Australia gets tough on tax-dodging MNCs

THE Australian government seems to have finally resolved to tackle the hard business of getting large multinational corporations to pay their fair share of local taxes. If news reports are accurate, there will soon be new legislation to curb the phenomenon of "thin capitalisation" - whereby MNCs borrow at high interest in high-tax jurisdictions and lend at zero interest to their own entities located in tax havens, for the sole purpose of minimising, or avoiding, local taxes.

The immediate trigger to act on this issue was an expose in a leading Sydney newspaper which lifted the cloak of secrecy surrounding the tax affairs of Glencore, the biggest miner and exporter of thermal coal in Australia. The report revealed that on A$15 billion (S$17.5 billion) of income in the last three years, Glencore's Australian branch had paid almost no tax.

The company is no stranger to this sort of controversy. In 2011, one of Africa's poorest countries, Zambia, accused MNC miners of avoiding hundreds of millions of dollars in taxes through tactics such as transfer pricing. In an audit by tax consultancies Grant Thornton and Econ Poyry, Glencore was found to have manipulated the tax system to its sole advantage. The audit found that the mining company, Mopani, 76 per cent owned by Glencore, used its relationship with the parent company to carry out practices such as inflating operational costs, underpricing the output of its mines, irregular hedging and transfer pricing.