Australian Govt pledges action on Google tax avoidance


news The Australian Government has outlined a series of new legislative initiatives with which it will attempt to protect its corporate tax base and rein in the tax minimisation strategies of corporations such as search giant Google, which expects to pay just $74,000 in corporate income tax for the 2011 calendar year in Australia, despite making an estimated $1 billion in local revenue.

The tax practices of corporations such as Google have been under constant scrutiny in Australia and in other jurisdictions over the past several years, due to the habit several such technology giants have of using offshore subsidiaries to avoid paying tax in some countries. For example, in May Google Australia published financial accounts revealing it expected to pay just $74,000 in local tax for the calendar year, off revenues of just $201 million – despite the fact that media analysts consistently peg its Australian revenue at closer to $1 billion.

It is commonly believed that Google is able to hold its Australian tax down through billing Australian clients through international subsidiaries in countries such as Ireland and associated practices. Despite the company’s status as one of Australia’s largest media players with most of its revenue coming through advertising contracts, Google’s local financial statements state that its revenues come through agreements with its international divisions.

In France, the country’s government is currently taking a heavy hand with the search giant due to the exact same tax issue with Google’s income being funnelled through Ireland. The company’s budget minister Jerome Cahuzac said this week that Google had been asked to ‘regularise’ its tax affairs; adding that if talks between Google and the French Government on the issue failed, the case could go to court.

In Australia, in a major speech given to a tax conference in Sydney this week (the full transcript is available online), the Australian Government’s Assistant Treasurer David Bradbury heavily criticised Google over the issue and outlined a range of measures that the Government would take to rein in the search giant’s behaviour.

“It is not my usual practice to mention companies by name or to publicly canvass the tax position of particular taxpayers,” Bradbury told the conference. “Nor is it my normal practice to publicly discuss strategies employed to minimise corporate tax. However, I will be departing from my usual practice today as I believe there is a strong public interest in drawing attention to practices that have the potential to undermine the future sustainability of Australia’s corporate tax base … I also want to be clear that I am not suggesting that these companies are in breach of the law as it stands.”

He went on to state:

“Earlier this year it was reported that Google Australia’s annual income tax bill may have been as little as $74,176. The same article reported that a spokesman for Google asserted that the correct figure was $781,471. Even if the higher figure is correct, I can understand why many in the community would be perplexed to learn that this figure is so low for a company whose annual advertising revenue from Australia has been estimated by media analysts to be over $1 billion per annum.”

“It has been reported that this is the outcome of an arrangement called the “Double Irish Dutch Sandwich”. While the day-to-day dealings of Australian firms advertising on Google might be with Google Australia, under the fine print of contracts Australian firms sign with Google, they are actually buying their advertising from an Irish subsidiary of Google.”

“It is then argued that the source of this income – and therefore the taxing rights under our tax treaty – would be with Ireland rather than Australia. Despite Ireland’s relatively low company tax rate of 12.5 per cent, we have just started to build the sandwich. The next step is to route a royalty payment from the Irish operating subsidiary of Google to a Dutch subsidiary of Google, which is then paid back to a second Irish holding company subsidiary of Google that is controlled in Bermuda, which has no corporate tax. That completes the sandwich – now for the tax treatment.”

“The first Irish subsidiary receives a tax deduction for the royalty payment to the Dutch subsidiary, substantially reducing the income subject to the 12.5 per cent Irish company tax rate. Under Dutch law, and because EU member countries do not charge withholding taxes on transfers within the EU, the transfers to and from the Netherlands are essentially tax free.”

“And under Irish tax law, the second Irish resident subsidiary is not taxed on the royalty payment because it is controlled by managers elsewhere. The profits from the sale of advertising to an Australian firm then sit in a tax- free jurisdiction – possibly indefinitely.”

Bradbury said the point of this analysis was not to single out Google for criticism – noting that the company was an important innovator and played a significant role in Australia’s economy. In addition, Google had engaged with the Government constructively on many issues, including taking part in the Prime Minister’s recent Digital Economy Forum, the assistant treasurer said.

