Each week, The Ethics Centre’s executive director Dr Simon Longstaff will be answering your ethics questions. This week:
If multinational tech platforms paid more tax on the revenues they made in Australia, would they be in a better moral position to resist government attempts to force them to pay a ‘license fee’ to news media?
There are a couple of ways to look at this question: one as a matter of principle, the other through the lens of prudence. In terms of principle, I think that we should treat the issues of tax and the proposed “licence fee” separately. This is because each issue rests on its own distinct ethical foundations.
In the case of tax, all citizens (including corporate citizens) have an obligation to contribute to the cost of funding the public goods provided by the state. For example, a company like Google shares in the benefits of a society that is healthy, well educated, peaceful and effectively governed under the rule of law. All who draw on and benefit from such public goods should contribute to the cost of their generation and maintenance.
Instinctively, most citizens believe that we should each pay our “fair share” of tax. However, that belief is at odds with the fact that our formal obligation is not to pay a fair amount of tax but, instead, to pay only the amount of tax due to be paid as defined by law.
Most of us don’t have much choice about how we discharge this formal obligation; our taxes are automatically remitted to the Australian Taxation Office (ATO) by our employers. However, most corporations, including Google, have considerable latitude when calculating the tax they think is due.
For example, corporations have a clear choice about the extent to which they move right to the edge of what the law allows: “avoiding” (which is legal) but not “evading” (which is illegal) tax obligations that, to an ordinary person, might seem to be due.
It is this approach to “tax planning” that allows Google to earn revenue, in Australia, of $4.3 billion yet only pay tax of around $100 million. Google has a perfectly rational argument for this — one that relies on the fact that the company should only pay tax that is legally due.
However, as is the case with other multinational corporations who make similar calculations, Google’s position fails the “pub test” in that it seems to be unfair?
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Why? Because it seems inherently improbable (and improper) that such massive local revenue should flow offshore to benefit people who contribute nothing to maintain the society that has made such a financial windfall possible.
Now, the issue of Google paying a “licence fee” to the creators of news content is somewhat different.
In general, you’d think it a reasonable expectation that a company pay for the inputs it draws on to make a profit.
After all, businesses pay for labour inputs (wages), for financial inputs (interest and dividends), for material inputs (cash outlays) etc. So, why not pay for content that is derived from other sources? Of course, what’s good for the goose should be good for the gander.
Companies like News Corp and Nine should also be asked if they pay for all of the inputs that they draw on to make a profit. For example, do they pay for all published opinion pieces? However, in general, it seems reasonable to expect that Google (and other companies) should pay for what they derive from others.
Of course, Google does not agree. The company is especially opposed to Australian proposals because, if adopted, they will set a precedent that other countries are likely to follow.
It’s this consideration that leads us to look at the issue through the lens of prudence.
Governments (of all political stripes) are especially attentive to the demands of the media. What News Corp and co want, they usually get… unless it is opposed by the one force that wields even greater influence over the judgement of politicians: the force of public opinion.
So, if Google wishes to prevent or limit the levying of a “licence fee”, it’s most potent ally might have been the Australian public.
However, the electorate is unlikely to back the interests of a company that is perceived not to back the interests of the people whose taxes provide the infrastructure on which Google depends for the enrichment of its overseas owners.
This is where principle and prudence align. Google (and other multinational corporations) should pay taxes that amount to a fair contribution to the maintenance of public goods. Had it done so, then Google might have many more friends to stand beside it in the battle with other powerful corporations like News Corp and Nine.
I’m not sure if arguments from principle or prudence will really carry much weight. Perhaps the situation needs to be expressed in the language of financial self-interest. Compared to a licence fee (which might be as high as $1 billion per annum), would a less aggressive approach to tax planning have have been a good investment?
Dr Simon Longstaff is executive director of The Ethics Centre. If you need support in addressing an issue or dilemma you can make an ethi-call appointment at: www.ethics.org.au.
Please let us know if you have a question for Simon. We will select one question for him to respond to each week.