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  • Featured, Internet, News - Written by on Tuesday, May 22, 2012 12:38 - 19 Comments

    Turnbull concerned by Google, Amazon tax offshoring

    news International technology companies such as Google, Facebook and Amazon may not be paying their fair share of Australian tax, Shadow Communications Minister Malcolm Turnbull said this week, with local tax laws not having caught up yet with the challenges of the digital environment.

    In early May, Google Australia revealed that it expected to pay just $74,000 in corporate income tax for the 2011 calendar year in Australia, off claimed local revenues of $201 million, despite the fact that industry estimates have continually pegged the search giant’s Australian income at closer to $1 billion. The remainder of the company’s incoming is believed to be funnelled through its Irish subsidiary. Ireland is believed to offer Google a more favourable tax environment for its global revenues than countries such as Australia or the US.

    In an article published on his website late yesterday, Turnbull said an important long-term issue in terms of Australian public policy was “the erosion of our tax base due to the growing significant of online commerce and offshore-domiciled service providers in many sectors and markets”. “Many transactions which previously generated economic activity and tax revenue in Australia no longer do so,” the Liberal MP wrote.

    “An advertisement on a Google search page may be hosted by a server located overseas, and the advertisement may be sold by a company located in Ireland – but nonetheless from the Australian user’s point of view it is as “present” on his device as an advertisement on The Australian or the Sydney Morning Herald website. Equally the largest seller of books to Australians is Amazon – yet there is no GST levied on those sales, and no Australian tax is paid on the profits earned from them, as opposed to the taxes once paid by the Australian-based book sellers Amazon has, in many cases, put out of business.”

    Turnbull said debate currently underway in Europe over the issue illustrated that there was “no quick fix” to the issue, or “indeed any broadly agreed consensus as yet that a fix is necessary”. Also, the Liberal MP added, he wasn’t as yet proposing any specific change to existing tax laws, flagging a shift in Coalition policy or even suggesting that Google’s activities were illegal. However, Turnbull said, there was a question about whether current taxation law was adequate in the new, converging digital world — and broader issues were at play.

    “In the case of advertising dollars once spent at Australian media outlets but now increasingly diverted abroad, a diminished local tax base is only part of the challenge created by this shift,” he said. “It also reduces the resources available for gathering and publishing news, which reduces the media’s ability to hold political, corporate or institutional interests to account. And it adds to pressure for consolidation. Scrutiny of powerful interests by a robust, fearless, professional and diverse media is fundamental to the operation of any democracy.”

    “All of this is entangled with free trade issues and Australia is by no means unique,” the MP added. “Just about every country in the world, or at least those with open access to the Internet, is facing challenges and questions of this kind.” Turnbull linked the issue to several inquiries which the Federal Labor Government has recently held into the future of the media, stating that neither inquiry had bothered to examine these sorts of taxation issues in any depth, “despite their critical importance to the financial viability of our publishers and broadcasters of news, and the threat to Australia’s tax base”.

    The way that Google Australia accounts for its revenue does not appear to be consistent with the way other major technology companies account for their revenue in Australia.

    In January, Apple, a major rival of Google, published its own financial statements for its 2011 financial year, noting that it made $4.88 billion from its Australian division in the year to 24 September 2011. The company made $190 million in local profits, and paid $94 million in tax in Australia. IBM Australia also filed its financial results over the past several weeks. The company made local revenues of $4.5 billion, with Australian profits being $428 million, and taxation taking a $119 million chunk out of IBM’s pocket.

    In January this year, Mashable reported that Apple maintained much of its profits in so-called “offshore tax havens” which allowed it to stop the US Government from taxing it to the full extent possible in its home country.

    In 2010, The Huffington Post wrote about IBM’s taxation purposes: “In December 2008, the Government Accounting Office reported that 83 of the 100 largest publicly-traded companies in the country — including AT&T, Chevron, IBM, American Express, GE, Boeing, Dow, and AIG — had subsidiaries in tax havens — or, as the corporate class comically calls them, “financial privacy jurisdictions.'”

    However, in Australia, neither Apple nor IBM appear to use the same technique as Google with respect to tax accounting. The pair’s financial statements do not contain references to similar international subsidiaries in locations such as Ireland that Google Australia’s do, and both pay significantly more corporate income tax in Australia.

    opinion/analysis
    Turnbull’s approach here is characteristic of his much wider approach to policy formation. In short, he reads widely about international affairs in his portfolio, consults with key Australian stakeholders, and attempts to discern how the global experience can be translated into solid Australian policy, with local expertise and knowledge. In theory, this is the right approach, and I wish more Australian politicians would take it. However, in this sort of situation, I would have to say that it’s clear that Turnbull is taking the wrong approach on this issue. Why do I think this?

