The title of the interim report of the Senate economics committee inquiry into corporate tax avoidance, released this week, is "You cannot tax what you cannot see".
This is a rather embarrassing admission that the evidence for widespread corporate tax avoidance — the avoidance which has filled so many newspaper columns, so many hyperbolic speeches in parliament — just doesn't exist.
Imagine being pulled over by the police and told that even though you've been observed driving below the speed limit, stopping at stop signs, giving way at give way signs, indicating correctly, wearing your seatbelt, and maintaining a respectable distance from the car in front, the police have a hunch you're somehow violating community expectations.
While the Senate committee feels sure there are questionable corporate tax practices going on, it doesn't actually find any.
Rather, it relies very heavily on the political rhetoric of a now-discredited 2014 report by the Tax Justice Network, which claimed that firms were denying the government vast sums of revenue through opaque and confusing tax arrangements.
In fact, what the committee's interim report shows is that the tax practices of the big tech firms are quite explicable.
For instance, Microsoft and Google have their regional headquarters in Singapore. As the committee admits, these headquarters are not shells, existing solely to avoid giving Joe Hockey money. They're real. They have real offices, real assets, and real staff doing real work. In Singapore. Not Australia. Just because those Singapore headquarters digitally export some products and services to Australia does not mean they should pay Australian corporate tax on the profits.
Even more explicable is large firms with large research and development costs deducting those costs from their taxable profits. The R&D corporate tax deduction is bipartisan government policy. It seems a bit much for governments to introduce a tax incentive then get angry with firms for using it.
The lack of evidence of tax avoidance makes the committee's belief that the Australian government should name and shame corporate tax avoiders vaguely comic.
Certainly, the Australian Tax Office should be vigilant ensuring firms are paying what they owe. Firms that fail to do so should face the full consequences of the law. But that already happens. Australia has some of the strongest anti-avoidance laws on the planet. The government has the tools, right now, to deal with illegal tax evasion.
Underpinning this whole debate is the fact that Australia's corporate tax rate is very high. At 30 per cent, it is substantially above the OECD average of 25.3 per cent. And Australia is one of the most heavily reliant countries on corporate tax revenue in the OECD. The Senate committee admits that this heavy burden puts Australia at a "comparative disadvantage".
With such a disadvantage, it is no surprise that multinational companies are not lining up to establish their regional headquarters here.
But a failure to establish regional headquarters in Australia — "avoiding permanent establishment" in the lingo of the committee — does not constitute tax avoidance. Australia's tax and regulatory environment is not competitive. Singapore's is competitive. This ought to cause some soul-searching by the Parliament. Handwringing about phantom corporate tax avoidance just postpones consideration of the real problem.
Perhaps we might expect the sort of anti-corporate nonsense espoused at the inquiry from Labor and the Greens. What's really disappointing is the full-throated support of the corporate tax panic from the Coalition.
Government senators on the committee wrote a dissenting minority report. Yet their complaint was that the committee did not fully acknowledge all the exciting work the Abbott government was doing to clamp down on multinationals.
Earlier this year the government released its own proposed legislation to deal with corporate tax avoidance. In effect that legislation would empower the ATO to second-guess where it feels profits should be booked for tax purposes.
The consequences of such an approach would be dire. It would expose multinational firms to double taxation. It would be a huge incentive for those firms to leave Australia all together, taking jobs and economic activity with them.
All this fretting about tax avoidance makes good demagoguery. But it might seriously harm Australia's economy.
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