Governments always want to maximise the amount of money they bring in through taxation, and businesses naturally want to minimise their liabilities. In Australia, the problems around corporate tax are enough that a Senate investigation into the issue is gathering steam. Some of the largest tech companies in Australia will be appearing tomorrow to give evidence to a economics committee inquiry on corporate tax avoidance.
Tax image via Shutterstock
Last year Apple paid a small $80m tax on $6b revenue, and paid $193m tax on $27b revenue in the year before that. This procedure isn't illegal, and operates entirely within Australia's existing tax law structure, but the morally grey process of "profit shifting" — where different arms of multinational companies move funds around through complex payments to each other — can reduce that company's Australian tax exposure to relatively small amounts that aren't necessarily representative of its Australian business.
Many large companies and organisations within Australia have made submissions to the inquiry, including Macquarie Group, Toll, BHP Billiton, Fortescue Metals and ASIC itself. The local arms of multinational tech companies are also in the spotlight, with Google, IBM, Microsoft and Apple all making statements.
Here's a summary of what Google's submission says:
Governments around the world compete for foreign investment to encourage local growth, development and jobs. They regularly use tax incentives to attract this kind of overseas investment to which companies respond. Globalisation has changed the nature of the world economy, and created a new context for this kind of competition between countries, which is why the OECD is looking at the implications for existing international tax rules. We support this process.
Today’s structures have grown up over many years and everyone would benefit from a simpler, more transparent tax system. We believe that coordination at the G20, rather than unilateral action by individual countries, is the best way to do this while maintaining certainty and avoiding government to government tax disputes.
Here's the cut and thrust of Apple's submission:
"APL has had longstanding operations in Australia as a distributor of Apple products. More recently, operations have expanded to include Apple’s retail stores, online store and iTunes business. The bulk of APL’s revenue is derived from the distribution of Apple finished goods (iPhones, iPads, iPods and Mac Computers) to Australian businesses and consumers. APL purchases those finished goods from its offshore affiliates at an arm’s length price, resulting in profits commensurate with the value of APL’s activities in Australia.
While we are not in a position to comment on the adequacy of Australia’s current tax laws, Apple supports efforts to revisit international tax policies in multinational frameworks and forums."
Here's what Microsoft's submission has to say:
Microsoft’s local subsidiaries such as Microsoft Australia receive an arm’s length transfer price paid by the [regional operating centre] which takes into consideration the functions performed, and the risks assumed by each entity. Local entities are generally required to act under the direction of Microsoft with regards to marketing campaigns, pricing, terms and conditions and policies and procedures. The local subsidiaries provide very limited input into the creation of marketing or technology intangibles embodied in the material provided by Microsoft.
Microsoft complies with the tax rules in Australia and in each jurisdiction in which it operates and pays billions of dollars each year in total taxes, including US federal, state, local and foreign taxes. The tax rules that we follow in the US generally provide for the deferral of US tax on the earnings of foreign subsidiaries until those earnings are repatriated in the form of dividends.
And here's IBM's submission:
Over the last five completed income years (2010 to 2014 inclusive), IBM Australia has had an average effective tax rate of 27%, which approximates Australia's corporate income tax rate of 30%. IBM Australia has calculated its effective tax rate based upon the quotient of income tax paid and accounting profit before tax.
IBM Australia has a demonstrated commitment to compliance with Australian tax laws and in acknowledgement of its position as a large taxpayer in Australia, conducts its tax affairs with the Australian Taxation Office (ATO) in an open and transparent manner. IBM Australia implements that commitment through reliance on existing ATO programs designed to minimize tax disputes and encourage transparency. In IBM Australia's view, experience with these programs has been positive, and effective in fostering a continuing relationship of transparency with the ATO while providing certainty to IBM Australia.
It's worth reading each submission; there's a lot of nuance in there about each of those companies employing thousands of Australians and bringing valuable services to the country. Here are the terms of reference of the inquiry into corporate tax avoidance:
Tax avoidance and aggressive minimisation by corporations registered in Australia and multinational corporations operating in Australia, with specific reference to:
- the adequacy of Australia’s current laws;
- any need for greater transparency to deter tax avoidance and provide assurance that all companies are complying fully with Australia’s tax laws;
- the broader economic impacts of this behaviour, beyond the direct effect on government revenue;
- the opportunities to collaborate internationally and/or act unilaterally to address the problem;
- the performance and capability of the Australian Taxation Office (ATO) to investigate and launch litigation, in the wake of drastic budget cuts to staffing numbers;
- the role and performance of the Australian Securities and Investments Commission in working with corporations and supporting the ATO to protect public revenue;
- any relevant recommendations or issues arising from the Government’s White Paper process on the ‘Reform of Australia’s Tax System’; and
- any other related matters.
The hearings start tomorrow, with a session in Sydney followed the day after by one in Canberra and one in Melbourne. The Senate Economics References Committee has been tasked to return its report to parliament by the first sitting day in June this year.