Ethical Partners Funds Management in partnership with Publish What You Pay (PWYP) Australia has recently released Leaders or Laggards? Tax and Revenue Transparency of ASX mining, gas and oil companies.

The research studied the taxes, royalties, bonuses, fees and other payments made to the federal government. Then benchmarked the top 20 ASX-listed companies across the mining and energy sectors. It found just five — BHP, Fortescue, Rio Tinto, Iluka and Woodside Petroleum — had renounced the use of “artificial arrangements” for tax optimisation. Some companies use ‘off-shoring’, tax minimisation and avoidance practices and it must be noted this while this is not illegal it is just immoral if the intent is to pay zero tax.

Often a sign of avoidance of the tax being paid issue is when companies are opaque, and a lack of detailed data disclosure makes company comparisons deliberately difficult. The research revealed that just 47 per cent of companies reported to the Australian Taxation Office under the Voluntary Tax Transparency Code last financial year, compared to 67 per cent in 2017.

Publish What You Pay Australia’s national director Clancy Moore said despite some bright spots Australia was still “falling behind” comparable economies and resource-rich countries on tax transparency. However, it may not be so bleak as taxpayers think as the Australian Government has introduced the Voluntary Tax Transparency Code (TTC) and the Corporate Tax Transparency Report (CTTR) to improve tax and revenue transparency. However, Australia is yet to implement the Extractive Industries Transparency Initiative (EITI), a global voluntary initiative that requires payment-to government information for domestic extractive operations.

PWYP and Ethical Partners Australia believe that transparency is key to unlocking the benefits for communities in Australia and where companies do business. This will ensure that industry, investors and communities all benefit from the extraction of our finite natural resources. Leaders or Laggards has suggested several call to actions, they are that:

The Australian Government should:
• Introduce legislation requiring public project-by-project level reporting of tax affairs for all ASX listed and large privately owned extractive companies operating in or from Australia. These laws should be equivalent to laws currently in the UK, EU, Switzerland, Norway and Canada
• Implement the Extractive Industries Transparency Initiative (EITI) in Australia including re-starting the multistakeholder group.

Investors should:
• Proactively engage with companies and regulators to advocate for greater tax and revenue transparency such as public project-by-project reporting, mandatory disclosure legislation, a free public beneficial ownership registry, a commitment to pay a fair share of tax by aligning tax payments with actual economic activity and pay tax on profits where value is created and economic activity takes place, and publicly renounce the use of tax havens.

Companies should:
• Be proactively transparent by annually reporting in a public and useable data their payments to governments on a country-by-country, project-by-project level including profits, income tax paid, revenue, royalties, license fees, land tax and other payments
• Publicly commit to pay a fair share of tax by paying tax on profits where value is created and economic activity takes place
• Publicly disclose all donations, contributions and membership fees to political parties, industry associations and lobbyists.

PWYP is a coalition of 30 anti-corruption, human rights, environmental, union and faith-based organisations were founded in 2011. Ethical Partners Funds Management is a boutique Australian fund manager. Its investment process examines financial strength, cash flow metrics, shareholder structure and management.

Ethical Partners manages about $2bn and is part of a growing contingent of investment firms focused on environmental, social and governance. They examine financial metrics for choosing portfolio companies. Ethical Partners takes human rights, environmental concerns, and governance into consideration in their investment process. The report was funded by Ethical Partners Funds Management.