New research shows multinational gas corporations are using sophisticated accounting tricks and loopholes to avoid paying their fair share of tax, despite making windfall profits.
The new report Reforming the Petroleum Resource Rent Tax shows how billions could be raised in the Budget by fixing loopholes and cracking down on multi-national tax avoidance in the broken Petroleum Resource Rent Tax (PRRT), without introducing a single new tax.
- Current loopholes in the PRRT mean that despite windfall gas profits of up to $40 billion, companies are avoiding paying tax on these super profits with PRRT revenue projected to increase by less than $1 billion in 2022-23.
- The new report Reforming the Petroleum Resource Rent Tax suggests these loopholes could be closed by ensuring PRRT is paid when a super profit is earned, instead of being exempt until after companies have paid down capital and ‘uplift factors’*.
- Companies are making windfall profits and avoiding paying tax by using sophisticated accounting techniques and loopholes permitted in the current PRRT.
- The report also suggests that loopholes which allow revenue splitting practices between companies in gas extraction and liquification equates to a form of multi-national tax avoidance which could also be targeted.
“The current PRRT is broken and riddled with loopholes. The Government could easily fix this by tweaking the existing tax to ensure the Australian people get a fair share of the windfall profits from our own natural resources,” said Dr. Richard Denniss, Executive Director at leading public policy think-tank the Australia Institute.
“By fixing the PRRT loopholes Australia could get a fair return without introducing a single new tax.
“An effective PRRT would produce large tax receipts when profits are high and the failure to do so shows that it’s broken.
“There is also urgent need for the government to look at how revenue is being split between the gas producer (liable for the PRRT) and the liquefier who converts gas into LNG for export (currently exempt from paying PRRT).
“At the moment it looks like more revenue is being attributed to the liquefier which has the effect of reducing the amount of PRRT. This is essentially a form of multinational tax avoidance, something the Government has said it wants to stamp out.
“It is a sleight of hand to attribute any of the super profits to the liquefier. The war in Ukraine increased the gas price, not the price of processing gas,” he said.
A previous Australia Institute report War Gains: LNG Windfall Profits 2022 has calculated the windfall gain to LNG companies at between $26 billion and $40 billion. Forecast PRRT revenue has increased by less than a $1 billion.
*‘Uplift factors’ allow capital expenditures to be increased by the government bond rate plus risk premiums that vary with the nature of the capital expenditure
Tanya Martin Office Manager
Jake Wishart Senior Media Adviser