Transcript
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Chris Neff: Welcome to Open for Discussion, a 爆料王 podcast, looking at research through a personal and critical lens. I am your host, Chris Neff.
Today in my office I鈥檓 chatting to Dr Shumi Akhtar, a senior lecturer and researcher at The 爆料王; with a focus on corporate finance, multinationals and international finance.
Wait, stop, I know what you鈥檙e thinking 鈥� this is a podcast about tax. But I want you to stay and I want you to listen, because Dr Shumi Akhtar is one of the most fascinating people you will ever hear. Stay tuned and listen to this!
Alright, so we鈥檙e here on Open for Discussion, a 爆料王 podcast with Dr Shumi Akhtar. First of all, did I pronounce your name right?
Dr Shumi Akhtar: Yes.
Chris Neff: Okay good. Can you tell me a little bit about how much of the global financial dollar, or yen or pound, is going through tax shelters or tax havens, or tax avoidance schemes?
Dr Shumi Akhtar: To be quite frank, that is right in the core of my research at this stage. And it is very complex to calculate, however I can share one or two statistics that have been around鈥�
Chris Neff: Don鈥檛 give it away; don鈥檛 give it away for free 鈥�
Dr Shumi Akhtar: [laughs] no, this is 鈥� I鈥檓 sure this is public already. Um, 100 鈥� 250 billion dollars, that has been lost due to tax avoidance; that鈥檚 for all around the world. Now, how much of that belongs to Australia or per country 鈥� we don鈥檛 know; they are making some guestimates based on their GDP or some population. But, you know things are far more complex so therefore I鈥檓 staying away and giving you an amount right at this stage 鈥�
Chris Neff: You should write a book鈥�
Dr Shumi Akhtar: [laughs] I should.
Chris Neff: You should, and when it comes out we will have it in the podcast.
Dr Shumi Akhtar: I will do that.
Chris Neff: So, can you tell me a little about what brought you to doing your research?
Dr Shumi Akhtar: Sure, so doing research in this area; in terms of tax avoidance and multinationals. First of all, there hasn鈥檛 been much done over the last whole decade, but slowly it is changing because of the activation that has been taken on by the Australian government and also some of the other governments around the world. Especially when there鈥檚 a critical need for us to raise revenues, so that鈥檚 one thing.
Secondly, I鈥檓 a firm believer in research that we do 鈥� if it has got some practical implication and helps society, I think that鈥檚 good research. So, therefore I hope that some of the research that I am doing, it will be able to have some impact in the policy debate or policy reforms, and just to make a better financial system and better tax system.
Chris Neff: And can I push you on that a little bit 鈥� because picking tax avoidance and safe havens, is quite a specific area of study. What brought you to tax havens?
Dr Shumi Akhtar: Sure, there鈥檚 not much clarity about what it actually means. When you hear about tax avoidance, it is often mistaken for 鈥� 听as if it is a criminal act; in fact it is not. Tax evasion is a criminal act. For example if a company is committing tax avoidance, they may be doing it because it鈥檚 just there. It鈥檚 a matter of knowing it and taking advantage of it, they are not doing anything illegal per se. Tax avoidance, technically speaking, is not really (so far and from some of the evidence I have seen) 鈥� they haven鈥檛 done anything wrong, they are still abiding by the rules, and if the rules allow them to do so they are just clever in how they are doing it. Um so, therefore we need to really understand the full extent of this avoidance and evasion.
Chris Neff: So we are sitting in an office, my office, and we are surrounded by books, [Shumi laughs] and I just want to note for the record that I am probably going to declare all my books. There are probably $2000 worth of books and I will be using them as a tax deduction because I use them for my work [Shumi voices her understanding]. So, what is the threshold between me doing it, you know me playing by the rules and the spirit of the rules, and you know a company that goes beyond it and is paying 1 percent in taxes.
Dr Shumi Akhtar: That鈥檚 the thing; there is no threshold at the moment. That therein lays the problem; there is no maximum or minimum how much you can claim as a tax deduction. So, it鈥檚 all 鈥� for example for you, you know $2000 worth of books is probably enough for your work. On the other hand, I am also an academic let鈥檚 say I also need to rely on books but my books are far more expensive; let鈥檚 say I鈥檓 spending $10,000. So, from the tax authority there is no minimum or maximum per se. So therefore you can see this variation across multinationals.
Chris Neff: Are there certain sectors of multinationals that are more prone to using more loopholes, or tax deductions or tax avoidance schemes than another?
Dr Shumi Akhtar: Yes, definitely. It is sector based, and most often you see it in the high-tech industries and also in the mining industries. Because technology moves so fast, so therefore they need to grow much bigger and to grow much bigger they need to, you know, rely on expansions, and therefore to do that they need to rely on borrowings and so on and so forth. So, yes, their expenses are very different than a traditional company.
Chris Neff: And we鈥檝e 鈥� you know, or at least I have, you know beat up on tax avoidance generally 鈥� is there good bits about companies that avoid taxes?
