Google pays no Oz tax on $940m ad sales? How?
Yesterday more than 1000 Australian workers (including contractors) lost their jobs when transport company 1st Fleet shut down owing their workers various entitlements including unpaid superannuation guarantee payments and in debt to the tax office for millions of dollars in unpaid tax. Paul Hogan and John Cornell this week settled their tax problems with the ATO after the government spent an estimated $20 million dollars pursuing the entertainment pair for eight years. In July, the government will launch a blitzkrieg of new laws on 60 occupations associated with the building industry to stop tax evasion and ensure tradies pay every cent of tax they owe.
And yesterday we learned Google Australia has paid no tax on an estimated $940 million in web search advertising revenue generated locally, instead routing its Australian online ad sales through an Irish subsidiary, Google Ireland. Without a big tax expense, I’m sure Google will be able to keep its 400 Aussie employees’ entitlements up to date.
So is the Google tax arrangement legal? Crikey understands the company, which tells employees “don’t be evil” in its code of conduct, was granted approval from the US Internal Revenue Service in 2006 for its international tax arrangements so everything is above board.
The company utilises three tax planning arrangements to lower its Australian and international tax rates by $3 billion dollars annually known as the “Double Irish”, “Dutch Sandwich” and “transfer pricing” (see how it works here).
In a nutshell, the tax arrangements allow paper transactions among corporate subsidiaries that allocate income to tax havens while attributing expenses to higher-tax countries such as Australia.
Most Australians would view these arrangements as outrageous as they have their tax deducted from pay-packets each week while small businesses are overburdened with tax compliance red tape.
So what is the Gillard government doing about this? It announced last November an intention to reform the transfer pricing laws. Bill Shorten said: “The government is taking action to ensure multinationals pay the correct amount of tax in Australia on their income and to provide certainty on our transfer pricing laws.”
In March it released an exposure draft of the proposed amendments. The explanatory material that accompanied the draft says: “These amendments have been introduced to ensure the parliament’s intention is effective, that the Australian revenue is not compromised, and that international consistency is maintained with our tax treaty partners.”
Thanks Chris, this kind of thing needs to be publicised so that consumers can make a decision to boycott companies that engage in it. Time to consider a new search engine.
Its easy, when you pay for Google Adwords etc, you get an $A invoice from Google Ireland (so no GST etc).
They dont do the transaction “here”. The Government needs to cmalp down on this.
Same with iTunes, yed we pay speial inflated prices, when the transaction s done offshore, in Simgapore I believe.
Nooooooo…..
No more Googling for me.
All multinationals engage in transfer pricing practices to reduce taxes.
The long term answer is to get rid of corporate taxes entirely - as they really are just hidden taxes on the end consumer - and rely instead on a mix of transparent consumption taxes and regular income taxes.
But that’s probably a little radical for the average Crikey reader.
We consume - we pay consumption tax.
We get income - we pay income tax.
Business passes consumption taxes onto us.
Business routes income where it wants.
There are plenty of things we could do to ensure business pays it’s sharee
Running up the white flag is not the best option.
Abbott won’t do anything.
Business can never pays it’s “share” - it simply charges the consumer extra for the taxes.
Eventually the profits from a business are paid to a human - who can be taxed on the profits or capital gain via a regular income tax (flat or progressive)
A properly applied consumption tax can be both a VAT tax and an efficiency tax. The current arrangements for GST in Australia - as a rebatable expense - means it is neither during the Business to Business phase of the economic chain.
The one country that has waged an endless battle against transfer pricing arrangements is Japan.
Simon Mansfield, you make it sound as though ‘business’ can charge whatever it likes for products and services, including adding whatever taxes and charges it is obliged to pay. However, the basic price of the service, without the add-ons, is where the business wins the deal. If you aren’t competing on price you won’t have customers to charge the extra add-ons. This is where business pays its share.
The problem is that it’s really simple for a human to relocate themselves (or “themselves”) somewhere that they don’t have to pay any tax or, nearly as bad, that they don’t have to pay tax where they’re doing business.
How could Google do such a thing??? Oh well, I suppose I will have to use Yahoo or one of the other search engines that pay their taxes in Australia.
At least I think they do
On a more serious note, taxation in our now burgeoning free trade economy needs a good look at. I, like many others purchase huge amounts off the net, also avoiding tax when it comes from overseas. If we don’t want the lifestyle of a third world country, we need to keep paying first world taxes. After all, they only pay for things like education, hospitals, roads etc. that have all had their funding cut so income and company tax can fall each election.
I wouldn’t let it weigh too heavily on your conscience. The GST you’re not paying by buying from foreign websites is a pittance in proportion to the whole tax take.
To the best of my knowledge, Ebay Australia still has no ABN and does
not charge GST on it’s services, or pay Australian tax on it’s rather substantial
Australian income either…..
Thanks for the article as there is just not enough awareness of these companies actions.
Yes Ebay is the same as sellers are invoiced directly from Switzerland.
Ebay also owns Gumtree so i’d expect a similar arrangement.
The new one seems to be Godaddy. You may have seen their recent ads on tv - i’d ask how much revenue the ATO is collecting from sales which occur directly on a us based web site.
I think of these corporations as big international vacuum cleaners sucking money out of this country.
How do the staff feel when they pay tax yet their employers don’t ?
Surely the company can throw in a few bucks to help fix our roads and hospitals -
it’s not as though they can’t afford it !
Hugh - please tell me who is paying the taxes of companies - if it not their customers through the prices a company charges for its goods and services.
DR S. - Personal tax avoidance through overseas domicile has collapsed. There is virtually no where to hide anymore and income deemed to have been earned elsewhere is in most cases taxable in Australia. There are exceptions under various international tax treaties - but that’s only where you have paid taxes already at a reasonable level - ie not at 5% levels - but more like 20% plus levels.
Company taxes are a hidden tax on consumers.
The overseas Internet GST tax issue is a growing problem and will eventually be tightened up. My guess is that the GST free level will come down to 200 dollars or so. Probably not next year as the government will still be trying to chase votes - but the first LNP budget will shut it down first chance they get.
I know DR S does not agree with this - but that won’t make the slightest difference to what a future LNP government does.
So virtually nowhere, or really nowhere ?
The point is that it’s trivial for any high net worth individual to relocate themselves wherever they need to so as to minimise their tax obligations. If they never earn income in Australia, and are not an Australian tax resident, then they never need to pay tax in Australia. Heck, even if you’re a relatively mundane mid-level executive or technical specialist on “only” a couple of hundred grand a year it’s not particularly hard to do if you work for a multinational. I’d be surprised if they don’t hand out information packs for all their “globetrotting” employees on how to minimise tax like this.
It is a struggle to see how - all else being equal - the overall impact on net prices between taxing companies vs taxing their employees would be significantly different.
No, the greedy rip-off merchants in Australian retail and imports are the growing problem. Complaining about the GST threshold is just another example of their rent-seeking.
Despite the delusional ranting of Gerry Harvey, et al, no-one is buying CDs and clothes from overseas to save a measly few percent.
I wouldn’t be entirely surprised if the LNP lowered the GST-free threshold - they are, after all, the party of supporting big business. However, I’d never entertain the fantasy it would be to try and raise more tax revenue when it’s already been shown that the cost would far exceed any additional income. It would simply be to make buying from overseas less attractive by using the additional enforcement overheads so customs processing times increase from days to weeks or months. More right-wing crony capitalism, and the Australian taxpayer left not only effectively subsidising poorly run businesses, but still being ripped off by them.