The fluctuating fortunes of carbon pricing in resource rich nations – a review of recent developments in Canada and Australia.
The taxation of urban energy and transport related activities is of growing importance for all major economies. Resource rich nations of the New World such as Canada and Australia have mixed blessings in this area, as on the one hand they have access to vast fossil fuel reserves which should keep prices down, whilst on the other they both have geographically dispersed populations, highly variable weather conditions and resource intensive lifestyles which puts them amongst the highest global per capita consumers of fossil fuels. In both countries, energy and transport related expenditures are a relatively large proportion of total expenditures for all sectors including households, businesses and government. Equally significant is the high proportion of GDP derived from development of fossil fuel resources in these countries, including extensive activity by multi-national corporations. Accordingly, there is acute political sensitivity concerning any taxation measures connected with energy or transport in these countries, which provides a substantial barrier to traditional arguments in favour of fossil fuel levies and environmental taxation. Despite these obstacles, environmental taxes and carbon pricing measures have gained significant traction, albeit in a staccato fashion. In Australia a comprehensive national carbon price scheme was introduced in 2011 but dismantled after only two years after a withering political assault from the fossil fuel sector. Within that leadership vacuum several State Governments and the private sector have led more recent initiatives to reduce carbon emissions. In Canada, successful carbon pricing schemes have emerged firstly in the resource rich provinces of British Columbia (from 2008) and Alberta (2017). The Canadian Government has now followed with its own national scheme to commence in 2018. This paper will review these promising developments to gain insights for future application of carbon pricing in the energy and transport sectors.
Researchers: Mr Wayne Gumley and Dr Deborah Jarvie
In the international tax arena, it is acknowledged that business profits of foreign multinational operations can be taxed in a jurisdiction only where they have a physical “taxable presence” in that jurisdiction. However, given the rapid transformation of business models in the digital age where a physical presence to conduct cross-border trade is losing relevance, the traditional concept of taxable presence is being increasingly viewed as an inadequate principle for allocation of taxing rights. The issue is also integral to Actions 1 and 7 ("tax challenges of the digital economy" and "permanent establishment") of the OECD/G-20 project on Base Erosion and Profit Shifting (BEPS). The issue is therefore gaining increased attention at academic and policy levels.
Against that backdrop, this project aims to investigate the evolving concept of ‘taxable presence’ of businesses foreseen under the permanent establishment (PE) notion in international tax rules. In particular, it focuses the PE-related residency issues of taxing businesses in the digital arena with a view to examine multiple actions being taken by different countries and to explore prospects for a similar initiative in the Australian jurisdiction. Despite the recent adoption of Multinationals Anti-Avoidance Law (MAAL) in Australia that inter alia seeks to plug potential loopholes in PE rules, the legislation is still not fully resilient to manipulation by businesses. Nor does it cover the tricky issue of taxable presence of a digital multinational enterprise. To that end, we address some of the many rising challenges to determining the taxable presence of digital businesses in transnational e-commerce with a focus on Australian jurisdiction.
Fintech is becoming mainstream in facilitating transactions. Blockchain technology, from its humble beginning as a decentralised encrypted form of record keeping has moved to the mainstream. The advent of cryptocurrencies as a result of blockchain technology is a more novel Fintech development. Based on similar technology, hundreds of cryptocurrencies are being created and traded. Bitcoins are by far the most popular cryptocurrency, but many others exist. The popular “coins” fluctuate dramatically in “prices”, where realised and unrealised gains are being made by coin-holders.
The economic substance of cryptocurrencies give them value, but to date the law has not definitively defined this substance. The difficulty is that the transfer of value between the parties involves the transfer of a unique digital file that in itself has no intrinsic value. Regulating cryptocurrency is a difficult task for regulators, as the definition of “cryptocurrency” and which aspect requires regulation are not settled. At the moment, there is no clear and authoritative definition of cryptocurrency, making it difficult for regulators to control and monitor activities. This difficulty exists at two levels: initial coin offerings (ICO) that brought the cryptocurrency into existence and trading in the cryptocurrencies themselves.
Researcher: Professor Julie Cassidy, Dr Man Huang Alvin Cheng, Dr Eva Huang and Mr Toan Le.
