The Senate Economics References Committee inquiry into corporate tax avoidance has been running since 2 October 2014, whilst there had been much public concern about the amount of tax, and particularly Australian tax, various multinational household names paid – names like Apple, Google, Amazon, Microsoft, IBM and others has generated much publicity.
Though it was only one of many past meetings, there was much interest in a public meeting in Sydney on 22 August 2017, in that the same cast of household names, along with the ATO, came to report progress in redeeming their tax situation, and there had been quite a lot. For instance, the Financial Review covered it.
The Transcript is available here. Points of note include the following.
- Apple had been audited for about 5 years and Apple Pty Ltd said the company had “confirmation from the ATO that all our corporate taxes are up-to-date and that we will continue to engage openly with the ATO in relation to our current and future taxes”. Apple said it did not need to make any changes to its business model as a result of the MAAL. Mr King said Apple buys, distributes and sells Apple’s products to resellers and customers, “the revenue from which is all recorded locally in our accounts”.
- Microsoft Corporation, told the Committee that “earlier this year we changed the way we sell and recognise revenue in four major countries, including Australia, with local revenue expenses now reported in country. This is a simpler approach that can help Microsoft operate more efficiently.” Mr Daniel Goff, Corporate Vice President WorldWide Tax, said that about $1.8 billion of Australian source revenue is booked in Singapore and of that, $740 million is booked as revenue in Australia.
- Vice President of Tax and Treasury in Facebook Inc.: Mr Ted Price, told the hearing that the company has made changes to its selling structure in Australia so that, beginning in January 2016, revenue from the advertisers supported by the teams in our Sydney and Melbourne offices is now booked by our Australian subsidiary. For Facebook, its 3 main expenditures are R&D, building the advertising algorithms and sales and marketing. The company’s effective global tax rate for 2016 was 18.4%. Under the MAAL, sales related to Australian staff or entities are booked through Facebook Australia.
- Google has 1,300 employees in Australia and Google Australia generated more than $1 billion in revenue last year. Mr Damon Richardson, Director, International Tax, Google, told the Committee that the company’s global tax bill in 2016 was US$4.67 billion on profits of US$24.15 billion. “This means 19% of our total global profit was due to governments in the form of corporate income tax last year, after accounting for incentives applicable to activity like research and development…. Google Australia … earned more than $1 billion in revenue in 2016. We earned a profit of A$121 million on that revenue, incurring an income tax expense of $33 million. So we pay about 27% of our profit here in tax.” In response to the MAAL, in 2016, Mr Richardson said Google restructured its business, devolving responsibility for entering into contracts with customers into the Australian entity. “This means that when an Australian customer signs up to buy advertising on Google they buy it from Google Australia. Google Australia earns the revenue from that sale and pays tax on profits it earns from that transaction.”
- ATO: The Tax Commissioner said that, since the ATO initiated its focus on multinational companies, it has completed over 1,000 reviews and audits in a range of sectors. A number of entities are on the public record as disclosing their assessments or adjustments as a result of their interactions with the ATO, including BHP, Crown, Singtel and Rio Tinto. “This work has raised over $4 billion in total assessments against large public groups and multinationals in the last financial year alone, with almost $2.9 billion raised from just 7 very large multinational companies. Also, of this $4 billion total, more than $1 billion was raised from 10 audits of companies as part of our focus on the e-commerce sector. For one high-profile taxpayer, our compliance activities resulted in a fivefold increase in the amount of tax they pay. Outside of these audits, we have also reviewed 221 companies, with at least 32 of those seeking to restructure their operations as a result of our enforcement of the multinational anti-avoidance legislation, the MAAL. We have a further 75 companies still under audit, and a number of companies, notably Google and Facebook, have stated publicly that they have restructured their Australian operations.” The Commissioner said the ATO anticipates that sales returned in Australia as a result of the MAAL will amount to over $7 billion each year. He also said that the practical guidance on related party financing the ATO issued in mid-May has seen the ATO move at least $42 billion of corporate debt arrangements into the less risky green zone as a result of this active engagement on this topic.
[FJM; LTN 160, 23/8/17; TM August]