Sunday, November 16, 2014

Corporate Scrooges hide trillions of dollars

People love how cheaply and efficiently Jeff Bezos sells and delivers product to their door. So much so that his net worth, as the founder and chief executive of Amazon, is about $US30 billion ($34 billion).

Yet Bezos concerns himself with how much time his employees spend going to the toilet. The workers in his many warehouses, known as pickers, are constantly monitored.

Bezos is a tax avoider. In Australia, Amazon may deliver goods cheaply and quickly, which is a significant good for consumers, but the company pays little tax on the hundreds of millions of turnover it has in Australia, while undermining local businesses small and large. Amazon prefers to leave tax paying to its customers.

Amazon has a market value of $US151 billion, yet the company pays no dividends and declares no profits. Instead, it's all about growth and scale. This has been going on for 17 years, since Amazon began trading as a public company in 1997. Investors have bought the Bezos model of manic growth, high automation, high efficiency and low costs. Long-term market power over short-term profit.


The scale of his achievement is enormous, as is the scale of his ambition. Bezos is also a classic Exhibit A of the ruthless, domineering hyper-capitalist.

His brilliance has never been questioned. An electrical engineer, computer scientist and investment banker by training, he become one of the founders and shapers of global online commerce. A lot of gritty details are known about Bezos and his management style because of a book, The Everything Store, published last year.

Written by American Bloomberg journalist Brad Stone, The Everything Store, which won the Financial Times Book of the Year award in 2013, does not paint an endearing picture of the tantrum-prone Bezos, or his company. In particular, the book reveals how Amazon makes a fetish out of tax avoidance, everywhere. Amazon's lawyers are willing to make implausible arguments rather than admit the obvious, that the company abhors paying tax.

The book also details the way Amazon sets up warehouses in depressed regions, provides jobs in areas that badly need them, but  then drives its floor workers, the pickers, with an uncompromising zeal. When the owner of these enterprises is worth multi-billion dollars, this takes on a Dickensian aspect – Ebenezer Scrooge – or become a real-life echo of Monty Burns from The Simpsons.     

All this is relevant to the G20 meeting in Australia. Corporate tax avoidance has become a multitrillion-dollar global issue. Hyper-capitalism may be efficient for shareholders and consumers, but it offers a shortfall in social capital.

In his book Treasure Islands, published in 2011, financial author Nicholas Shaxson estimates  $12 trillion, or a quarter of the world's wealth, sits in tax shelters, untaxed. His estimate can be disputed but his calculation gives a broad sense of the scale of the problem for governments with stressed budgets.

At the G20 meeting in Australia, about 20 of the 20 governments would say they have stressed budgets.   

Amazon's tax avoiding culture is a metaphor for a political issue which can work for the Australian government. The Treasurer, Joe Hockey, has said repeatedly he wants the G20 summit to confront corporate tax avoidance by international companies because it required a co-ordinated effort by governments.

But the Abbott government has been unconvincing in showing it can confront corporate tax avoiders and take political advantage from the process. This is the government which has cut the resources of the Australian Taxation Office at the very time when it should have increased them.

It is a strange government which complains about a shortfall of revenue then cuts the resources of the agency set up to harvest tax revenue, interrogate tax avoiders, and investigate transfer pricing by multinational companies seeking to minimise tax.

This is also the same Treasurer who, in delivering a tax-increasing, promise-busting budget, imposed a fee on visits to the doctor and announced that much of the proceeds would go into a giant medical research fund. Political madness. Not surprisingly, Hockey has lost his footing as a future prime minister.

It was the Greens, not the Abbott government, which orchestrated a Senate inquiry into corporate tax avoidance. Several household names, including Apple, Google and Ikea, in addition to Amazon, have been marked as targets, along with the Swiss-based Glencore, one of the big three miners in Australia, which has made an art out of transfer pricing.

The Tax Office has signalled its intent to be serious about this issue. It has confirmed it will use sweeping powers, enacted under the previous Labor government, to investigate complex international financial transactions whose sole or primary intent is to avoid tax.  

The investigative powers provided under this law allow the Tax Office to reconstruct company transactions, like police reconstructing a crime. But there is a question whether the Tax Office has the muscle to win, given that it has lost much of its forensic expertise on transfer pricing to redundancies and early retirements.

High-quality tax lawyers are expensive and in demand. Tax avoidance is a massive industry. A corporate behemoth with a market capitalisation of, say, $172 billion, and with a long record of brazen denial and litigiousness on tax matters, can afford to wage "lawfare" with the Tax Office, paying high-quality lawyers (with a fraction of the money it saves on tax).

The challenge is for the Tax Office to mount a big case, and win it, and for the Abbott government to have the wit and the will to exploit a symbolic battle against Scrooge.

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