May 9, 2014

The net closes, albeit slowly, on tax-dodging tech giants

There's been plenty of media fuss about how little tax tech giants like Google pay in Australia. The problem goes wider, and yes, there are efforts to address it.

Paddy Manning

Crikey business editor

Senior Australian government sources say it will prove to be the biggest tax lurk in history; the erosion of the global tax base by the giants of the digital economy, the likes of Google and Apple, Microsoft and Facebook. Australia, under long-term budget pressure due to the ageing population, is arguably missing out on hundreds of millions of dollars in tax revenue each year. It's worth noting, however, that there are few reliable estimates, and a Treasury paper last year questioned whether there were yet widespread losses due to so-called "base erosion and profit shifting" (BEPS) here. Certainly the playing field is uneven for the media industry, which, amid a painful transformation, is crying foul as tech giants hoover up more and more advertising revenue -- billionaire Kerry Stokes, for example, demanded federal government action, saying Google was "a fine company doing a good job, except I would like them to pay their fair share of tax''. Last week we learnt Google, with some 900 employees here, paid just under $500,000 in income tax, after deductions, in 2013. That's on reported profits in Australia of some $47 million. Escaping the tax net completely was the vast bulk of Google's local business, an estimated $2 billion of sales to Australian customers by Google's online advertising business Adwords, a registered business name of a private Singapore company, Google Asia Pacific Pty Ltd. That's wholly owned by Ireland-based Google Ireland Holdings. Crikey asked Singapore authorities how much tax Google paid in Singapore. We'll keep you posted. Adwords' Australian revenue is estimated, because Google does not release sales figures, but it's said to have a 95% share of the search and online directory market here, which monitors IAB put at $2.1 billion last year and rising ...

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6 thoughts on “The net closes, albeit slowly, on tax-dodging tech giants

  1. Andybob

    A ‘bit’ tax might be part of a solution. Tax liability being the greater of conventional liability and ‘bit tax’ liability. Pitch the bit tax at rates that capture very large bandwidth internet businesses, without adding too greatly to lesser bandwidth businesses.

  2. Jakob Landis

    We deal with profit shifting in the mining industry by a royalty on the gross value of production (or some near equivalent).

    Surely the same can be done for internet businesses!

  3. Reechard

    How hard is it???
    A company pays the taxes of the country where it makes the money. It is not rocket science and no amount of legal sophistry and obfuscation should be allowed to change that.

  4. Gavin Moodie

    There are many ways of shifting taxes between jurisdictions. An obvious ploy is transfer pricing. For example, a company could sell a product in Australia for $1,000 but pay its overseas parent $900 for the product and another $100 for licence fees.

    Follow Henry and start taxing land properly: it distorts economic activity much less than other taxes, it is reasonably efficient to collect and it is hard to offshore.

  5. robert roberts

    A “bit tax” could be seen as a turnover tax on digital traffic. Much like the gasoline tax. Doesn’t deal with the value of the transaction but just the amount of bits. And, yes, the high bandwidth users could carry a higher bit rate.

    In fact it has been argued for years that we need new taxes for the new economy and the bit tax is one such example.

  6. J Foss

    If the corporate service provider such as google can’t be made to pay tax then tax the person buying the advertising by disallowing as a tax deduction any money spent with companies that use transfer pricing. That should focus their minds.

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