Submission to the Senate Inquiry into Corporate Tax Avoidance
The terms of reference for this inquiry are broad. This submission can only tackle a small proportion of the issues raised by the terms of reference and are likely to be raised by the committee's deliberations.
First, we outline the relative coherence and effectiveness of Australia's corporate tax system. Revenue from corporate tax constitutes a larger share of total tax revenue than almost every other OECD country. Furthermore, it is increasing.
There is no clear evidence of what is known as "base erosion" in Australia's tax base. Forecast errors in the corporate tax take - which were so devastating to the Rudd-Gillard governments - are not attributable to aggressive tax planning. Furthermore, the evidence suggests that the corporate tax is overwhelmingly paid by large firms. Large firms are more likely to attract the attention of the Australian Tax Office, and are less likely to be able to indulge in tax minimisation.
Second, we detail the main features of the international tax system, and survey some of the evidence about the policy choices made through international tax treaties and domestic tax arrangements. Australia has a "worldwide" tax system and therefore is less likely to see its tax base eroded through lawful tax avoidance.
Through tax treaties, policymakers have been deliberately trying to avoid the phenomenon of double taxation. While the question has filled many newspaper columns and talkback radio slots, it remains unclear whether the opposite - that is, double nontaxation - is actually an economic problem.
Finally, we tackle two mainstays of the debate about international corporate tax: the so-called "stateless income problem" and "profit shifting". We also make some comment on topical corporate tax issues, such as the so-called "Lux Leaks", tax havens and the "Double Irish Dutch Sandwich", which has dominated public discussion about corporate tax evasion and avoidance.