Dr Shumi Akhtar: Look, the way I see it is this; let鈥檚 say a company avoids paying $10 tax. Now, that $10 tax could either be contributed to the economy as a 鈥� government claim it as a tax revenue 鈥� or a multinational or a company can keep it to themselves. Now, the way I see it is, who is actually going to contribute more by using that $10? To me, that is more important, rather than seeing if it comes to the government鈥檚 pocket or it stays in the company鈥檚 pocket. That鈥檚 how I see it. Now, of course it is not very easy to be able to understand that unless you really know the cost benefit, like鈥�
Chris Neff: I want the $10.
Dr Shumi Akhtar: [laughs] We all do, right, we all do. We all think that we should keep it. Now, we have to see it more in a bigger perspective; the net benefit, what is going to contribute more to the society? And that鈥檚 what we should go by.
Chris Neff: And wasn鈥檛 I reading in your research, that multinationals that utilise tax avoidance schemes are also among the highest that actually pay taxes.
Dr Shumi Akhtar: That鈥檚 right; yes so interestingly enough, as much as we have been hearing on the news and a lot of media headlines that 鈥榤ultinationals, they are not paying their fair share of tax鈥�. In fact, on average, multinationals are the ones who are paying more tax than the domestic corporations.
So, obviously multinationals are paying, but I guess the question is 鈥榓re they paying enough?鈥� So that鈥檚 where the problem is.
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Chris Neff: You are listening to Open for Discussion, a 爆料王 podcast and with me today is Dr Shumi Akhtar from The 爆料王鈥檚 Business School. And today we are talking about a topic you can鈥檛 avoid 鈥� tax avoidance. To find out more about the 爆料王鈥檚 research visit .
Can I ask within your research 鈥� because this sounds really fascinating; we don鈥檛 talk about the difference between tax avoidance and tax evasion; we don鈥檛 think of ourselves as tax avoiders even though everyone who takes a deduction is; um, we don鈥檛 think about the fact that 鈥� it鈥檚 something around 50 percent of all the financial income in the world goes through tax havens鈥� so is there an effort in Australia to do鈥� like, in terms of your research and what you鈥檙e doing, is there an effort to get a handle on this? Because you know we are throwing around numbers of 200 billion dollars and it would be nice to have some hard, like you say, numbers and some real data.
Dr Shumi Akhtar: Sure, so one thing I can tell you now is 鈥� the top 500 multinationals around the world and only 10 of those are Australian based 鈥� in any case, on average, what I found is that the multinationals they have got nine times more long-term debt鈥� the companies that avoided tax, right, paying tax; they have nine times more long-term debt than the companies [multinational companies] that didn鈥檛 avoid tax. So what is the difference? Or why we should be worried, let鈥檚 say, about that nine times more debt that they have?
Now, debt can be seen as a mechanism by the multinationals to take advantage of tax deduction. For example, they may raise their debt or they may borrow from a country where interest expense is very low. Meaning, you know, if you borrow money what happens 鈥� when you borrow money from the bank you have to pay the bank some form of interest. So, those multinationals what they do is they borrow money from a country where they can get the best deal, meaning borrowing costs are very low to almost 0 percent, it doesn鈥檛 cost them anything. But, then what they do, they do an inter-company loan 鈥� because through their subsidiaries, because they are networked鈥� I mean they have got other subsidiaries around the world.
So they find a country where their tax system allows interest tax deduction and they will be claiming the maximum they can, meaning鈥� they will be saying 鈥榦kay, well our borrowings cost was let鈥檚 say six or seven percent鈥� whereas they are paying actually nothing, as a cost of raising the debt.
Now, that is more like a double dipping a) it never actually cost them and b) and now they are claiming actually more, getting more from the tax man in their pocket鈥�
Chris Neff: That鈥檚 totally double dipping.
Dr Shumi Akhtar: It is double dipping. Now, so these are the things that the Australian government [A1]听has taken a number of initiatives in. How successful they will be is a matter of time. Because, we only 鈥� as of the beginning of this year, we implemented this country by country reporting system, so we get to see in each of those countries where the multinational has subsidiaries; how much they are raising, how much they are earning, so on and so forth.
Chris Neff: So, can I ask, how much of a role do you think accounting firms and banks, you know, people looking for the loopholes, play in this? I mean, is it the companies or is it the firms that are advising the companies that we should be a little more critical of?
Dr Shumi Akhtar: Look, obviously lawyers, they know all the rules and how the jurisdiction works. When it comes to accountants, they know more on tax. Again, I would hope that the accountants, that they do follow their due diligence and follow the rules and therefore if someone is eligible then sure, they can do the tax deductions. But it was quite disturbing to find, especially in the Panama Papers, revelations that most of the money that has been loaned around or shipped around the country; it was by the help of, you know, accountants or legal firms which was really quite disturbing because they should be the ones who have high respect for all the rules or policies we set out. And that鈥檚 why we, as a government, should step in and try and be a bit tighter in a sense that they should be liable, or held responsible for that.
Chris Neff: And how is Australia, with respect to regulation of firms or banks or tax loopholes?
Dr Shumi Akhtar: Okay, so, so far, again in the Top 500 Financial Times big multinationals, Australia鈥檚 four big banks names are there, right.