However, Bradbury added, “the point is to highlight how the digital disruption brought about by the internet and changes in technology have transformed the way economic activity is occurring – and these changes are putting pressure not only on businesses but also on the corporate tax system in Australia and around the world.” He added: “In turn, this challenges some of the concepts that form the building blocks of our current international tax architecture – source, permanent establishments and residency.” Bradbury outlined a number of measures which the Australian Government will take to rein in the kind of behaviour which Google was demonstrating. It will:

  • Conduct a wholesale modernisation of Australia’s transfer pricing laws, which govern how multinational firms charge Australian subsidiaries for products and vice versa
  • Pursue general anti-tax avoidance rules, which will target groups “who enter into arrangements with the sole or dominant purpose of avoiding tax”
  • Work with other countries on international taxation collaboration
  • Investigate ways to provide greater transparency on the amount of tax organisations pay

Bradbury concluded: “There are some looming threats to the corporate tax base and that we would be negligent not to consider them and work towards developing effective and appropriate responses.
The Gillard Government is committed to a fair, competitive and sustainable corporate tax base.”

Google told the Financial Review yesterday in a reaction to Bradbury’s comments yesterday that the company complied with all Australian tax laws and made a significant contribution to Australia’s economy by helping businesses grow online, providing services to millions of Australians at no cost, and employing some 650 people in Australia.

In May I wrote the following, and it still applies here: “I don’t know enough about Australian taxation law to say whether Google is breaking Australian law with respect to its taxation practices. But what I do know is that if you asked anyone on the street locally whether a company which makes an estimated $1 billion in Australian revenues should be paying less than $1 million in tax, the answer would definitely be “no”.

When Google was founded in 1998, its infamous unofficial slogan was “don’t be evil”. Its current approach to paying tax in Australia does not appear to fit well with that slogan. Right now, Google is making hay while the sun shines off Australian businesses and consumers. And it is not contributing its fair weight back to the nation in return. I would encourage the Australian Government to change taxation law, if necessary, to make Google’s practices illegal; and I would encourage the Australian Taxation Office to conduct an investigation into Google Australia in the meantime.”

Image credit: Robert Scoble, Creative Commons


      • Google pulling out of Australia does not need to equate to it foresaking $1b of revenue. It simply means that it no longer has a permanent office here. It can offshore its customer service and its sales would become a bit more ad hoc, dare I say internet based. It’s a new world and governments need to reconsider their corporate tax frameworks in light of competition from other governments.

  1. blah blah blah, pick on google? How is this different to ANY other company? Apple, IBM, HP, Samsung, HTC, Bosch, LG, Motorola, Nokia, Microsoft, Nikon (I could go on forever) all do the same things but using overseas offices that have lower tax rates.

    Does Australia want a slice of the action? Why not lower the tax rate so companies put the bases here in Australia rather than overseas! If you undercut ireland, you watch all the companies pickup offices and move!

      • But its not EVIL…. When you do your taxes you claim everything under the sun (plus a little bit more I bet) to LOWER your own personal tax bill so you get a refund!

        Google is doing the same thing. They haven’t broken the law and this is the thing…… Personal people BREAK the law by claiming things all the time on there own tax returns, but thats ok. When a company works within the law to lower the tax bill, its not ok.

        Remember google employees a lot of people in Sydnet, who are all on great wages, who all pay taxes as well.

      • Sorry Renai but you have presented zero evidence to say that! Unless you have inside information otherwise you’re as in the dark as every one else.

        You keep claiming Delimiter is an evidence based news source so please cite your evidence for this statement?

        You might want to look at Apple first, this is where Google learnt their tax minimisation strategies. They paid 2% taxation on revenue on all their activities outside of the US per their latest filings – this dwarfs Googles tactics.

        • Shhhh don’t ask hard questions like this….. Renai likes to pick and choose what he responds to! :)

        • “Sorry Renai but you have presented zero evidence to say that! Unless you have inside information otherwise you’re as in the dark as every one else. You keep claiming Delimiter is an evidence based news source so please cite your evidence for this statement? You might want to look at Apple first, this is where Google learnt their tax minimisation strategies. They paid 2% taxation on revenue on all their activities outside of the US per their latest filings – this dwarfs Googles tactics.”

          I did look at Apple and IBM:

          I refer to the following paragraph I wrote in that article:

          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.

          So Apple paid $94 million in tax last year. IBM paid $119 million. Google paid $74k. Sound fair?

          And as for evidence; I’m not sure if you’re aware, but I used to work for the Financial Review, and reported daily on the financial statements of every major technology corporation in Australia, without exception. In addition, I still get all their ASX statements (if they’re listed) and ASIC statements (if they’re not listed). On the basis of that evidence, I haven’t seen a tech company pay as little tax off that much revenue as Google has — nobody else even comes close, not even Apple.

          So yes, I do have evidence. If I do say so myself, I am an expert on this subject.


          • Once again Renai you are confusing what you think is fair compared to what is legal!

            bit like how you pick and choose which comments you reply to.