One of the major tax policy measures in the 2017 PNG Government Budget is the proposal to increase the taxable component of employer provided housing benefit. The Government argues that this measure was considered on horizontal equity grounds, as the housing allowance received in cash is taxed in full, while the value of employer provided accommodation is taxed at concessional rates. However, the government is also convinced that the prescribed values of employer provided accommodation have been, on the one hand, very low and stagnant. While on the other hand, the actual values of employer provided accommodation, especially in major cities around PNG, have been steadily increasing thereby enhancing the total compensation of employees. The government was therefore convinced that potentially large amounts of revenue could be raised from the revised housing benefit tax rule.
The aim of this study is to empirically measure and assess the dimensions that influence the public’s perceptions with regards to increasing the taxable component of the housing benefits tax (HBT). The results of this study indicate the policy significance of doing so. Clearly the HBT has implications for the fairness of the overall tax system in light of the larger issue of housing affordability in PNG and sustainable wages growth. If the lack of housing, and then the income of citizens prevents them from obtaining housing, an increase in the HBT could have a detrimental effect on taxpayer confidence. The alignment of the tax treatment of both the housing benefit per se and the housing allowance is certainly recommended. Evidence suggests that the divergence between the two has the potential to result in abuse. It is suggested that perhaps the government should change the eligibility criterion for employer provided housing by limiting it to executives or more senior officers, whose employment packages may include housing as an employment fringe benefit.
Researcher: Ken Devos, Francis Odhuno, Mehmet Ozmen and Thomas Wangi
An Assessment of the Code of Professional Conduct under the TASA 2009 - six years on
A significant body of research has developed over the last sixty years concerning the factors that influence and impact taxpayer compliance. In particular, a number of recent studies have examined tax practitioners’ethical behaviour and the implications this has for taxpayer compliance. However, fewer studies have conducted systematic empirical research into tax practitioner ethics in Australia, and more specifically with regards to the Code of Professional Conduct under the Tax Agent Services Act 2009 (Cth), since its operation from March 2010. As tax practitioners lodge returns on behalf of approximately 75% of Australian individual taxpayers, there is great potential for them to influence the compliance landscape. Failure to investigate the discrepancies between tax practitioner ethics/ practices and those stipulated in the Code of Professional Conduct could potentially result in professional malpractice and excessive revenue leakage for the government. Consequently, this preliminary study addresses this research gap by specifically investigating tax practitioners’ level of commitment to, and compliance with, the Code of Professional Conduct.
The research study conducted both a quantitative and qualitative analysis of data obtained directly from Australian tax practitioners. The findings revealed that tax practitioners were generally supportive of the professional standards under the code, but the findings were more qualified with regard to the appropriateness and knowledge of penalties under the code. The results were also mixed with regard to other ethical issues, such as the outsourcing and transfer of client information. The suggested tax policy implications stemming from the study include: the reintroduction of compulsory engagement letters; clear guidelines regarding the maintenance of in-house tax practitioner guidelines at all levels; introduction of protocols and standards for data security and outsourcing of services; improving the education and training of tax practitioners with regard to penalties; and consideration of the possible “black listing” of agents in public documents who commit serious offences under the code. These findings provide useful information for the Tax Practitioners Board, professional tax and accounting organisations and the Australian taxation authority.
Researcher: Ken Devos and Paul Kenny
Devos, K. and Kenny, P. (2017) An assessment of the Code of Professional Conduct under the TASA 2009 - six years on, Australian Tax Forum Vol. 34 ,( 3), pp 629-676.
Factors that influence Tax Evasion in Australia and Turkey: A Structural Equation Modeling Study
The tax literature indicates that many factors impact upon and influence tax evasion and non-compliant behavior. In the economic literature there has been evidence of the factors which have impacted upon economic growth and the well-being of a country’s citizens which have also influenced tax evasion behavior.
However, it is evident that while tax and economic studies have investigated these and other factors independently fewer studies have incorporated a combination of these factors in conducting multidisciplinary research. This paper proposes to overcome this research gap, and makes a contribution to the tax literature by investigating a combination of specific economic factors that impact upon tax evasion, employing a Structural Equation Model (SEM). In particular, the study examines the structural relationships between national well-being, life satisfaction, tax involvement and tax evasion.
The study developed a reliable and valid measurement scale for taxpayer specific involvement to better understand the impact of involvement in a tax settingChurchill’s (1979) and revealed that tax involvement dimensions related to both samples of Turkish and Australian taxpayers.