    Firstly, it’s important to understand that the Federal political and media arena is currently a nightmarish, populist bullpen, where supposedly mature figures from both sides of politics are constantly backstabbing each other and feverishly checking the daily opinion polls in order to ascertain whether their latest weasel moves have had any impact on moving the needle of political opinion. Turnbull’s attempts to interject rational, reasoned debate into this raucous cacophony come across as a relic of a bygone era. Sure, many of us in the media and political spheres would dearly love to see that era come back, but frankly it doesn’t look like that will happen any time soon. In short, Turnbull’s intellectual consideration of this debate needs to get a bit more emotional oomph to make any headway.

    If Turnbull really wants to tackle the issue of Australian taxes going offshore (as they very clearly are), he needs to make this a populist issue. Instead of conducting calm interviews with the Financial Review and issuing rational statements raising questions on the issue, he should be standing up in the House of Representatives and lambasting Google, Facebook and Amazon for their ridiculously transparent attempts at avoiding their Australian tax obligations. He should be dragging these companies before parliamentary inquiries on the matter. And he should be raising these issues with populist media outlets such as the Daily Telegraph and commercial radio stations.

    Only then will it become the sort of national issue it could be.

    Why do I know that Turnbull should be doing these things? Because we’ve seen these tactics succeed spectacularly with Labor backbencher Ed Husic, who for six months has been pushing a very similar popular bandwagon: Local pricing markups on technology goods and services in Australia.

    While Turnbull is beating around the bush on transfer pricing and being featured in calm editorials in the AFR, Husic already has his parliamentary inquiry being set up on the matter; he already has national press coverage; and he already has local technology vendors running scared. If Turnbull is at all serious about the taxation issue, he should be aiming for the same outcome and using every weapon at his disposal. To do anything less is to reveal that he wasn’t truly serious about it at all. Right now, light touches get nowhere in Australia’s tragically dumbed down political discourse. Those who wish to enact serious change need to apply the sledgehammer every chance they get.

    Image credit: Office of Malcolm Turnbull

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    19 Comments

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    1. seven_tech
      Posted 22/05/2012 at 2:42 pm | Permalink |

      I like you’re reasoning Renai. I DON’T like that I agree it seems to be correct.

      Turnbull has been the sort of politician I could tolerate and even enjoy listening to and debating with on topics. He presents, as you say, calm, rational and straightforward questions/answers even in the midst of hair pulling and back stabbing (some exceptions with the NBN as we know….). But as you say, in our world of popularist media, this doesn’t gain any traction.

      It sickens me that we have to deal with this sort of media and politicising- but I think you’re right. If Turnbull wants to bring this to the public’s attention, and he should because it’s not right what these companies are doing, he’s going to have to start yelling, preferably King Kong style from the rooftops….

      • Posted 22/05/2012 at 7:14 pm | Permalink |

        It also sickens me that this is the way of the world. I have literally stopped watching TV and unsubscribed from many of the Australian news/opinion sites I used to read, over the past several months. The whole situation is just poisonous and runs contrary to any ideal of clear and rational thinking.

        It’s as if Australia has become infected by the US political virus, in which nothing matters except politics — not truth, not good policy, not honour — nothing.

        • seven_tech
          Posted 24/05/2012 at 3:33 pm | Permalink |

          http://www.abc.net.au/news/2012-05-10/green-public-discussion/4002222

          This sums it up for today’s politics. 75% of the people who discuss a topic have an opinion, backed with little or no knowledge on the subject. We’ve gotten this on the Carbon Tax, we’ve gotten it on the NBN and Turnbull wont be able to get anywhere unless he pandas to these people.

          Politics today is not so much skilled maneuvering and strategy as shouting loudly enough that your opponent is a moron, as most people wouldn’t look up the facts anyway…..

    2. Gordon Edwards
      Posted 22/05/2012 at 6:20 pm | Permalink |

      To do anything less is to reveal that he wasn’t truly serious about it at all.

      I’ve always wondered why Turnbull got into politics. IIRC, he is/was a very successful business-person, and the only thing I can think of to explain his current choice of income is an accidental brain amputation.