          • The Govt clearly does not think the current law is fair and is seeking to change it. I merely agree that the law should be changed to rein in companies like Google, which are seeking to avoid paying tax on their Australian revenues.

          • Once again, you are still confusing your option with what is legal.

            When/if the laws do change, then Google and every other company in Australia will adjust its accounting practices to comply with it.

            Do you not claim deductions on your tax return? This is all google is doing, it just has lots of them!!

          • “He never said it was illegal, he said it wasn’t fair.”

            Precisely. What Google is doing is legal as far as I know, but I don’t think it’s fair — and so I think the law should change to make what Google is doing illegal.

          • “Precisely. What Google is doing is legal as far as I know, but I don’t think it’s fair — and so I think the law should change to make what Google is doing illegal.”

            Could you please explain how Australia is going to be able to enact an enforceable taxation law that is binding on a foreign company who is a resident of the USA, does its business through Ireland.and has virtually no assets in Australia.

            I think everyone agrees with you that what Google is doing with tax is unfair. It is not the only company that is doing this and Australia is not the only country adversely effected. The problem is finding a legal solution that is equitable to everyone.

            The only solution I can think of is a GST type tax on payments by residents to overseas companies to be deducted by the payer and remitted to the tax office. This would be similar to the current withholding tax. Enforcement would be a nightmare I would think.

          • Could you please explain how Australia is going to be able to enact an enforceable taxation law that is binding on a foreign company who is a resident of the USA, does its business through Ireland.and has virtually no assets in Australia.

            Google does have a pretty big presence here, with several hundred employees. The question is, would Google shut down that office just to avoid paying the extra tax? I guess it depends how much the extra tax is supposed to be.

            Also keep in mind, Google’s hundreds of employees here quite likely earn well above the average wage, and all of them do pay income tax. If they closed down the Australia office, how many of those would move to another Google office in another country? We’d lose not only a talented number of individuals but also the tax that they’re already paying.

    • The proposed measures will be aimed at all multinationals that use transfer pricing to escape tax, not just Google.

      The reason Australia doesn’t offer lower tax rates to attract these types of shenanigans is that it’s a race to the bottom; it means sacrificing tax revenue to get a pissy little accountant’s office.

      Ireland is finding this out the hard way at the moment. Bending over for corporate tax accountants has not helped it.

    • Lower the Corporate Tax Rate in Australia to compete???

      Is that because Ireland is an example of a strong economy and we should follow their lead?

  2. Maybe they could call their unofficial slogan a “commandment” and register as a religion.

  3. When you say “I don’t know enough about Australian taxation law to say whether Google is breaking Australian law with respect to its taxation practices.”

    I can tell you right now, they are NOT breaking the law……. This practices happens in all major counteries. Have a look at Apple with its 100+ billion dollars strockpiled, but then look at where its being stored? Its not in the USA at all! Why? Cause if they brought it back to the USA they would get taxed on it!!

    For example, lets look at General Electric, with the Times calling it one of America’s largest corporation, paid no taxes at all in 2010 despite global pre-tax income of more than $14 billion.

    A full $5.1 billion of that was earned in the United States. This is the second year in a row they’ve managed to completely avoid taxes. But get this, not only did GE pay absolutely no taxes in 2010 or 2009, but they actually pocketed more than $3 billion in government tax credits according to the Times. Yes, the government paid GE.

    So when you say google is being evil, I don’t think they are, at least they PAID tax, unlike other companies!

    • No, they’re not breaking the law. That’s why Australia and many other countries are seeking to change the law and associated international treaties, so that customer countries can share in the profits made in those countries.

      It’s an issue of economics and ethics rather than law.

  4. I am not sure this practice is restricted to Google or other online services. I recently purchased an international airfare (including both Domestic and International flights in the one booking) from Qantas and was very suprised to see on the invoice that the GST was $0. While I am happy off course to have cheaper pricing the only way I assume this can occur is if Qantas are selling the airfare to me from overseas and hence no GST.

    • GST is not charged on international airfares (imagine the complications of trying to tax an airfare purchased overseas).

      • I get that they don’t charge GST on international airfares however if you book some domestic flights on the same booking you also don’t get charged GST for the domestic portions of the route. i.e. Fly Perth – Melb – Singapore and their is no GST on the domestic Perth-Melb as well.

  5. It is not uncommon for Companies to do what they can to minimise their tax bill. While I am sure that all the international Information Tech Cos would be involved so are all the Mining and manufacturing companies.

    Google is using a legal means to reduce its exposure to taxation and thus protect their shareholders interests which they are in fact legally obliged to do.

