Exxon has not paid a cent in corporate income tax on a total income of nearly $25 billion over a three-year period, and it has not broken any rules.
Santos, which is fighting to get its controversial 850 coal seam gas wells approved in the Narrabri in NSW, paid no corporate tax in 2014-15 and 2015-2016. It only paid $3 million in corporate tax in 2013-14 when, over those years, it reported revenue totalling $11.2 billion.
How can this be the case?
A series of submissions to a long-running Senate inquiry into corporate tax avoidance are asking this very question.
Last year, the inquiry was expanded to include tax and royalty issues related to the offshore oil and gas industry, and more submissions started flowing in.
A joint submission from Make Exxon Pay and the Tax Justice Network Australia (TJN) looked in detail at Exxon’s tax avoidance and concluded it is not unique to Australia. They say “it is a core part of the oil giant’s current practices”.
The primary Exxon subsidiary in Australia, ExxonMobil Australia Pty Ltd, is immediately owned by another Exxon subsidiary in the Netherlands (ExxonMobil Australia Holdings B.V.), which is immediately owned by another Exxon subsidiary in the Bahamas (ExxonMobile Asia Pacific Holding Limited). This complicated relationship affords it immunity from paying tax here.
“The use of this Bahamas-based entity is very likely to reduce the taxable profit in PNG and Australia and book profit in the Bahamas where the corporate income tax rate is zero”, the joint submission stated.
It argued that the ATO needs to investigate the relationships, and that Australia needs to become a leader in the Asia-Pacific region and force corporations to pay their fair share of tax.
In his submission, Oxford Institute for Energy Studies researcher Juan Carlos Boue argued Australia’s failure to collect corporate taxes from petroleum giants is because the rules are a “design feature” of the current set up. He said the petroleum fiscal regime “is producing exactly the sort of fiscal outcomes that it was designed and intended to produce”. He argued for a radical overhaul.
He compared Australia with Britain, noting that both countries have always been “very attractive for investors”. The British government began eliminating taxes on oil and gas exploration in 1993 and by March 2016 had implemented a “permanent zero rate on its Petroleum Resources Tax”.
Boue calculated that over 2008–15, total Australian government receipts from taxation on petroleum exploration and production amounted to US$55.5 billion — an effective tax ratio of 21% on a gross industry income of US$258 billion.
This is well below the 35%, or more, taken by the North Sea nations of Denmark, the Netherlands, Norway and Germany.
He concluded: “If the quantum of gross income generated by upstream oil and gas activities in Australia during these years had attracted the ETRs [effective tax ratio] which oil and gas activities attracted in Denmark and Norway during the same period (49% and 54% respectively), then the Australian federal government would have received an additional US$71 or US$84 billion, respectively, in fiscal income.”
That would amount to around $107 billion in Australian currency, about a third of the cost Beyond Zero Emissions estimated in 2010 it would cost to transition to 100% renewable energy over 10 years.
The International Transport Workers’ Federation (ITF) stated the problem clearly in its submission: by allowing corporations to avoid paying their fair share of tax, schools, hospitals, infrastructure and other essential services suffer.
The ITF concluded that since Australia has no royalty payable on offshore oil and gas production in Commonwealth waters and the Petroleum Resource Rent Tax (PRRT) is not forecast to collect any revenues on the hydrocarbons used for LNG production for decades, in effect the government is giving away oil and gas for free.
The PRRT is a profits-based primary resource tax on Australia’s oil and gas production, both onshore and offshore, and is based on a system of self-reporting and voluntary compliance. When former Labor leader Kevin Rudd suggested increasing it, he was dumped.
“Even prior to the last changes in the PRRT regime, which were highly beneficial to the oil and gas industry, the Henry Tax Review suggested that the PRRT regime was overly generous and not producing the revenue that it should for the benefit of all Australians”, the ITF submission stated.
It estimated that if the two taxes (the PRRT and Petroleum Revenue Tax) were collected from the industry at the same rate as 10 years ago, it would collect an additional $480 billion in revenues over the next two decades as LNG exports boom.
The fact that this revenue is not being collected to be put to social use is largely thanks to the John Howard government’s introduction, in 2004, of the 150% exploration rebate and, since then, other tax concessions.
Australia is about to become the world’s largest exporter of LNG, overtaking Qatar. The government is set to get $600 million from it this year — the same amount of revenue it receives in beer tax every year, according to Fairfax. Compare this with Qatar’s $26.6 billion.
But, as the ITF noted, it is not expected to generate any new PRRT revenue for more than two decades — the period in which Australia’s carbon footprint needs to be radically reduced.
Boue argued that his research has confirmed that the Australian (and British) governments have “given up” on the idea of collecting any resource rents.
The TJN wants the immediate introduction of a new 10% Commonwealth royalty on all current and future offshore oil and gas projects that are currently only subject to the PRRT. http://www.taxjustice.org.au/prrt
The ITF wants the PRRT regime to be strengthened and made more transparent. It wants detailed mandatory public reporting standards for all extractive companies operating in Australia, or based here. By not doing this, it says, “ordinary taxpayers — working people — are helping to subsidise the profits of the world’s largest multinationals”.
The stakes for us and the climate are very high.