I find this current national debate (and inquiry) around corporate tax avoidance a complete farce.
Notwithstanding the facts that corporations should absolutely follow the law, and also bearing in mind that the directors of public corporations are legally bound to follow the law as well as operate the company in the best interest of its shareholders, this debate is getting rather silly.
And I don’t mean the answers that are being offered by corporate representatives at the Senate inquiry.
The entire premise of the debate is completely distorted.
Firstly, corporations are not “real”. They are legal fictions. It is people (employees and shareholders) who profit from the activities of the corporation. To talk about “corporate profits”, and demanding that “corporations need to pay their fair share of tax” is a strange concept indeed.
With this in mind, you have to ask why we have corporate tax at all?
In years gone by, nations would compete to try and attract business operations to their shores. But those days seem to be long gone as the G20 are no longer seeking to create a competitive marketplace, rather they are only interested in a marketplace where our “legal fiction” corporations are seen by governments as revenue streams for public coffers.
If our governments were serious about business growth and employment opportunities for their citizens, they would be doing whatever they could to create an environment where companies want to come here, to set up shop here, and to employ a lot of people here.
The simplest thing they could do is to drop corporate taxes. To zero!
Of course, also by the wayside would be tax deductions (it does not make sense to have tax deductions if you don’t pay tax). They would also need to better police the use of corporate funds for personal expenses (such as buying yachts, etc., for so-called “entertainment” purposes).
In such a regime, you just watch the stampede of multi-national companies flocking to Australia to set up their operations here.
What about government revenues, you say?
I fully expect that the dramatic rise in business activity that would result from such a tax regime would create so much more employment (and hence payroll tax) and business-to-business transactions (and hence GST revenue) that this will more than make up for lost corporation taxes.
But, even if it doesn’t, the government has many other ways of generating revenue from business operations without crippling the ecosystem via a corporation tax. For example, they could increase royalties for the use of natural resources, or impose more savvy import duties, or change the nature of the GST, or impose an array of licensing fees for certain types of operations, etc.
Such a regime will also serve to truly level the playing field between large multi-nations and local small and medium businesses (who don’t have the luxury of being able to arrange their international tax affairs as savvily as the big boys).
The entire notion of corporations “paying their fair share of tax” is a fictional paradigm that serves no real purpose, and is absolutely unnecessary.
There are better ways to stimulate business growth in this country, and the grow government revenue streams.
So let’s stop deluding ourselves on this issue. Let’s make Australia open for business, so that we can all benefit from business success.