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Report On Paying Of No Corporate Tax

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Question:

Discuss about the Paying Of No Corporate Tax.
 
 

Answer:

Statement of the problem:

The main problem regarding this report is to find out the problems and issue relating to the non-payment of corporate tax by many companies. In order to state any clear statement on the topic, it is important to evaluate the norms of paying taxes and the aspects of non-payment of corporate taxes to this effect (Dyreng, Hoopes and Wilde 2016). Corporate tax is a direct tax that has been imposed on the corporate sectors regarding their income and capital wealth. This tax can be referred as income tax or capital tax. In general, such taxes are imposed on the company if the following terms are fulfilled:

  • The company has been incorporated within the territorial jurisdiction of the country;
  • The company is earning profit within the territorial jurisdiction of the country;
  • Any foreign companies that are professing business permanently from the country;
  • Any company deemed as resident of the country.

Taxes are imposed on net profit and the rate of tax is depending on the territorial capacity of each country. in Australia, corporate taxes owe a greater significance as a major portion of the country’s taxes are derived from corporate tax (Christensen et al. 2015). However, it has been observed that most of the big companies are avoiding these tax criteria. According to a report published by the ABC news, a major portion of the aviation industry and large corporate tycoons has not paid corporate taxes. It has been observed from the report that the liberal approach of the Australian government has enabled the companies to get relief from historical losses they have sustained in the recent past (Cen et al. 2017). Further, the tax system of Australia allows the companies to make certain offset against their future profits. These techniques helped them to be a part of the zero corporate tax liabilities. the main problem that has been arisen in this case is that the airlines industry are quite expensive in nature and huge risks are involved in it. the airlines industry is falling under the purview of highly competitive industry and losses are quite frequent in this industry and the capital investment is quite huge (Aronson, Lambert and Tremblay 2016). It has been observed that the tax rate in Australia is imposing on the corporations in a disproportionate manner.

 

Legislation:

The main governing Act regarding the levy of corporate tax in Australia is Income Tax Assessment Act 1986 and Income Tax Assessment Act 1997. Corporate taxes are depending on the profits of the company. A sum up of 30% has been imposed on the net profits of the companies; however, the said tax rate has been reduced by 25% in the year 2016 by the Australian government. However, according to the Act, rate of the tax is depending on the rate of profit a company has been earned (Armstrong et al. 2015). Dilemma arose in case where the companies are running in losses. It has been observed that the companies had to face serious loss in the last financial year in Australia and the aviation industry had to consume serious damage due to this. According to section 165 of the Income Tax Assessment Act 1997, the corporate tax will be levied on annual earning of the companies. The companies are under an obligation to pay taxes to the government. The companies should have to face trouble in case of non-payment of corporate tax (Richardson, Taylor and Lanis 2015). However, problem arises when the companies have to face troubles due to financial downturn and the taxation policies of the government have become quite liberal due to the same. It has been reported that many companies had not paid any taxes since 2013 and the tax burden in Australia become high. Further, it has been observed that many companies are running with profits at the present condition and still are not paying taxes. It has been mentioned by the amendment provision of Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 that the rate of lower corporate tax limit should be limited. According to this Bill, the small business entities can enjoy the tax rate of 27.5%.    

Facts of the case:

Allegations have been made against Qantas regarding evasion of taxes. It has been observed that many airlines companies including Qantas do not pay corporate taxes on regular basis. Many reporters have analyzed the facts and stated that the Australian government has allowed the aviation industries not to pay corporate tax because the industry was running in loss. It has been observed that Qantas has delivered 18% net profit and the amount of the same has been reached $607 million. It has been stated by the corporate heads of the aviation industries that losses are quite frequent in case of aviation industry and many airlines companies are running into loss (Richardson 2015). No corporate tax liabilities will give certain relief to the companies as the rate of tax is depended on the net capital of the company and it is true that huge capitals are invested in airlines companies. If the tax burdens are imposed on the companies mandatorily, they will face great difficulties due to this. Therefore, the governmental policies regarding the tax imposition on the airlines companies are quite liberal in nature. further, it has been contended by Chief Executive of Qantas, Alan Joyce that the company had to face serious financial trouble during the past decades. ABC has analyzed the payment of no taxes as the tax evasion and it has been found that the reporters have failed to consider the losses that the company has to face during the financial crisis. Further, ABC has failed to evaluate the principle of the tax system (Armstrong, Glaeser and Kepler 2016). It has been mentioned that the tax system is attempt to make an offset regarding the tax liabilities. in addition to this, it can be stated that the rate of taxes will depend on the profits; therefore, the tax liabilities will be gone if the company run in loss.

