no tax. In Qantas’ and Virgin’s cases, both airlines reported losses in the 2014 financial year.

Companies offset their revenues with normal expenses of running their businesses, and in some cases, expenses outweigh earnings. The problem the ATO and the government are concerned about is whether some deductions are legitimate.

One company accused of shipping profits offshore is tech giant Apple. The company reported more than $6 billion in revenues, but taxable income of just $247 million. Apple paid its full 30% tax on that taxable income, but questions are being asked about why its taxable income is so low. That represents a margin of just 4%, which appears odd for a company that generates such high margins on its products in other countries.

Foolish takeaway

If the government and ATO can cajole more of these non-payers into paying tax, it could go a long way to helping fix the budget deficit. Even 1% of the $400 billion in revenues earned by the 579 companies that paid no tax comes in at $4 billion. Annually. Each year.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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