    The moral outrage is wonderful but unless the critics are able to draft workable changes to tax legislation then the outrage is a waste of time and effort.

    A perfect example of this sort of outrage is what people express about the “cash.economy” usually just after they have said to a “trady” …”How much for cash”

  6. Any company owes it to its shareholders to minimise tax. Legislators write laws with loopholes, companies take advantage. Until the Australian government decides to remove tax loopholes for companies and high-earning individuals the Australian tax system will fail to be progressive (i.e. expecting the taxpayer to pay more as their ability to pay taxes increases).

    Governments have created this problem themselves, and can’t blame businesses – but they should be a little better organised internationally to deal with companies that seek to minimise tax, rather than entering into bidding wars for those companies by offering new tax incentives.

    As for the suggestion that this is an “internet issue”, or related to “the new economy”, rubbish. Again, write the laws well and the tax will come in – write them poorly, and allow interest groups to claim exemptions all over the place, and you create loopholes that people will use.

    • Google’s paying $74k off revenues of $1billion?

      If you don’t think that’s not fair, you’re obviously not a small business owner.

      • Unfortunately Renai the problem isn’t what is fair – it is what is legal and legal is often not equitable.

        • That is why the Australian government is seeking to change things. He was not talking about what is legal. What is legal often has loopholes, those loopholes are fixed to move them towards what is fair. Just because something is legal doesn’t make it morally right.

          • That is the problem. How do you legislate to make a foreign company providing services from a foreign country to do what you think is fair? How will your legislation effect them?

          • Exactly Renai. That is the only way that it is going to happen and it will mean that countries that are providing tax havens or circumvention assistance for their own benefit are going to be convinced that it is in their best interest to change their practices.

            The Government passing legislation to prevent this type of activity without international co-operation that will back its stance is a waste of time and effort.

          • It would be in those countries best interests if these companies had to put more than an accounting office there to get the tax benefits.

    • >It’s not evil to pay the minimum tax you’re required to pay under the law. It’s stupid to pay more.

      When you go to that much trouble to purposely game the system and avoid paying the legal tax requirements it’s pretty damn hard to call it anything else but…

  7. It seems to me that google would cut a deal with them so they can avoid the heavy taxes, I would not think that google would up and pull the operations in the AU.

  8. This is easy to solve.

    “all companies that draw revenue over 500* million dollars per annum from Australians must charge GST (import duty?) On the transaction”

    dollar value arbitrary, but must be large to not horribly nobble small business.

    its an honour system backed up by audits and the courts, just like the rest of the tax system.

  9. I THINK Renai, IN my VIEW you need to paint every corporate company involved.

    The top 1000 corporate companies perhaps.

    Every company that is serving customers in another country should be charged with GST – regardless if they have an office that is local or not.

  10. There are a few things to consider here Renai.

    First, what they are doing is not illegal. I think you get that. The reason for that is that there are agreements with various countries (pretty much every one) called double tax agreements that in short agree to only tax money once, normally where its earned.

    The second thing is that you’re talking about $1b in revenue. Revenue isnt taxable, profit is. And this is where the second problem lies. $1b is a lot, but it comes down to how much was spent to earn that $1b, and in this case they claim… Well, they claim pretty much all of it.

    And thats where the problem lies. We have an agreement with the US, who have an agreement with Irelands, who has an agreement with the Netherlands, who has an agreement with Bermuda. To fix the problem every other country in that chain has to sever their link as well. Not an easy thing to solve, the double tax agreements have a LOT of benefits.

    Google Ireland says they’ll onsell their assets/rights for a certain amount. I’m guessing 99.9% of revenue generated. In Ireland there are tax laws different to us that give them an advantage there. Which is why they do this – every country has different laws, which create loopholes.

    There are ways to close them down, but the risk is you open other loopholes, or penalise morally acceptable practices (think channel 9 with each city being its own company, but linked) so there’s a bigger picture to consider.

    You cant isolate the laws to specific companies, just because you dont think its fair they game better, that ends up in the courts real fast. Well, you can, but only in specific circumstances like the MRRT which arent in play here.

    The problem is in the “costs” incurred. Because they own the chain back to the source, they can charge themselves as much as they want along the way, making the profits less, and moving the money to where its to their best benefit. In Google’s case, it ultimately ends up in Bermuda via Ireland and the Netherlands.

    Its those intra group mickey mouse charges that need to get closed off. There needs to be some arms length laws put in place, and while it sounds easy, it wont be.

