Comm 2502 : Legal Aspects Assessment Answers

• The industry the company operates in
• Number of staff in Australia
• Number of staff globally
• Location of global headquarters

1. Procter & Gamble is an American multinational specializing in consumer goods. It is the creator of legendary brands, with undeniable fame: Gillette, Duracell, Pantene, Head & Shoulders, Olay, Swiffer, Pampers, Always, Tampax, Ariel, Dash, Mr. Clean, Braun, Vicks, Oral-B. Procter & Gamble is headquartered in Cincinnati, Ohio. In 2012, the company employs 127,000 people worldwide. In 2017 Procter & Gamble Australia Pty Limited had 157 employees in Australia (Procter & Gamble Australia Pty Limited 2017, p. 1).

Procter & Gamble manufactures its products in 25 industries that have the same rules and where the directors have the same way to work for a better harmony. At Procter & Gamble, 23 brands have sales between $ 1 billion and $ 10 billion. The others are between $ 100 million and $ 500 million.

Being an international company, Procter and Gamble is likely to experience legal and regulation issues in different countries. The next two questions will explore how laws and treaties in Australia can affect the operation of Procter and Gamble.

2. As stated in the introduction section, Procter and Gamble, like any other multinational company, is bound to face numerous legal and regulation issues in Australia. However, navigating through such issues depend on how well the company is managed and how well it respects and comply with different laws.

To start with, one of the legal issues related with the multinational companies in Australia is tax laws. Australian Taxation Office in 2017 published a draft law which would change the principles of taxation of foreign companies in Australia (Jones, 2017 p. 2). The previous, similar law regulating fiscal rules in the country was suspended as a way of achieving tax optimization. Tax optimization refers to practices, often legal, allowing large companies to pay very little or no tax on certain income, artificially transferred to tax havens. Companies play for this on the differences between the various tax regimes. The different states are losing billions of euros in tax revenue. The new draft law will allow Australia to expand the sphere of influence of tax legislation on foreign joint-stock companies located in the state. According to the proposed project, the Tax Administration of Australia will monitor the activities of foreign companies on its territory in order to determine the tax residence of the entity. This new tax initiative is likely to affect virtually all multinational companies including Procter and Gamble. It should be noted that most multinational companies including Procter and Gamble have been implicated in tax evasion. The article entitled ‘Apple is not alone’ by Citizens for Tax Justice clearly revealed that Procter and Gamble is among those companies that are involved in tax evasion. Similarly, in 2014, Procter and Gamble was accused of tax evasion in Argentina (Reuters, 2014 p.1). Going as per these tax evasion behaviours, it is likely that Procter and Gamble is a potential tax evader. The tax optimization law that is being strengthen in Australia may affect may affect companies such as Procter and Gamble who have history of tax evasion because the goal of the law is to ensure that no multinational company evade tax.

The new tax law will also force the Procter and Gamble to pay more taxes and this may affect the amount of profits as well as the operation of the company. The new tax law is comprehensive. In the first place, affiliates and subsidiaries of foreign companies, leading international business in Australia, will suffer. Project TR 2017 / D2 significantly increases the risks of such companies. The law classifies them as tax residents of Australia, although they are taxpayers in the country of their registration. Foreign investors should now reconsider their corporate structures so as not to incur material losses when entering and leaving the capital of Australia . Also, commercial success in many respects will depend on whether the state has a bilateral "Agreement on avoidance of double taxation" with the country of registration of a subsidiary or branch (Jones, 2017 p. 3). In this case, according to international laws, taxation should be conducted on the basis of agreements between the two countries. It is likely that foreign companies that cooperate with non-resident companies in Australia will reconsider their business relations in view of the appearance of such court decisions and draft laws (Jones, 2017 p. 3). In addition, if Procter and Gamble Company do not make structural changes, then there may be negative consequences, such as double taxation. Lastly, the threat of double taxation carries a great uncertainty in the tax planning of a foreign company and can lead to legal and material problems. As a result, business needs to pay special attention to formal issues of company management, since this factor will most influence operational costs. Despite the fact that the new tax bill is stricter than the traditional bills, Procter and Gamble will not have much problem in complying with the law.