      Our problem is that Turnbull is not Labor, and he is not Ed Husic. Turnbull chose the Liberal Party, and conciously adopted — or at least chose to support — a nihilistic hyper-Luddite approach to governance.

      Turnbull cannot do a Husic without betraying his Party Leader. Maybe he is serious, but not about rocking the Party Boat. I’m actually surprised he’s gone this far. Now, if Malcolm can show he has the numbers… and maybe, just maybe, he could possibly get them if Julia sees off Tony next year… then we could expect to see some progress on the off-shore taxation front. And I could go back to voting Liberal.

      But I ain’t holding my breath.

      Gordon.

      • Posted 22/05/2012 at 6:40 pm | Permalink |

        +1 Gordon. On pretty much everything.

        I’d LOVE to see Turnbull out in front taking on Labor. It’d be a sight and sound of solid leadership in politics in this country.

      • Posted 22/05/2012 at 7:12 pm | Permalink |

        I’m not holding my breath either, but I agree it would be great to see Turnbull be more active in this sense.

        I often wonder how Turnbull can stand to remain in the Liberal Party, with the bullshit and unintelligence that is emanating from that direction at the moment.

        • Gordon Edwards
          Posted 22/05/2012 at 7:58 pm | Permalink |

          …wonder how Turnbull can stand to remain in the Liberal Party…

          Nah, be reasonable here. Malcolm isn’t Chris Judd. When did you last see a high-profile party change which worked? Now if Malcolm was considering entering politics for the first time about now, then Labor would be a quite reasonable choice given the Rudd/Gillard evolution and Hawke/Keating in the distant past.

          But…

          Gordon.

          • Posted 22/05/2012 at 8:16 pm | Permalink |

            I think a lot of people would like to see him start a new, true ‘small l’ liberal/libertarian party.

            Perhaps a working title would be ‘the Future Party'; something focused on positive future change with a libertarian/capitalist bent, as opposed to the Greens, which have always had a focus on positive future change with a socialistic bent.

            • Posted 22/05/2012 at 9:56 pm | Permalink |

              I think Malcolm would be the ONLY sort of man to be able to successfully start up a group like this. He has the vision. He has the experience. And he can get the driving force.

              Now, if only the Libs lose next election, we’ll have the NBN AND maybe Turnbull will re-evaluate his party stance….

            • Alex
              Posted 22/05/2012 at 10:02 pm | Permalink |

              Problem is Renai, Labor people have seen him fudding up the NBN and said WTF, I thought he was a good Lib and the new far right Libs don’t like him, for that exact (small l Liberal) reasons…

              http://www.menzieshouse.com.au/2011/05/compassion-for-turnbull-he-just-wants-his-balls-back.html

              So who would he align with?

              • Noddy
                Posted 22/05/2012 at 11:00 pm | Permalink |

                Well Malcolm is a Liberal, where as Abbott is a conservative. Since we don’t have a Conservative party they are lumped together. In the UK it’s the Liberal party that went missing and they have the Conservative party full of liberals and conservatives.

                • Duke
                  Posted 23/05/2012 at 1:20 am | Permalink |

                  Except there are sweet fa ‘liberals’ left in Camerons haw-haw cowboys these days…

            • Gordon Edwards
              Posted 22/05/2012 at 10:16 pm | Permalink |

              something focused on positive future change…

              Well, that does include “keeping the bastards honest.” At least it would be positive. And it would be a change, if it worked.

              Sorry for the negativity, I remember the Democrats experiment.

              I think Malcolm Turnbull would serve Australia best by (if he can swing it) revitalising the Libs, perhaps picking up on Bob Menzies: “…govern for all Australians.“, which is certainly lacking in this present Parliament.

              Gordon.

    3. Gav
      Posted 23/05/2012 at 12:34 pm | Permalink |

      Renai,

      try not to open the pandora’s box that is international tax law. There are 100 years of cases that have been trying to sort thing sort of thing out.

      We cant dictate that OUR laws override other countries. Ireland is a good example, they are effectively a tax haven thanks to very generous company tax laws, balanced out in other ways. Dont ask me what those ways are, I dont know, but their ability to utilise those laws are legitimate. Maybe not what people want to hear, but legitimate none the less.

      Its why tax havens gain traction – generous rules giving an advantage. And what company wouldnt use that advantage? Its why so many celebrities ‘live’ in Monaco. Shut that haven down, they’ll just all ‘move’ to Dubai.

