More than naming and shaming needed to stop corporate tax avoidance

The report of the Senate Economics References Committee inquiry into corporate tax avoidance comes with the subtitle – “You cannot tax what you cannot see”, with a strong focus on increased transparency. The majority of the 17 recommendations in the interim report relate to improved transparency of the tax affairs of corporate taxpayers. This is a significant step in the right direction. Recent experiences in the war on corporate tax avoidance both in Australia and overseas confirm that “information is power”. Most notably, we have seen increased transparency changing the behaviour of multinational enterprises as well as inducing governments to act.

Government cracks down on tax avoidance through foreign investment rules

The Turnbull Government announced yet another measure aimed at addressing tax base erosion and profit shifting, placing additional requirements on new foreign investment under the existing national interest test. In the last 12 months Australia has seen various reforms within the tax system. However, this latest initiative is a shift as it links Australia’s tax regime with its foreign investment regime. It sends a broader signal to the market that Australia will look beyond the collection of tax revenues to a consideration of national interest.

Company taxation and tax spillovers: Separate accounting versus formula apportionment

It is observed in the real world that taxes matter for location decisions and that multinationals shift profits by transfer pricing. The US and Canada use so-called formula apportionment (FA) to tax corporate income, and the EU is debating a switch from separate accounting (SA) to FA. This paper develops a theoretical model that compares basic properties of FA to SA. The focal point of the analysis is how changes in tax rates affect capital formation, input choice, and transfer pricing, as well as on spillovers on tax revenue in other countries. The analysis shows that a move from SA to FA will not eliminate such spillovers and will, in cases identified in the paper, actually aggravate them.

Measuring tax efficiency: A tax optimality index

This paper introduces an index of tax optimality that measures the distance of some current tax structure from the optimal tax structure in the presence of public goods. This index is defined on the [0, 1] interval and measures the proportion of the optimal tax rates that will achieve the same welfare outcome as some arbitrarily given initial tax structure. We call this number the Tax Optimality Index. We also show how the basic methodology can be altered to derive a revenue equivalent uniform tax, which measures the tax burden implied by the public sector. A numerical example is used to illustrate the method developed, and extensions of the analysis to handle models with multiple households and nonlinear taxation structures are undertaken.

Multiple roles of transfer prices: One vs. two books

This paper investigates multiple roles of transfer prices for shipments of goods and services between entities of a multinational enterprise. At the center is the role of transfer pricing (TP) in tax manipulation, but other roles having to do with internal operations or strategic delegation, etc. are also considered. The interesting question is to what extent and how the different roles of TPs interfere with each other. The answer depends on whether companies use one or two books, i.e. whether they (can) apply different TPs for different purposes. We illustrate, in a stylized model, the competing aims of tax manipulation and strategic delegation. Finally, we briefly look at selected reform proposals, concluding that either TP problems are not addressed, or else new distortions will be introduced instead.

Public good provision and the welfare effects of indirect tax harmonisation

The paper considers the welfare effect of the harmonisation of indirect taxes in two open economies. The revenue from taxation is used for the production of a non-tradeable public good. The welfare levels are affected via two channels: (i) changes in the levels of public good provision, and (ii) changes in deadweight loss associated with the taxes. We develop a number of rules of harmonisation and derive conditions under which they lead to potential Pareto improvement.

Tariff-tax reforms and market access

Reducing tariffs and increasing consumption taxes is a standard IMF advice to countries that want to open up their economy without hurting government finances. Indeed, theoretical analysis of such a tariff–tax reform shows an unambiguous increase in welfare and government revenues. The present paper examines whether the country that implements such a reform ends up opening up its markets to international trade, i.e. whether its market access improves. It is shown that this is not necessarily so. We also show that, comparing to the reform of only tariffs, the tariff–tax reform is a less efficient proposal to follow both as far as it concerns market access and welfare.

Tax principles and tax harmonization under imperfect competition: A cautionary example

This paper shows that under imperfect competition, the welfare effects of indirect tax harmonization may depend crucially on whether taxes are levied by the destination or the origin principle. In a standard model of imperfect competition, while harmonization always makes at least one country better off, and may be Pareto-improving, when taxes are levied under the destination principle (which currently applies in the European Union), harmonization of origin-based taxes (as recently proposed by the European Commission) is certain to be Pareto-worsening when the preferences in the two countries are identical, and is likely to be so even when they differ.

Guest editorial: End of life law, ethics, policy and practice

The International Conference on End of Life: Law, Ethics, Policy and Practice was held at Queensland University of Technology, Brisbane, Australia in August 2014. It was co-hosted by the Australian Centre for Health Law Research, the Dalhousie Health Law Institute (Canada) and the Tsinghua Health Law Research Center (China). The conference attracted almost 350 delegates from 26 countries and included representation from over a dozen different disciplines with an interest in end of life care.

Spotless decided per incuriam? - A contrary view

The article considers the implications of the decision of the High Court in Spotless Services Pty Ltd (1996) 141 ALR 92; 34 ATR 183. It argues in particular that the decision was made per incuriam.

Zaburoni HIV case: The law can sometimes be an ass, but not in this case

Lana Nowakowski's opinion piece on the High Court decision in the Zaburoni HIV case attacks "Queensland's absurd necessity to prove intention on transmission" and argues that "changes to the law are long overdue". Both claims are wrong...

Conservation law with the flux function discontinuous in the space variable- II - Convex-concave type fluxes and generalized entropy solutions

We deal with a single conservation law with discontinuous convex-concave type fluxes which arise while considering sign changing flux coefficients. The main difficulty is that a weak solution may not exist as the Rankine-Hugoniot condition at the interface may not be satisfied for certain choice of the initial data. We develop the concept of generalized entropy solutions for such equations by replacing the Rankine-Hugoniot condition by a generalized Rankine-Hugoniot condition. The uniqueness of solutions is shown by proving that the generalized entropy solutions form a contractive semi-group in L-1. Existence follows by showing that a Godunov type finite difference scheme converges to the generalized entropy solution. The scheme is based on solutions of the associated Riemann problem and is neither consistent nor conservative. The analysis developed here enables to treat the cases of fluxes having at most one extrema in the domain of definition completely. Numerical results reporting the performance of the scheme are presented. (C) 2006 Elsevier B.V. All rights reserved.