Another law which Procter and Gamble is likely to face is patent laws. Procter and Gamble complies with patent laws. Australian patents include three types of standard patents, innovative patents, and design patents . For the standard type, the application period is generally between 3-6 years, the cost is around $5,000, and the protection period is 20 years from the filing date. There is no legal issue so far that has been filed against Procter and Gamble. The reason why Procter and Gamble complies with patent laws is that it is one of the great innovators. As an internationally renowned multinational group of daily chemicals, cleaning products and food products, Procter & Gamble employs more than 8,300 researchers in 18 research and development centers around the world. They come from more than 600 different universities and research institutions. Scientists in Asia, Latin America, Europe and North America share the latest technologies and successful experiences through this vast research network to continuously develop high quality products. On October 18, 1995, the then US President Bill Clinton awarded the Procter & Gamble National Technology Medal, the highest award awarded by the United States for outstanding technical achievements. This medal fully affirms P&G's outstanding contribution to continuous innovation and improved quality of life for consumers around the world. Among the award-winning certificates, P&G's six innovative products were highlighted: 2-in-1 shampoo, super-protective women's sanitary napkins, tartar toothpaste, rayon napkins, detergents with active bleach, and ultra-thin diapers. It is the new technology and new ideas that constantly explore innovative products, and provides strong intellectual support for patent application, thus ensuring a steady stream of applications and a relatively stable authorization rate and survival rate. Complying with patent laws is therefore not a big issue for Procter and Gamble Company (Parraguez 2009, p.1).

3. Firstly, it is important to admit that Australia, through different treaties, agreements and conventions, aspire to ensure that every law-abiding company gets the best opportunity to operate optimally. Australia adheres to her treaties and conventions strictly. Australia has developed detailed and operative laws and regulations in terms of patents, trademarks, industrial copyrights, and corporate trade secrets. The system of intellectual property protection systems is very sound. It can strictly protect the interests of those who are interested, and does not allow violations of the rights and interests of others. The whole society and all citizens have a strong awareness of intellectual property protection. Once there is a violation of the law, the media is quickly exposed and the relevant agencies will immediately deal with it. The common people will never buy goods suspected of infringement, and it is difficult to see unbranded goods on the market. Today, Australia emphasizes the protection of intellectual property rights. Australia's practices and experience in intellectual property protection deserve our learning and reference. In fact, the Australian Federal Institute of International Cooperation launches a special training program – Australian Intellectual Property Protection and Corporate Patent Management Training project. According to Steiner (2013 p. 523) Procter & Gamble and its laundry detergents have ebbed and flowed with the performance of its management from the FTC's investigation of the laundry detergent industry (1973-80) to the present. Due to firm adherence to trade laws, Australia has a number of conventions, treaties and agreements designed to facilitate smooth running of the companies (both national and multinational) and to prevent legal issues.

One of the trade agreements in Australia is the Tax Transparency Guidelines (TTC). Australian government, through the Inland Revenue Department expect every multinational company to sign the tax bureau's tax transparency guidelines. According to these guidelines, if these companies suspected of tax fraud refuse to pay the full amount of tax, the government will resort to the federal courts and must recover the taxes they owe to the Australian people. Several multinational giants have not signed the tax bureau's tax transparency guidelines. The Tax Transparency Guidelines (TTC) were first introduced in the 2015 federal budget as a supplement to Australia's current tax transparency measures. Under current tax laws, companies with annual turnover between A$ and A$500 million need only provide regular tax details and comments on their taxation, but those with annual incomes of more than A$500 million must provide more detailed information. The Inland Revenue Department encourages companies, especially large multinational corporations, to comply with this standard to increase tax transparency and publicly disclose tax matters. Large business lobbying groups such as the Australian Business Council (BCA) and the Corporate Taxation Association (CTA) have advocated that their member companies can sign the Code. The Australian Business Council (BCA) stated that companies voluntarily publishing more information can help avoid the legal risks of routine inspections. Procter and Gamble Company may be slightly affected by this agreement. This is because Procter and Gamble is one of the companies with tax haven in Cayman island (Citizens for Tax Justice, 2015 p. 3). It has been established that most international companies register their subsidiary companies in Cayman Islands, and then to control domestic assets through overseas company acquisitions, equity swaps, etc., and then obtain overseas listings. large companies such as Coca-Cola, Procter & Gamble, Intel, and Oracle in the United States are all registered in the Cayman company, and through a series of complicated financial paths, they transfer profits to these subsidiaries, thereby avoiding up to 35% of US corporate income tax. Recently, according to a report released by the international charity organization Oxfam, 50 multinational giants including Apple, Microsoft and Pfizer have hidden 1.6 trillion US dollars in tax havens around the world. Given that Procter and Gamble is among these companies, it is likely to experience challenges in response to the new tax guidelines (Citizens for Tax Justice, 2015 p. 3).