      In the digital world, it gets messier, because there are no physical products to easily point to and say ‘thats ours” – if a game server we use is based in the US, and we pay a fee to play that game online, is that fee taxable here, or there? What do US laws say on the issue? What if the server is based in Singapore?

      Its a problem thats not easily solved. One by the way I asked 10 years ago regarding GST – are MMO subs subject to GST or not? Was flatly told it was in the too hard basket back then, laws havent changed.

      Trust me, the ATO has had teams working on these issues for decades, and it gets messier as time and technology goes on.

      At least now there are a lot of other areas that are having the same mess, so its something that might get solved eventually. But I cant see how it can be resolved locally, its a global question.

      • SMEMatt
        Posted 23/05/2012 at 3:29 pm | Permalink |

        There is one way to handle it.
        If you are localising the product by restricting release, charging in Australian dollars, charging localised pricing or anything else to segment the market then yes your company should be paying taxes in that market segment.

        Could just make sure the companies are paying GST on imported services, if you spending 500mill with with a associated company in a tax haven provide “services” you get slapped with 50mill of GST for the imported service. Could actually have a side benefit of reducing the off-shoring of jobs.

        Note I know sweet bugger all about tax law appart from the fact it should be simpler for everyone.

        • Gav
          Posted 23/05/2012 at 3:46 pm | Permalink |

          Trust me SMEMatt, its not that simple.

          Very simple way around that, and I think its how Google and friends get around it, is to simply be onselling a foreign product. Company is based in Ireland, ‘sells’ you the product which you then sell here in Australia.

          The ‘cost’ of buying from that company reduces the local profit, and moves it to Ireland where the taxes are cheaper. Simple move of assets to the beneficial region. Cant change those laws without messing with a LOT of established law, the repercussions would be felt for decades.

          And thats where the problem is. Not hard to make laws shutting down the perceived problem, but it is hard to see what the implications are. Both here and overseas. You’re not talking about one country, you’re talking about 200+.

          On top of all that, you have the US Govt sticking their noses into everything, and expecting the laws to bend to their demands above everyone elses. So suddenly you have a situation where something like this Google issue happens, and rather than the tax dollars ending up here like we expect, it ends up in the US because thats where the company was founded, or where the CEO sits, or merely that the parent website has a .com address or something like that.

          It SHOULD be simple, but because this issue has no boundaries to speak of, wont be. I’m speaking from experience by the way. The digital world is changing the globe as we see it. Thanks to the internet, there is a real chance we will see regional or global laws in place, just to solve these sorts of issues.

          Copyright laws are another area dealing with very similar issues.

    4. Trevor
      Posted 24/05/2012 at 12:20 pm | Permalink |

      Turnbull: “Scrutiny of powerful interests by a robust, fearless, professional and diverse media is fundamental to the operation of any democracy.”

      If politicians are serious about this, why don’t we have laws enshrining protection for journalists and freedom of speech? Instead we have draconian defamation and slander laws that serve to stifle the free discussion of salient issues such as corruption in both government and private industry.

      Sorry, I know that’s a little off-topic. I just get really annoyed when politicians wax lyrical about the necessity of ‘robust and fearless journalism’ and yet we have nothing of the sort in this country.

    5. Posted 24/05/2012 at 2:04 pm | Permalink |

      Offshoring is a complex issue re Australian jobs. If you take Dicks Smith’s view of the world, which I do, there are 7 billion people on this earth not just 23 million Australians. Money going offshore may or may not cost Australian jobs but it also lifts people overseas out of poverty. An Australian may have to go without a new plasma TV but and citizen of Pakistan may be able to pay for medical treatment they could not otherwise have afforded. There is close to 50% youth unemployment in Spain. As an ex employer in Western Australia I learnt all about the work ethic of some Gen Y’s. I doubt that kind of attitude is overly present among Spain’s disenfranchised unemployed. What is wrong with offering Spanish youth a chance of work in life? It is just plain wrong to think about someone who does not live in Australia as being less a person than us. Charity may start at home but Australian’s waste billions of dollars every year on premium pet food, TV’s, new cars, electrical gismo’s and so on. The world is flat and if we are going to have a future wealth needs to be spread around. Finally, offshoring is not charity – it is about people with less money than us working hard for a living. They are not asking for something for nothing, they just want to work!

    6. who cares
      Posted 01/06/2012 at 10:45 am | Permalink |

      I’m actually wondering why people here (in Aus) buy books from Amazon. Who can afford that postage?! The Book Depository has free postage worldwide.




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