Australia must lead a crackdown on corporate tax avoidance or multinationals will continue to get around "inadequate and out of date" laws, a QUT expert says.
Professor of Taxation Kerrie Sadiq, from QUT Business School, told the Senate Economic Committee Hearing on Corporate Tax Avoidance that profit shifting by corporations was "morally wrong".
"Even though the extent to which tax avoidance is currently affecting Australia's corporate tax base is unclear, reports indicate that aggressive tax planning is occurring," she said.
"The fact that base erosion and profit shifting is occurring, coupled with corporate compliance, means that they are taking advantage of current tax rules.
"And, what many are doing is morally wrong. Unfortunately, the current tax regime has no basis for addressing morally wrong behaviour.
"However, appropriate taxes are not being paid in the location of the economic activity. Tax rules need to focus on the underlying economic substance of transactions.
"To this end, the current laws are inadequate and out of date."
Professor Sadiq said Australia had to be "proactive" in adopting the OECD's BEPS (Base Erosion and Profit Shifting) recommendations aimed at tackling profit shifting and tax avoidance.
"Australia has the opportunity to show leadership within the region," she said.
"But we must collaborate internationally and should not act hastily or unilaterally.
"The fundamental problem of BEPS can be addressed in two ways, fix and/or amend the laws that allow aggressive tax planning to take place, or put in place more robust anti-avoidance laws such as the UK diverted profits tax or the 'Google Tax'.
"Personally, I believe we should strive to fix the current system, particularly the transfer pricing regime."
Professor Sadiq said international tax law was "incredibly complex" and "greater transparency" from corporates was needed.
"Informing the public builds trust in the tax system and helps to maintain the integrity of the tax base," she said.
"There is a lack of confidence in the corporate tax system and the public is calling for corporate social responsibility in relation to tax not just compliance with tax obligations.
"Unfortunately, very few corporations view tax as an economic contribution to public finances."
Media contact:
Rob Kidd, QUT Media, 07 3138 1841, rj.kidd@qut.edu.au
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