20 January 2020 15:39:51

The corporate tax assault lacks evidence

"Atlassian uses research credit to pay no tax". So shouted a headline in News Ltd’s The Australian newspaper earlier this month. It’s the latest outbreak of foolishness about corporate tax. But this time it comes from the Murdoch empire.

The implied sin in The Australian’s headline and report is the usual one: that a company did something wrong by having low corporate tax payments. As usual, their tax bill was then compared first of all to their revenue – even though corporate income tax is paid not on revenue but on profit, minus accumulated tax losses.

An implied sin

A couple of years ago, the journalist using this formula was the ABC’s economics correspondent, Emma Alberici, who targeted Qantas. This month the same formula was wielded by News Ltd’s Michael Roddan and John Stensholt. Their article opened:

"Tech darling Atlassian paid zero tax in Australia despite drawing in more than $1bn in local revenue, after using research and development tax credits to offset $137m in taxable income."

The Australian’s article didn’t assess how much Atlassian profit was earned in Australia, or how the amount earned in Australia was offset by R&D tax benefits, or whether Atlassian had other accumulated losses. All of these and much more would have to be known if The Australian was to actually show something dubious about Atlassian's tax behaviour. The article simply implied, by putting the behaviour in headlines, that there might be something wrong with Atlassian’s tax.

Two years ago, when their economics correspondent wrote something similar, the ABC took quick action to review and revise the articles. Having had one of its editors criticise the ABC at length back then, News Ltd has now left the Atlassian piece up unchanged.
Are they cheating?

This month’s articles originated with the Australian Taxation Office (ATO) annual transparency report, which noted that around one-third of large companies paid no tax. The Australian’s article did, to its credit, mention that tax is paid on taxable income rather than revenue, and that companies making losses don’t pay tax in that year.

That‘s the crucial issue. Without understanding it, many readers of such articles are likely to wonder why so many companies are not paying tax, whether they’re cheating, and whether the ATO is for some reason going easy on them. Social media can then amplify these tendencies, presenting the headline as the entirety of the facts and inviting people to pile on.

Notably, The Australian’s article didn’t do what articles on the transparency report on the ABC and Channel 7 websites did, and include instructive context from the ATO.

To be clear, there’s no doubt some multinationals manipulate their financial flows to minimise the tax they pay in higher-tax jurisdictions in Australia (News Ltd is itself frequently accused of this). Such manipulation can be illegal, and the ATO spends plenty of resources pursuing it.

But media coverage like News Ltd’s is now so worried about the ATO that it maintains a special section of its website devoted to explaining what’s actually going on.

"Of particular concern to the community is the income tax compliance of large corporate groups," it says. "Based on our detailed knowledge of the system as it operates in practice, most large corporate groups pay the right amount of tax."

In Atlassian’s case, as best anyone can tell, it has taken advantage of R&D tax credits that were specifically intended to encourage more R&D activity by firms like Atlassian (we don’t know very much, because the ATO’s report on corporate tax doesn’t go into detail on Atlassian’s tax affairs, or anyone else’s).

As far as I can see, Atlassian has done just what we wanted it to do. I’m happy to be corrected if anyone knows more; contact me here.

Find evidence

Back in September, I talked with Australia’s tax commissioner, Chris Jordan, about the public’s trust in the ATO. This sort of coverage clearly frustrates him, too.

He called some of the media coverage "simplistic analysis" that is not of "a standard that we deserve as a nation". He wanted decent analysis rather than stories hinting that something inappropriate is going on. "At the end of the day, it doesn't do anyone good," he told me. "You don't want people thinking large companies are ripping off the system, when we know, largely, they're not."

Jordan’s right. Media outlets which want to cast doubt on the ATO treatment of corporate tax should start finding some good evidence. Otherwise, they risk needlessly undermining trust in both Australia’s large companies and Australia's tax system.