"THE great distinguishing feature of the Age-ABC-Crikey axis is the breathtaking combination of the most basic stupidity with the raging left-wing mindset and bias."
So says tax commissioner Herald Sun business writer Terry McCrann, calling into question the accuracy and credibility of commentary written by Crikey and various other publications about a recent report issued by United Voice union and a collection of charities, unions and churches in the Tax Justice Network on tax avoidance. He asserts that the authors of the report (and presumably the media outlets covering the issue of the report) failed to grasp concepts such as:
  • The difference between tax provisions in a company’s accounts and actual tax paid;
  • The difference between a company and a trust; and
  • The basic fact that companies pay tax in the countries in which the profits are earned.
His coverage, however, does not attempt to adequately explain those concepts and then demonstrate exactly how they may be misrepresented or misunderstood. I thought that this piece may provide some assistance to him. McCrann claims that real estate housed within investment trusts are not being used to avoid tax and that holding this view demonstrates "cognitive dissonance" because a trust distributes income to individual security holders who then pay tax at their marginal tax rate. Firstly, McCrann does not understand how the managed investment trust (MIT) rules work in Australia. Broadly, these rules tax a trust as if it were a company. His understanding applies to privately held trusts. Secondly, housing these assets in a trust allows the business to take advantage of a different set of rules in relation to the characterisation of these assets for tax purposes. Furthermore, he fails to realise that the holder of the relevant units within the trust may not be individuals subject to tax in Australia but rather entities that might be offshore or have some other tax advantage when receiving a distribution. The real issue is how the funds and distributions themselves flow. McCrann's second claim is related to media companies earning profits. Here he stated the $1.6 billion average tax forgone by the Tax Office in Australia in respect of 21st Century Fox’s Australian operation actually relates to foreign operations. He does not provide any basis upon which this claim rests. He does not discuss the transfer pricing rules and foreign currency transaction rules that allowed this to happen. In the previous budget the single biggest tax forgone item for the Australian ATO was a failed case against News Corporation, which resulted in $882 million in tax that was not recovered. The case was never appealed to the High Court, despite the potential to recover this amount. This "saving" was as a direct result of tax structuring of this business. McCrann’s failure to then go through the three main points he made at the start of his article to tie back exactly how these concepts refute the report further damages his case. I therefore suggest that a little bit of learning is a dangerous thing, and that finance and business writers in general should remember that when talking about the complexities of tax, especially when writing in a style that belies such an obvious political bias, an element of caution is warranted. * Bill Mavropoulos is a tax specialist with Taxpayers Australia Limited.