The research revealed a relationship between the various dimensions. The overall results showed that life satisfaction plays a central role in the model. Although the relationship between life satisfaction and tax involvement was weak it was statistically significant. A negative relationship was found between life satisfaction and tax evasion, indicating that satisfaction with life may be a mediator between tax evasion, national wellbeing and tax involvement. The results of this study also indicate that tax evasion and tax involvement somehow relate to national wellbeing and life satisfaction. Consequently, the study found that, although tax evasion and national wellbeing correlated positively with life satisfaction, satisfaction with life had a significant negative effect on tax evasion perceptions. The results of the study will be of interest to both the Australian and Turkish governments and have implications for tax policy development in both countries.
This article compares the features and attributes of the post 2013 Australian General Anti-Avoidance rule (GAAR) under a common law jurisdiction and the 2015 General Anti-abuse rule in Italy under a civil law jurisdiction. These selected GAARs are assessed and evaluated for their potential scope and impact via a number of criteria and benchmarks. While comparative elements and features are noted, the analysis finds that these particular GAARs will support their respective revenue authorities in tackling tax avoidance and abuse in future years.
Researcher: Ken Devos and Marco Greggi
Ken Devos, Marco Greggi A Comparison of Common law and Civil law GAARs: the cases of Australia and Italy RIVISTA DI DIRITTO TRIBUTARIO INTERNAZIONALE INTERNATIONAL TAX LAW REVIEW 2017
Alongside traditional law-driven policy response to the avoidance-induced tax behaviour of multinationals that often builds on the thesis that firm is merely a legal entity, this project, takes into account the changing nature of firm, analogous to an organismic entity. The central rationale behind this non-traditional paradigm is to provide an interdisciplinary, holistic and all-inclusive picture of the firm behaviour with a view to contribute towards a wide-ranging, comprehensive policy response to cross-border tax avoidance issues in the international tax realm. For this purpose, the project aims to trace the “profit genes” in firms, and investigates the key Darwinian principles of “struggle for existence” and “survival of the fittest” in terms of firms’ quest to (avert taxes and) maximize profits. The study argues that the classical international tax regime may not fully withstand the rapidly changing structure of the “firm species”. It concludes that while the OECD’s Base Erosion and Profit Shifting (BEPS) project is a step in the right direction, the tax behaviour of firms, however, could be fully grasped if the tax-averse “traits embedded in the genome” of the firm species are also taken into consideration.
This project considers the role of environmental taxation as a regulatory response for dealing with the escalating cost of managing the disposal and recycling of end-of-life electrical and electronic products (‘e-waste’) in Australia. Whilst the producers and distributors of electronic communication and entertainment products are amongst the most successful corporations in the global market place, the quantity of e-waste has grown rapidly and according to recent studies, less than 16% is currently recovered for re-use, recycling or safe disposal. In Australia, State and Territory governments have traditionally relied upon landfills to deal with household waste streams. However the rapid growth in e-waste and has led to increased recognition of the economic value of waste.
The Australian Federal Government has introduced a national approach to consumer waste, through legislation requiring the establishment of a ‘product stewardship’ scheme for computers and televisions in 2011. The National Television and Computer Recycling Scheme (NTCRS) requires manufacturers and importers of televisions, computers and ancillary products to be responsible for collecting and recycling a prescribed proportion of those products when they are discarded by consumers at ‘end-of-life’. This project outlines some quantitative aspects of the e-waste problem and then describe the regulatory measures that have been used to address this problem with particular focus upon the NTCRS. Observations from that analysis will then be used to suggest how environmental taxation strategies can be applied to overcome weaknesses in the current arrangements.
Researcher: Wayne Gumley
Wayne Gumley, Market Instruments and the Protection of Natural Resources. Stoianoff, N. P., Kreiser, L., Butcher, B., Milne, J. E. & Ashiabor, H. (eds.). Cheltenham UK: Edward Elgar Publishing, p. 124-139 16 p. (Critical Issues in Environmental Taxation)
Papua New Guinea (PNG) has witnessed outstanding economic growth over the last ten years, accounting for 2.3% of the South Pacific region’s Gross Domestic Product (GDP). However, according to the Department of Treasury the country’ impressive economic growth has not been translating into optimal fiscal and revenue yields. The threat to the revenue is projected to reach K1.2 billion by 2018. Consequently, in an effort to stem this potential loss of revenue and improve tax collection and administration, an immediate analysis of the tax regime is critical.