    Its just another example of how a connected world makes for a complicated world.

    • I know there was a specific issue with a mining company avoiding royalties on profits by buying services from their international parent. Guess what happened when they wanted to expand the mine?

    • Gong, the whole point of the review is to examine ways to handle these arrangements. They’re called transfer pricing. It’s a well known issue, and it’s well known that the solution requires international treaties.

      That’s what is being developed. David Bradbury, the parliamentary secretary leading the view, is a former tax accountant.

      • Thanks Tony. I knew that, was trying to keep it as simple as possible, and avoid commenting on transfer pricing. Thats just terminology that will confuse most people.

        In the end, the problem is more than just Australian tax law. Its across a range of countries, and without rewriting laws elsewhere its not an easy thing to fix.

        At the end of the day there are laws somewhere that they can take advantage of. Several countries allow credit for foreign tax credits for example, its not hard to see them pay the tax here, get that tax repaid somewhere else, then transfer the profit anyway. Just 1 extra step in the process.

        It still comes down to the company doing nothing illegal. Its pretty harsh to point the finger at them when they are actually following the law.

        And most articles exagerate the issue by comparing the tax paid to gross revenue, rather than gross profit like they should. The articles should be attacking the point that the companies books are cooked so they only realised about $200,000 in profit.

        The $1b isnt going to change. If the laws are revamped, its to attack the $999,800,000 in “deductions”.

      • It`s very very simple on how to stop these multinational theives!!!!!!!!!!! Simply tax there revenue in Australia at 3% – 5%. Then every business pays the the same tax and bingo, no loop holes.

  11. I’d like to see full disclosure from all those people defending Google


    to disclose whether they are employees of any companies mentioned in the article. I think they doth protest too much. Do No Evil unless it pays my salary for example.

    • Definitely NOT in cahoots. There are enough hints around suggesting where I do work, and it should be fairly obvious if you hunt about (reluctant to bluntly say where I work, because it can get unpredictable reactions), but I can say with 100% certainty that I’m not in cahoots.

      I’m sure Renai has figured it out where I work, as would a few others, and if he hasnt all he has to do is ask. I dont hide it, I just dont advertise it.

      I’m not protesting, I’m defending the law. They are taking advantage of legal loopholes, which are far harder to shut down than people realise. At the end of the day though, its still legal.

    • I’d love to find the post where I defended Google.

      I have posted twice in this thread.

      Once I outed another entity apparently pulling a tax avoidance scheme (in Australia) also utilising Ireland.[link]

      The other post I gave an idea for how the Federal government could increase taxes on Google. I don’t really know how either of those can be taken as defending Google in any way…[link] .. not defending Google, if anything providing a way to tax Google more.

      Oh I guess the “everyone else does it” defence for my first post… but that wasn’t what I was going for. I was adding another mig-company bad actor (and the clear evidence thereof) that was also acting in bad faith in Australia.

      And for disclosure, I work for a 2 man IT consultancy whose main clients work in the legal industry in Victoria.

  12. Hubi,

    What Level380, PeterA and GongGav are saying is public knowledge and any Accountant familiar with tax law and the Australian law in regard to overseas income and the various double tax agreements will say the same thing.

    It isn’t just Google and despite the heading they are not practicing Tax Evasion, which is in fact an offence under the Tax Act, they are practicing tax minimisation as are a multitude of multi-national companies. This is also public knowledge.

    Your imputation that there is a conflict of interest by these three posters is unwarranted and I would suggest that you owe them an apology..

  13. Apple’s profit margins are WAAAAY higher than the profit they’re claiming. They’re doing the same thing the movies companies do, blow all their profits buying planes and throwing parties with the Rolling Stones performing in order to get their profits down to the desired level.

    If Google is forced to pay heavy direct taxes in Australia, they’ll just buy a couple of jets, give out a huge bonus to their CEO, and VOILA! they didn’t make any money that year and they’re paying the same amount they currently do.

    If you want people or corporations to pay taxes, lower the tax rate to something that is FAIR and provide FULL TRANSPARENCY in how the government spends their money. I live in Canada, and I pay 46% of my income in taxes, and for that I receive no services even remotely compensating me for what I am forced to pay. I am basically subsidizing my sister in law, who chooses to sit at home and do her toenails all day while watching reality tv and collecting government money; and my buddy, who works for the government and makes well over a hundred thousand dollars a year despite having no discernable skills or job function and has bought very expensive personal software and expensed it to the government, and the government didn’t question the fact that he was buying Macintosh video editing software when his work computer runs Windows!!!

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