Cases:

According to The West Australian (2017), many big companies in Australia do not pay corporate taxes. It has been reported that Chevron, Australia does not pay taxes. Similar situation has been applied to News Corp Australia. Further, ABC News (2018) has demanded that Qantas, Adani and Energy Australia do not pay corporate tax.

Solution/ judgment:

It has been observed from the report published by ABC that many aviation companies including Qantas have failed to pay corporate tax for last three years and the companies are committing the crime related to tax evasion even after making profit from the business. it can be stated that there are certain loopholes in the report of ABC. According to the Income Tax Assessment Act 1997, corporate taxes are obtained from the net profits of the company. However, the companies had sustained losses during the financial year. It is a fact that the companies are now making profit, but a lump sum amount has been gone to pay the shareholders (McClure, Lanis and Govendir 2017). The airlines company has to pay $500 million of its capital to the shareholders. It has been observed that the company is opted to earn $378 million as their share buyback. Further, a dividend of 7% per share has been given to the investors. The losses faced by the company were huge and therefore, the company is not in a position to start the payment of corporate tax any longer. However, according to the chairperson of the company, the company can start the payment of taxes from the next year. If corporate taxes are imposed on the companies mandatorily, there is a huge opportunities of unemployment could be taken into place. Further, if the companies could not make profit, it could not generate income from the business. Everyone will be suffered due to the same. Therefore, the government is required to develop a good tax program so that the interest of the companies can be secured in nature. it has been mentioned by the ABC that “A tax credit is available to resident shareholders who receive the dividends to reflect the tax already paid at the corporate level (a process known as dividend imputation). A withholding tax applies on unframed dividends paid to non-resident shareholders.” However, in the absence of business amicable taxation system, the corporate tax related issues could never be stopped.

Therefore, it can be stated that the government should have to take certain policies so that the tax rate could not become burden to the companies and the government is liable to standardize the taxation criteria (Dowling 2014). The burden of the companies should be considered and issue related to the shareholders and investors should be taken into account. Imposition of tax all on a sudden is quite arbitrary in nature. Therefore, it is to be stated that until all the debts are not being repaid to the investors, no corporate tax could be imposed on the companies.

 

References:

Armstrong, C., Glaeser, S. and Kepler, J.D., 2016. Strategic reactions in corporate tax avoidance.

Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), pp.1-17.

Aronson, J.R., Lambert, P.J. and Tremblay, V.J., 2016. The Potential for Short?Run Shifting of a Corporate Profits Tax. Bulletin of Economic Research, 68(1), pp.1-15.

Cen, L., Maydew, E.L., Zhang, L. and Zuo, L., 2017. Customer–supplier relationships and corporate tax avoidance. Journal of Financial Economics, 123(2), pp.377-394.

Christensen, D.M., Dhaliwal, D.S., Boivie, S. and Graffin, S.D., 2015. Top management conservatism and corporate risk strategies: Evidence from managers' personal political orientation and corporate tax avoidance. Strategic Management Journal, 36(12), pp.1918-1938.

Dowling, G.R., 2014. The curious case of corporate tax avoidance: Is it socially irresponsible?. Journal of Business Ethics, 124(1), pp.173-184.

Dyreng, S.D., Hoopes, J.L. and Wilde, J.H., 2016. Public pressure and corporate tax behavior. Journal of Accounting Research, 54(1), pp.147-186.

Guess Which Huge Companies Haven't Actually Paid Corporate Tax In Years. (2018). Junkee. Retrieved 28 April 2018, from https://junkee.com/big-companies-zero-tax/146772

McClure, R., Lanis, R. and Govendir, B., 2017. Analysis of Tax Avoidance Strategies of Top Foreign Multinationals Operating in Australia: An Expose.

Richardson, D., 2015. Corporate tax avoidance. The Australia Institute, pp.1-16.

Richardson, G., Taylor, G. and Lanis, R., 2015. The impact of financial distress on corporate tax avoidance spanning the global financial crisis: Evidence from Australia. Economic Modelling, 44, pp.44-53.

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