The aim of this paper is to investigate the corporate income tax regime in PNG and make recommendations for tax reform with the view to improving future revenue collections. The paper briefly outlines the main features of the corporate tax regime in PNG and identifies concerns with the current corporate tax regime, including revenue trends over the last 5 years. While the features of a good corporate tax system and best practice measures as derived from the Organization for Economic Cooperation and Development (OECD) are noted some of these features and practices, are considered as various options for corporate tax reform in PNG. An evaluation of the main options, considering the advantages and disadvantages, and short-term and long-term priorities and tax policy implications for the corporate tax system in PNG are provided.
Researcher: Ken Devos
Devos, K. (2016) Proceedings of the 2014 Papua New Guinea Tax Review and Research Symposium, The National Research Institute, Papua New Guinea, Special Report, Chapter 5 The Corporate Tax Regime, pp77-100.
An examination of the tax evasion literature reveals that culture plays an important role in determining the views and opinions of taxpayers. There have been a number of studies that have focused on tax evasion in a particular country but few that have encompassed comparative studies). In some of the previous studies ethics are sometimes discussed but, more often than not, the focus of the discussion is on government corruption and the reasons why the citizenry does not feel any moral duty to pay taxes to the government. Most studies on tax evasion tend to look at issues from a public finance or economics perspective, although ethical issues may be mentioned briefly, in passing. It is also evident that some previous studies have compared the ethical views of citizens from different countries without taking into account genuine differences in culture, religion and legal systems.
This study aims to overcome this research gap by presenting the preliminary results of an empirical investigation into the views and opinions of both Australian and Turkish tax/accounting students, regarding the ethics of tax evasion. In comparing Australia and Turkey, the Australian legal system is based on common law while Turkey is a civil law jurisdiction. Likewise Australian society is of predominately Christian belief while Turkey is predominately of Muslim belief. Australian culture generally derives from an Anglo-Saxon origin although arguments could be mounted for a more multi-cultural society nowadays while Turkey has strong European and Middle Eastern ties. Thus, the need for further research, which the present study is intended to partially address. Collaboration between Monash University in Australia and Inonu University in Turkey was established to conduct the research. This paper reports on the ethics of tax evasion based on the opinions of Turkish and Australian tax/accounting students and compares their views to determine whether cultural differences may explain the differing perceptions of tax evasion
Researcher: Ken Devos, Serkan Benk and Robert McGee
McGee, W. R, Devos, K and Benk, S (2016), Attitudes toward Tax Evasion in Turkey and Australia: A Comparative Study, Social Sciences, 5(1) 10, pp.1-13
Implications for the concept of “Tax Benefit/Advantage” as prescribed in the Australian and British General Anti-Avoidance Rules in tacklingTax Base Erosion and Profit Shifting
An increasing number of multi-national enterprises (MNEs) have arranged their corporate structures in a way which sharply reduces or completely eliminates their tax liabilities, both at home and abroad. This practice, referred to as base erosion and profit shifting (BEPS), has become a pertinent feature in the international tax domain. In response to this growing problem the Organisation for Economic Cooperative Development (OECD) released an Action Plan in July 2013. In the coming years, BEPS is likely to remain high on political agendas around the world and it is expected that many countries will implement the OECDs Action Plan recommendations and introduce or enhance their own general anti-avoidance legislation as a strategy to counter BEPS. This paper specifically examines the recent amendments to the Australian General Anti-avoidance Rule (GAAR) and the recently introduced British GAAR in 2013 with regards to the definition of “tax benefit/advantage.” An analysis of tax benefit/advantage concept within the respective GAARs is compared and contrasted to the wide definition of tax benefit stipulated in Action Item 12 of the OECD Action Plan. The likely consequences and some tax policy implications for tackling BEPS and tax avoidance generally are canvassed.
Researcher: Ken Devos
Devos, K. (2015), Implications for the concept of ‘tax benefit /advantage’ as prescribed inthe Australian and British general anti-avoidance rules in tackling tax base erosion and profit shifting, Common Law World Review, Vol. 44 (4), Sage, pp.239-261.
Tax Compliance and the Public Disclosure of Tax Information: An Australia/Norway comparison
A combination of both persuasive and enforcement measures have been applied by governments in attempting to tackle tax non-compliance. With increasing pressure to raise revenue in the current economic climate, governments need to assess the effectiveness of various compliance measures. This paper presents and analyses the strategies adopted by tax authorities globally and specifically in Australia and Norway, regarding the public disclosure of tax information and the likely compliance impact. The paper provides an insight into how public disclosure could indirectly improve compliance in the setting of one country, while some limited disclosure may supplement other compliance strategies in another.
