Professor Bob Deutsch, CTA was fascinated by tax when he was a student at Cambridge in the 1980s. Well there\u2019s a conversation-stopper.<\/p>\n\n\n\n
\u201cStrange I know!\u201d laughs Deutsch, Senior Tax Counsel at The Tax Institute, and former Deputy President of the Administrative Appeals Tribunal.<\/p>\n\n\n\n
What sparked his interest most in the subject was the policy approach to its revenue-raising power.<\/p>\n\n\n\n
\u201cI think tax is so important because everything we want and need from our government depends to varying degrees on their capacity to raise tax, and raise it with integrity and continuously.\u201d<\/p>\n\n\n\n
But there\u2019s not much on the policy front now, with no reform on the horizon.<\/p>\n\n\n\n Since Labor\u2019s defeat at the last election, tax policy has become very uncertain, says Deutsch.<\/p>\n\n\n\n \u201c<\/strong>If Labor had won the election last year we would have had a fairly clear agenda as to what was going to happen to tax. We knew a lot about their policies and that was part of their undoing!<\/p>\n\n\n\n \u201cWith the coalition I think it\u2019s all really pretty much up in the air. I don\u2019t think there\u2019s too much certainty about where tax is heading.\u201d<\/p>\n\n\n\n The government may be lacking in policy but there are some big revenue pockets it\u2019s targeting.<\/p>\n\n\n\n One of them is the Black Economy. \u201cI think that\u2019s high on the agenda. I suspect they\u2019ll be announcing some additional measures \u2026 in the next Budget on the Black Economy.\u201d<\/p>\n\n\n\n Tax avoidance by the multinational companies is another one for the agenda.<\/p>\n\n\n\n \u201cI think there\u2019ll be continuing focus on international transactions because there\u2019s still a perception, at least within the community, that there\u2019s a lot of avoidance going on in the multinational, international space.\u201d<\/p>\n\n\n\n Deutsch is of the view that measures on multinational tax avoidance, such as the Diverted Profits Tax introduced by the Turnbull government will be enforced \u201cmore rigorously\u201d by the ATO.<\/p>\n\n\n\n \u201cWhether the government can do anything in addition to all that I\u2019m not sure, but digital services tax is clearly a big area and it\u2019s one where the government will be focusing its attention and getting that right.\u201d<\/p>\n\n\n\n There is an international move to introduce a global initiative on digital services, but this government is not willing to wait out that process, he explains.<\/p>\n\n\n\n \u201cSo, we will have our own version of a digital services tax I suspect.\u201d says Deutsch, and not without the TTI putting forward a submission to the Board of Tax in this area.<\/p>\n\n\n\n \u201cThe outcome will be likely a combination of what we\u2019ve presently got, which is an incorporation test and a central management and control test. But how that\u2019s massaged together is what the government will have to work out. It\u2019s going to be some sort of transaction tax that we\u2019ll end up with.\u201d<\/p>\n\n\n\n A number of countries, including France and the UK, have already introduced digital services tax (DST), but not without response from the American President.<\/p>\n\n\n\n \u201cNew Zealand\u2019s policy has come under a lot of pressure from Trump, who\u2019s threatening them with all sorts of tariffs. And we know, he\u2019s not averse to imposing such things!\u201d<\/p>\n\n\n\n Deutsch said that America is the biggest global player that\u2019s causing a \u201cruckus\u201d at the moment.<\/p>\n\n\n\n \u201cI think that there\u2019s a lot of anxiety for corporates created by tariffs and trade wars.<\/p>\n\n\n\n \u201cIt\u2019s almost as if all that is history, because it\u2019s been overtaken by the coronavirus and other things, but \u2026 that\u2019s going to be an ongoing issue, particularly if Donald Trump is re-elected, I think he will continue to use that as a weapon to ensure that other countries do the right thing by America.<\/p>\n\n\n\n \u201cThe DST is a classic example of where he\u2019s using it in that fashion.