A vast number of Australian wage-earners and taxpayers will be appalled and disgusted at the news that Rupert Murdoch’s New Corporation is paying an average 7.8 per cent tax on its nearly $2 billion operating profit. The standard company tax rate in the three countries he does most business in, Australian, Britain and the US, is around 30 per cent.
Many wage earners, of course, are paying marginal rates of 30, 40 or nearly 50 per cent. They do not have access to smart legal advice. They expect the system and the politicians and administrators responsible for it to work in a fair way.
News Corp has acted in a perfectly legal manner. But that makes the situation that much more aggravating and frustrating from the wage-earning taxpayers’ point of view. It shows them that their elected politicians have failed them.
News Corp uses an elaborate company structure and overseas tax havens to reduce its tax. Typically, profit earning News Corp entities in Australia, Britain and the US export the profit to other News Corp entities in tax-shelter countries such as the Cayman islands where corporate tax is virtually non-existent and there is no requirement for companies to disclose information publicly. Typically, the overseas corporation lends money to the Australian, British or US entity at high interest rates which are tax deductible in those high-tax countries. The interest payments are transferred to the overseas corporation which pays little tax on that money as income. The money adds to the capital of the overseas company ready to be lent back to Australian, British or US entity. The scheme simply converts income which would be taxable into capital that is not.
A similar thing is done with foreign-currency transactions. Any losing transaction is put in the books as a tax deduction in the entities in the high-tax countries like Australia, Britain and the US, and winning transactions are put in the books as profits in the entities in the low-tax countries. The more currencies fluctuate the more tax liability overall is reduced.
It is all legal, however one might otherwise view it.
It has not been officially confirmed but Australian, British, US and Canadian revenue officials have apparently met to devise a strategy to counter News Ltd’s methods of paying such low levels of tax. Other media conglomerates pay a more reasonable share of between 27 per cent and 32.5 per cent for Disney, Viacom and Time Warner.
It seems very appropriate that tax officials have seen the need to think globally when dealing with a global empire that plays one tax regime off against another.
It is a pity something was not done earlier. Both major parties in Australia stand condemned on this. In 1989 a parliamentary committee in Australia exposed News Corp’s tax minimisation methods, but nothing has been done. Are both major parties too scared to do anything because of News Ltd’s huge media clout in Australia? If so it is further proof of the need for greater media diversity.
The present government has stated that it proposed major tax reform if it wins the next election. That is a worthwhile aim. A likely proposal is for a goods and services tax to replace wholesale taxes and some income tax. This would be coupled with compensation for people on welfare benefits. Some of these reforms would be worthwhile, but the government will have a hard job convincing people that they are serious about fairness and equity in the tax system while hugely profitable corporations like News Corp pay such a small amount of tax.