Researcher: Ken Devos and Marcus Zackrisson
Devos, K. and Zackrisson, M. (2015), Tax compliance and the public disclosure of tax information: An Australia/Norway comparison, eJournal of Tax Research, Vol. 13, No.1, pp 108-129.
The tax compliance literature indicates that many factors, including economic, social, psychological and demographic factors, have an impact on the compliance behaviour of taxpayers. Of the two main compliance theories, the economic deterrence theory model and social/fiscal psychology theory model, this study has adopted the latter. The aim of this study was to examine whether or not a relationship exists between selected tax compliance variables (both economic and non-economic) and the attitudes and behaviour of Australian individual taxpayers, with an emphasis on which variables also act as an effective deterrent to non-compliance.
This study adopted a mixed method research approach. First, a quantitative component comprising a mail survey was distributed to a sample of known tax evaders (i.e., those who had been audited and penalised) via the databases of the ATO. This was followed by an electronic version of the survey which was distributed to a sample of the general population (non-evaders) via the databases of a market research company. Second, a qualitative component comprising six tax evader and seven non-evader semi-structured interviews were conducted over the phone and in person to support and cross-validate the previous survey findings.
The variables of interest in this study were the moral values of taxpayers, their perceptions of fairness and specific deterrent measures. Eight demographic variables were also examined in conjunction with the compliance variables. The survey data was statistically analysed using Chi-Square and Logistic Regression and, for a comparative analysis between the two different samples, Mann-Whitney U Tests were employed. For the interview data, thematic framework analysis was utilised along with the pattern-matching technique.
Based on both components of the research method, there was evidence of a significant relationship between tax morals, tax fairness and tax law enforcement and compliance behaviour in the evader sample. With respect to the non-evader sample, there was a significant relationship reported between tax penalties, tax morals and tax awareness and compliance behaviour. No significant results were reported for the probability of detection and compliance behaviour in either sample. However, there was some evidence of a relationship between the selected compliance variables themselves, for example, tax fairness and tax morals.
Other major findings included the influence of the gender variable on selected compliance variables for both the evader and non-evader samples, while both the income and education variables significantly impacted upon compliance behaviour but mainly in the evader sample. The results of all other demographic variables were not significant. In distinguishing between the two taxpayer samples, all compliance variables except tax morals and tax penalties produced statistically significant differences. Likewise, amongst the eight demographic variables, statistically significant differences were reported for six, with only location and return lodgement being similar amongst the samples.
Consequently, the findings of the study suggest that tax morals and, to a lesser degree, tax fairness, tax law enforcement, tax awareness, gender, education and income level, directly and indirectly influence compliance behaviour. It is envisaged that the results of this study provide useful information for the Australian revenue authority and have implications for tax policy development.
Researcher: Ken Devos
Devos, K. (2014) ‘Factors Influencing Individual Taxpayer Compliance Behaviour,’ Springer.
An Investigation into the Factors which influence the Ethical Behaviour of Australian Tax Practitioners of Different Affiliations
An examination of the tax compliance literature reveals that there is a lack of empirical research into the ethical issues faced by Australian tax practitioners (Tax agents, tax lawyers and tax accountants) and the likely impact upon compliance. In particular, issues regarding attitudes towards the Code of Professional Conduct, promoter penalties, industry benchmarking and other ethical concerns are yet to be investigated. As tax practitioners are viewed as representatives of both the taxpayer and the revenue agency it is important to ascertain where their allegiances lie when faced with vexed ethical situations.
This research study presents the preliminary results of an empirical investigation into the factors that influence Australian tax practitioners’ ethics. Research funding was secured which enabled both a quantitative and qualitative analysis of data to be conducted gauging the views of both Certified Practicing Accountants (CPA) and non-CPA Australian tax practitioners. The findings indicated that the views’ of CPA’s and non-CPA’s differed with regards to the avoidance/evasion distinction, industry benchmarking and the code of professional conduct. It was also found that particular demographics of Australian tax practitioners influenced their ethical behaviour to a certain degree. Overall while ethics were generally of an acceptable standard, both internal and external factors need to be regulated in order to maintain desired levels. The results of this study will be of interest to both professional accounting bodies and the Australian taxation authority and has implications for tax policy development.
Researcher: Ken Devos
Devos, K. (2014), ‘An Investigation into the Ethical Views and Opinions of Australian Tax Practitioners of different Affiliations’, The New Zealand Journal of Taxation Law and Policy, Vol. 20, No. 2, pp.169-202 (ABDC A).