\u201d<\/p>\n\n\n\n Deutsch is concerned that there are a number of areas allied to tax where America is a bit of an outlier. America is still not a member of IFRS, he says, so this creates problems, and they spin off into tax, such as the recording of information and the way it\u2019s presented.<\/p>\n\n\n\n \u201cSo, I think America\u2019s behaviour and how it\u2019s going to look after 3 November is really important for Australia and the world, because a lot of what happens in the tax space internationally is dictated by America and their lack of involvement in some of the global initiatives. So that\u2019s something to watch.\u201d<\/p>\n\n\n\n Transfer pricing is going to continue to be an issue for corporates, forecasts Deutsch.<\/p>\n\n\n\n \u201cIt\u2019s not going away \u2013 the tax office has had a huge win in Chevron<\/em>, and a huge loss in Glencore<\/em>, two of the most recent cases. I doubt if they\u2019re going to lie down and accept the outcome in Glencore<\/em>. They\u2019ll be challenging other companies in relation to their pricing arrangements, where they don\u2019t think they\u2019re appropriate \u2013 that\u2019s going to be a large threat for corporates in particular,\u201d says Deutsch, citing Rio Tinto\u2019s ongoing arguments that he predicts won\u2019t lessen in the next few years.<\/p>\n\n\n\n Where Deutsch would love to have a hand in policy is in simplifying some of our inanely devised taxes.<\/p>\n\n\n\n \u201cTax is really important because of everything we want to do in terms of social services. So, I think raising revenue is vital. But I think it needs to be done in a simpler way than the hellishly complicated way that we do it, often for no really good, sound reason.<\/p>\n\n\n\n \u201cThe classic example of that is corporate tax rate, there is no policy explanation for why we\u2019ve got to where we have with that. [It] is in my view a total fiasco. It\u2019s tax policy gone mad.<\/p>\n\n\n\n \u201cYou\u2019ve always got to look at the income companies earn to determine the rate. The fact that It takes about 25 minutes to explain it, that\u2019s absolutely absurd in policy terms. Having these different rates, depending on the size of the company is just nuts.<\/p>\n\n\n\n \u201cI think the rate should be reduced to 25% flat. If we\u2019re then concerned it\u2019s not raising enough revenue at the corporate level which I\u2019m not, then you can address the tax base.\u201d<\/p>\n\n\n\n Any other targets for change? GST. And Deutsch wants to preserve the rate, but extend the base.<\/p>\n\n\n\n \u201cWhy is it that a rich person who buys wagyu beef doesn\u2019t pay GST, but a poor person who buys a Big Mac does. And that\u2019s the way the system works. The latter is a prepared meal, subject to GST, but the former isn\u2019t. To my way of thinking that\u2019s absurd.<\/p>\n\n\n\n \u201cI think we should expand the GST base to cover as much as possible including basic food, basic health, basic education [but keep exports GST-free to remain internationally competitive] and then there should be a generous ongoing compensation package for the lower-paid that could be related to the pension, the youth allowance or Newstart.\u201d<\/p>\n\n\n\n He\u2019s estimates that many billions of additional dollars could be raised, and he\u2019s done the maths.<\/p>\n\n\n\n \u201cI think if we don\u2019t do something about all these issues, we\u2019re going to be in a constant battle to raise enough revenue,\u201d says Deutsch. And just when it was all sounding pretty dire, laughter hit the air.<\/p>\n\n\n\n \u201cBut most countries would love to have our problems!\u201d<\/p>\n\n\n\n Virginia Ginnane, Marketing Content Specialist at Thomson Reuters interviewed Professor Bob Deutsch with Ian Murray-Jones, Senior Tax Writer at Thomson Reuters.<\/strong><\/p>\n\n\n\n The Tax Institute\u2019s Tax Summit was held in Sydney from 11-13 March. Professor Robert Deutsch gave his keynote address on 12 March.<\/strong><\/p>\n\n\n\n
Tax policy uncertain<\/strong><\/p>\n\n\n\n
Government agenda<\/strong><\/p>\n\n\n\n
Digital services tax<\/strong><\/p>\n\n\n\n
Tariffs and trade wars as stick<\/strong><\/p>\n\n\n\n
ATO to go hard on pricing arrangements<\/strong><\/p>\n\n\n\n
Simplify taxes? Love to<\/strong><\/p>\n\n\n\n
The future is \u2026<\/strong><\/p>\n\n\n\n
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