New analysis of ATO data has found that many of Australia’s top fossil fuel companies paid little to no income tax in the past five years. By Michael West.
Top miners pay no tax
ExxonMobil Australia has paid no income tax in this country in the past five years. The company recorded earnings of $42.3 billion, according to Australian Tax Office data, yet it didn’t pay a cent.
New analysis of corporate tax, published by The Saturday Paper and michaelwest.com.au, has found that many of the largest fossil fuel companies, both local and multinational, pay little to no income tax in Australia.
Drawing on data from the ATO’s annual corporate tax transparency report, the methodology looked at the sheer size of revenue but also those companies that drastically reduce their taxable income.
ExxonMobil Australia tops the list, for the second year running. American multinational Chevron, with a total income of $15.8 billion over five years, also paid zero tax.
In fact, five of Australia’s top coal companies – Peabody, Yancoal, Sumitomo, CITIC and Whitehaven – racked up earnings of $54 billion between them over the past five years and paid no income tax.
“These same names keep bobbing up,” says financial academic Jeffrey Knapp, a former accounting lecturer at the University of New South Wales, referring to the now five years of transparency data from the tax office.
“They just keep getting bigger and bigger, but will the taxman ever see a dollar from these fossil fuel companies? ... Particularly the foreign multinationals.”
Of the 40 companies that most dramatically reduced their taxable income, each by 99.5 per cent or more, 13 are involved in either coal or oil and gas.
Peabody Australia Holdco Pty Ltd, which operates eight mines in Australia across New South Wales and Queensland, recorded $16.6 billion in total income during the past five years and paid zero tax.
Shell’s fracking business QGC Upstream Holdings comes in at No. 12 on the list. It is followed by Puma Energy, a Singapore-based multinational that operates 270 service stations around Australia.
Yancoal, Australia Pacific LNG, Sumitomo Australia, CITIC Resources Australia, Victoria Power Networks and International Power (Australia) Holdings – trading as ENGIE (gas) – were all among the top 40.
Whitehaven was the only Australian-controlled company among the fossil fuel giants listed. It operates the Maules Creek mine and saw its stocks hammered this month when BlackRock, the world’s biggest funds manager, said it would dump thermal coal stocks around the world.
But how do corporations that earn billions of dollars manage to so drastically slash their tax bill?
There are some economic factors that explain the exceptional presence of fossil fuel companies among least-taxed companies.
Thanks to the rise of renewables, thermal coal is in serious decline as a source of energy. The coal producers are battling falling prices and rising costs. And taxes are levied on profits, not revenues.
But “debt-loading” is also a large part of it, particularly for the multinationals. Their Australian businesses accept billions of dollars in loans from overseas counterparts – often from tax havens – and the interest on these loans is siphoned out of the country, tax-free.
“Many of these multinationals are anti-businesses, they are here not to make a profit, they are set up to make a loss,” says Associate Professor Roman Lanis of the University of Technology Sydney business school.
He says that when you look at the accounts “all you see are losses, negative equity. Yet the auditors sign off as a ‘going concern’.”
Lanis is talking about the United States tech giants – Google, Facebook, Amazon – as much as international fossil fuel producers.
The aim of the multinational tax avoider is to wipe out its profit in Australia, a high-tax jurisdiction, and somehow shift that profit to a tax haven.
Beyond debt-loading, this can also be done through returns of capital, assorted “service agreements” to pay offshore companies a fee, complex derivatives such as “swaps”, and intellectual property payments, or royalties.
Transfer pricing is another method of tax minimisation, paying often inflated prices for products from a sister company overseas.
Fossil fuel companies claim they pay their fair share because of royalties. But royalties are not taxes – they are a payment to the states for the commodity that is being dug from the ground or drilled from the seabed.
Nonetheless, it is an industry that’s long sought to minimise its tax bill – in good times and bad – particularly the foreign companies. Those mining companies that are domiciled in Australia, such as BHP and Rio Tinto, pay vastly more tax than their overseas competitors.
BHP and Rio Tinto are both involved in coalmining, too. They paid $13.8 billion and $11.8 billion in tax respectively, over the five years of available data from the ATO.
Glencore, the other major miner and a notorious global tax avoider, was Australia’s biggest tax avoider in 2017, according to previous analysis conducted by michaelwest.com.au, but has since begun to pay just enough tax to drop from the list.
In the gas industry, there were promises of significant taxes and royalties, particularly in Queensland. But debacles in liquefied natural gas (LNG) and fracking have caused bona fide losses for gas operations, including Origin, Shell, Santos, Exxon and BHP.
While gas supply has trebled since 2014, so have domestic gas prices, as LNG export contracts were locked in at high prices. The price of gas has since collapsed globally, leaving these companies nursing enormous losses.
According to Bruce Robertson, gas analyst with the Institute for Energy Economics and Financial Analysis (IEEFA), the oil and gas multinational BG Group promised it would pay $1 billion in tax, plus $300,000 annually for its operations in Queensland.
“In 2016-17 BG still paid no tax,” Robertson says. “BG has been taken over by Shell and it too paid no tax in 2016-17.”
Robertson points to two other consortia that own plants in the Queensland mining hub of Gladstone. “They are led by Santos and Origin, neither of which paid tax in 2016-17, according to the ATO,” he says. “There simply has not been the billions of dollars for the Queensland economy that were promised”.
This brings us to methodology. Is the Australian Tax Office data, dominated by fossil fuels, the best measure of tax minimisation?
As Roman Lanis points out, many of the tech giants are just as bad, but many are not captured by the ATO transparency data because they simply book their revenue directly offshore.
The multinational anti-avoidance law reforms, passed in 2017, have since forced Google and Facebook and a few others to “onshore” their income – or recognise that their sales in Australia actually belong in Australia rather than Singapore. Still, they manage to offshore much of this money.
“It depends on your methodology, how you evaluate it,” says Lanis. “If you were to look at the size of assets, rather than revenue, the total income of the tech companies doesn’t reflect their size.”
Lanis told The Saturday Paper that if the ATO was “a bit more transparent, we could probably work out who are the worst” – and cited the need for greater transparency, specifically the tax office’s refusal to make “country-by-country” reporting public. The ATO can see this information, a transparency measure developed by the OECD, but it isn’t available to journalists.
Despite the complex structures of multinationals, it is possible for government to collect tax – if there is a political will to do so. One stark example is the tobacco giants.
Philip Morris and British American Tobacco are among the top taxpayers in Australia. The former had income of $15.9 billion over the five years, declared taxable income of $2.5 billion and paid income tax of $764 million.
British American Tobacco, which recorded $14 billion in sales and almost $4 billion in taxable income, paid $1.2 billion in tax – a profit margin of 28 per cent in a mature, even declining, industry.
Roderick Campbell, the director of research at The Australia Institute, said the fossil fuel companies that claimed to pay the most tax in fact paid the least.
“ExxonMobil, Santos, Peabody, Chevron, Yancoal, Whitehaven have all commissioned economic modelling to give the impression that their projects will make huge payments to governments and bring wider economic benefits, yet here they are paying almost no tax. Again.”
Campbell said large consultancies helped estimate future tax payments that they must know will never be paid, citing the $338 billion in federal taxes it was estimated that Chevron would pay between 2009 and 2040.
“Ten years in they don’t seem to have paid a cent from what the data shows. So it’s not just these non-taxpaying companies that need to be brought into line, but their facilitators, like the economic and tax consultants they use.”
This article was first published in the print edition of The Saturday Paper on February 1, 2020 as "Top miners pay no tax".
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