Chris Neff: How high up the list?
Dr Shumi Akhtar: Pretty high 鈥�
Chris Neff: Pretty high, Okay.
Dr Shumi Akhtar: Okay. Now that was quite interesting. And um in terms of whether Australia should be really concerned, again, we need some data driven evidence to be able to say it for sure. At this stage, it does, look like yes their names are there but to me, being an empiricist, I don鈥檛 really conclude anything based on hearsay stories. And so far, any of the evidence that I have 鈥� or the statistics that I have heard so far, either there is no real source of data, what data are they actually using to come up with those statistics? We don鈥檛 know that. And even the OECD鈥檚 (the statistics I gave you earlier) 鈥� when I did a bit of a dig around earlier, it is an aggregate measure. So, we really don鈥檛 know how much of it actually belongs to the multinationals, or it is just the corporations on average, or it is all the tax evaders, I mean even individuals can be tax evaders, we don鈥檛 know that.
I mean, the Australian government, they spend eight million dollars, only to recover two million dollars in total tax revenue by catching whoever it was evading. And I go 鈥榓ll I needed was like one million, an eighth of the money and I could have given you a better outcome鈥�. And you鈥檇 be amazed 鈥� I got a phone call, I received a phone call from the ATO you know the Australian Taxation Office basically saying, asking me, 鈥榳here did you get your data? Um, like your results鈥� can you give me your database or 鈥�?鈥� and I was just shocked, I was like you guys should be the ones who should have this information in the first place! ... (Sorry).
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Chris Neff: You are listening to Open for Discussion, a 爆料王 podcast and again joining me is Dr Shumi Akhtar from The University鈥檚 School of Business.
Can I ask one more question?
Dr Shumi Akhtar: Sure.
Chris Neff: So we鈥檝e talked about tax avoidance and we鈥檝e talked about how people get out of paying tax. What鈥檚 good about paying tax?
Dr Shumi Akhtar: First of all, it is a form of income from the government鈥檚 perspective, which they tend to use it for improving the infrastructure or education sector or the healthcare system, right? So that鈥檚 a good thing about tax. But one has to be careful of 鈥� by the name of raising tax, but if you are actually harming on the other hand. Like for example, multinationals bring a lot of good things into any country, for example the innovation they bring in and the number of employment and the people they employ as well as some of the new products or services that they bring in 鈥� there is another research I am currently doing is that multinationals happen to be the one who is taking a lead in keeping the balance between the gender employment, whereas that鈥檚 not the case in many other companies. It is often claimed that females, it takes them longer to go up the ladder or at the hierarchy there鈥檚 less females, but that鈥檚 not the case when it comes to multinational corporations.
Chris Neff: I have to ask you a shark questions, because I study sharks. And it sounds like there are lots of sharks in the tax avoidance waters, what have you. What would you say is the sharkiest behavior you鈥檝e seen? Is it by the banks or by the firms or is it by the companies or it might be the lawyers or the accountants? What鈥檚 the 鈥� who鈥檚 got the sharpest teeth?
Dr Shumi Akhtar: Well, on the surface it looks like companies have the sharpest teeth, but for them to have the sharpest teeth, I think the dentists are the lawyers and the accountants.
Chris Neff: Oh okay.
听
Dr Shumi Akhtar: If that makes any sense.
听
Chris Neff: So the lawyers are essentially sharpening the teeth鈥�
Dr Shumi Akhtar: The lawyers and the accountants, yep鈥�
Chris Neff: Aaah, interesting. Well thank you for playing along with my metaphor [Shumi laughs]. Um, so what do we do? Um, we鈥檝e got tax avoidance but there鈥檚 no threshold, so people could be getting away with murder but it鈥檚 not illegal and then we鈥檝e got companies that are improving gender parody and鈥� um what do we make of it?
Dr Shumi Akhtar: Sure, so, what I鈥檓 trying to do through my research is that I would like to determine, doing the cost benefit analysis (from the government鈥檚 perspective and society鈥檚 perspective) and come up with an optimal level of tax. That way we are all better off; societies better off, the multinationals are better off and so is the government. And that is what I鈥檓 working, trying to work on鈥�
Chris Neff: Optimal 鈥�
Dr Shumi Akhtar: Finding an optimal level of tax 鈥�
Chris Neff: I love that, the optimal level of tax. And I feel like I鈥檓 paying above the optimal level of tax.
Dr Shumi Akhtar: It鈥檚 a level where everyone is better off.
听
Chris Neff: Which is, and I think well 鈥�
听
Dr Shumi Akhtar: That鈥檚 exactly what it should be.
Chris Neff: I think that鈥檚 fantastic and I think that is really important research. I鈥檓 glad the Senate is listening to your research. I鈥檇 like to thank you again for being here with us, Dr Shumi Akhtar from the 爆料王 School of Business.
Dr Shumi Akhtar: Thank you Chris, it was a pleasure.
Chris Neff: Thanks for listening to Open For Discussion, a 爆料王 podcast. You can subscribe to this podcast on or on ; you can find me on Twitter .
