Foreign-owned gas companies have legally avoided paying significant tax on billions in earnings from their Australian operations because of loopholes, according to a study.
The loopholes have allowed the companies to write off interest payments for the borrowings of offshore subsidiaries, it has been claimed.
The study, by academic accountants at the University of Technology School of Accounting, and left-leaning campaign group GetUp, looked at the available balance sheet data of gas giants ExxonMobil and Chevron. It found the two companies have achieved colossal revenue flows from their Australian operations but paid little if anything in petroleum resource rent tax in recent years.
The practice is known as “debt loading” or “thin capitalisation”.
Over the two years 2013-14 and 2014-15, Chevron earned more than $6.12 billion in revenue, but paid nothing in PRRT, according to the assessment.
It found ExxonMobil achieved revenue of almost three times that at $18.08 billion in the same period, but paid only $803.5 million.
The study concluded that between the operation of the company tax rules and the petroleum resource rent tax regime these enormous multinational resources companies can “load up” their balance sheets withexcessive debt, thereby reducing taxable income to the point where the tax liability is low or non-existent.
The report, Investigation into the Petroleum Resource Rent Tax and Debt Loading in Australia – 2012 to 2016, found 95 per cent of oil and gas projects in Australia paid nothing in PRRT in 2014-15.
The case for reform has been boosted by a recent Federal Court ruling that went against Chevron Australia in a $340 million dispute with the Australian Tax Office for financial arrangements between 2004 and 2008. The full bench concluded the Australian arm had paid more in interest payments to its US parent company than would otherwise be necessary, thus reducing its taxable profits.
However, the company noted it had paid close to $4 billion in taxes and royalties since that period.
GetUp’s Natalie O’Brien said the interest payments on borrowings were designed to minimise or eliminate tax liabilities, that could otherwise fund schools and hospitals.
“Between 2013-2015, Chevron made over $6 billion in revenue in Australia. It paid zero dollars in PRRT, and they paid zero dollars in income tax,” she said. “That’s a rort.
“In the same period, ExxonMobil made $18 billion in revenue and paid no income tax.
“Australians are sick and tired of big corporations using their influence to increase their own power and profits, at the expense of the community and our environment.
“Every day people are being forced to deal with cuts to essential services – all because our politicians won’t stand up to these greedy gas giants.”
The government has commissioned independent expert Michael Callaghan, AM, to review the operation of the petroleum resource rent tax to assess its effectiveness at securing a suitable return for Australians from the development and sale of their mineral resources.
The PRRT was introduced in 1988 under the then Hawke Labor government, and was designed to tax profits at 40 per cent.
It differs in this crucial respect from state royalties, which tax according to volume and thus do not differentiate between highly profitable ventures and those that might be marginal or even loss-making.
However, profitable income under the PRRT is calculated after the deduction of eligible expenses and where these expenses exceed revenue in a given year, such losses can be carried forward to the next year for deduction. This means high capital start-up costs, can be amortised over years, rendering apparently lucrative projects free of PRRT liabilities.
“The good news is that we can fix this,” Ms O’Brien said. “We can close the loopholes, and recover enough to restore every last cent of Coalition cuts to local hospitals and fully fund Gonski needs-based school funding reform – twice over.”
“Debt loading refers to a tax avoidance strategy where business operations and investments are funded with excessive debt rather than equity,” the UTS report authors note.
“Excessive use of debt compared to equity creates ‘debt loaded’ or ‘thinly capitalised’ structures. Debt loading is often used by subsidiaries of multinational entities to shift profits from high to low tax jurisdictions.”
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