It is also important to note that Australia is a member of the Paris Convention for the Protection of Industrial Property, which was signed in Paris on March 20, 1883 and entered into force on July 7, 1884 (Van Caenegem, 2010, p.13). The object of adjustment of the Paris Convention is industrial property rights. Together with the Berne Convention for the Protection of Literary and Artistic Works, it constitutes two "basic laws" for protecting the "hard power" of the economy and the "soft power" of culture. As early as 1925, Australia joined the Paris Convention. In accordance with the regulations, applicants apply for intellectual property protection in one Contracting State and priority in other Contracting States, and Australia applies the principle of reciprocity to priority. The date of the patent priority is 12 months. Priority gives important exceptions to the general principle that patents are granted only to the first applicant. This convention will not have adverse effect on Procter and Gamble.

However, it is important to note that the convention is linked to the Patent Cooperation Treaty (PCT). This treaty is a special agreement that is only open to members of the Paris Convention under the Paris Convention. The PCT does not “authorize international patents”, that is, the tasks and responsibilities of granting patents can still only be held by the patent offices of the countries that seek patent protection or the institutions that exercise their powers. Australia is a party to the PCT (Blakeney, 2012, p. 77). According to the PCT, a resident or national of a Contracting State wants to obtain patent protection in other Contracting States in addition to its domestic application, and to obtain transnational protection by filing an application, and to apply to the International Bureau of the World Intellectual Property Organization or the Patent Office of the State Party to which the applicant is located (Blakeney, 2012, p. 98). The treaty would not be an obstacle to Procter and Gamble.

References:

Blakeney, M (2012) Intellectual property enforcement: a commentary on the anti-counterfeiting trade agreement (ACTA), Cheltenham, U.K., Edward Elgar

Citizens for Tax Justice (2013) ‘Apple is not alone’, CTJ, 18 August. Available from: https://ctj.org/ctjreports/2013/06/apple_is_not_alone.php [ Accessed 25 August 2018].

Citizens for Tax Justice (2015) ‘Dozens of Companies Admit Using Tax Havens: Hundreds More Likely Do the Same, Avoiding $600 Billion in U.S. Taxes’, CTJ, 7 Jan. Available from: https://www.ctj.org/pdf/pre0415.pdf [ Accessed 25 August 2018].

Parraguez, P (2009) Article of Connect and Develop, P&G?s big stake. Feb 17. Available from: ,https://www.openinnovate.co.uk/pgs-connect-and-develop/ [ Accessed 25 August 2018].

Procter & Gamble Australia Pty Limited (2017). Procter & Gamble Australia Pty Limited - Premium Company Report Australia’, IBIS world. September 8. Available from: https://www.ibisworld.com.au/australian-company-research-reports/wholesale-trade/procter-gamble-australia-pty-limited-company.html [ Accessed 25 August 2018].

Van Caenegem, W (2010) Intellectual property law in Australia, Alphen aan den Rijn, Kluwer Law International.

Jones D (2017). ‘Recent Developments in Transfer Pricing and the Taxation of Multinational Companies in Australia’, White Paper, December 15. Available from: https://www.jonesday.com/files/upload/Recent%20Developments%20in%20Transfer%20Pricing.pdf [ Accessed 25 August 2018].

Reuters, (2014) ‘Procter & Gamble Accused of Tax Fraud by Argentina’, The New York Times. July 14. Available from:https://www.nytimes.com/2014/11/04/business/procter-gamble-accused-of-tax-fraud-by-argentina.html. [ Accessed 25 August 2018].Bottom of Form

Steiner, RL (2013) 'Management, market power, and antitrust--Procter & Gamble and the U.S. laundry detergent industry', Antitrust Bulletin, 58, 2/3, pp. 521-573, Academic Search Premier, EBSCOhost, [Accessed 28 August 2018].