blog Fresh on the heels of the news that Apple Australia paid just $40 million in local taxes off revenues of $6 billion in its 2012 financial year (for Google Australia it was $74,000 off revenues of $201 million; although total revenues are estimated to be closer to a billion), the Federal Government has pledged to work on measures which will force multinational corporations to be more transparent about how they disclose their financial results. The media release, in the name of Assistant Treasurer David Bradbury:

“Today the Government is announcing its intention to improve the transparency of Australia’s business tax system.

“Large multinational companies that use complex arrangements and contrived corporate structures to avoid paying their fair share of tax should not be able to hide behind a veil of secrecy,” said Assistant Treasurer David Bradbury MP.

Protecting taxpayer confidentiality for individuals is essential, but recent events in Australia and around the world call into question whether large and multinational businesses should have the same level of confidentiality about the taxes they have paid.

Improving the transparency of Australia’s business tax system will encourage enterprises to pay their fair share of tax and discourage aggressive tax minimisation practices. It will allow the public to better understand the business tax system and engage in debates about tax policy.

The Government will also explore ways to improve the sharing of tax information between the Australian Taxation Office and other key corporate regulators including the Foreign Investment Review Board, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority. This work will enhance the administration and regulation of Australia’s tax system and capital markets.

“That is why I have asked Treasury, in consultation with the Specialist Reference Group on Ways to Address Tax Minimisation of Multinational EnterprisesI announced in December last year, to develop the details of how changes could be implemented,” said Mr Bradbury. In particular: How the policy could best be designed to cover large and multinational businesses, including whether a threshold test would be appropriate; Which federal taxes should be disclosed; and How the tax information should be made publicly available.

In announcing this work, the Government wishes to strongly reaffirm its support for the privacy of individuals’ taxpayer confidentiality. The Government will not publicly disclose the tax information of individuals or small businesses.

Following the first meeting of the Specialist Reference Group later this month, the Government will consider the advice from Treasury and views of the community to assess what changes are appropriate, with a view to introducing any necessary legislative changes this year.”

Image credit: Briony, Creative Commons

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1. Bob.H
   Posted 04/02/2013 at 3:38 pm | Permalink | Reply

   If the Government is going to take away the confidentiality of large corporate taxpayers this year then I would suggest the confidentiality of individual taxpayers is in serious jeopardy next year.

   If the Tax system is broken and can’t handle the machinations of multinational behemoths then what needs to be fixed is the Tax system. Trying to embarrass the multinationals into paying their fair share of tax by eroding the current right of all taxpayers to have their tax returns treated confidentially isn’t a fix; it is a cop out.

   • Martin Eddy
     Posted 04/02/2013 at 9:29 pm | Permalink | Reply

     Absolutely agree.

   • GongGav
     Posted 06/02/2013 at 11:45 am | Permalink | Reply

     The tax system isnt “broken”. There are issues (and there will always be issues) which create loopholes, and thats what is happening here. Most of those loopholes are from foreign laws though, not Australian ones.

     The problem exists because we allow tax deductions for expenses incurred while earning taxable income. Pretty fundamental part of tax law. Problem is, they ‘incur’ expenses by a related company charging excess amounts, which results in the money leaving Australia.

     Then other tax laws effectively launder it so they pay very little tax overall.

     But from our viewpoint, the problem isnt as big as people think. Apple paid $40m tax off of $6b in revenue. Or about 1% of gross turnover. Would it surprise you to hear that Woolies pays about the same?

     Woolies had $57b in revenue, for around $2b in profit, or about $600m in tax in their last tax year. Or about 1% of gross turnover. Easily found through a google search by the way.

     With Apple, look at an iPad for a decent example. $700 for one here. Import it from overseas suppliers )ie Apple Ireland), the product costs $600. So there’s $100 left over. Take out store costs, wages, advertising, etc, there is about $20 to $40 profit left over. Or something like $7-$14 in tax. 1-2% of the $700 pricetag.

     The big cost is paying Apple $600 to import it to Australia. Those numbers arent much different for most Apple products by the way, the intial cost of the importation plus local costs leaves very little local profit to tax.

     In a nutshell, thats where the problem is – the parent company legally charges a price, which makes up the bulk of the costs ($600 out of $700), meaning smaller local profits to be taxed. Once that money is out of Australia, other countries laws come into effect. Laws we have no control over.

     To ‘fix’ this, you might need to disallow all tax deductions altogether. Otherwise there will always be a ‘loophole’ to be exploited.

     • Bob.H
       Posted 06/02/2013 at 12:13 pm | Permalink | Reply

       The tax system isnt “broken”.

       I didn’t say it was broken. And I didn’t say that what they are doing is illegal. What I did say was that playing “I am going to embarrass you” is bullshit.

       There have been commentators and politicians complaining about transfer pricing since at least 1980 that I can recall. In 1980 I was working for the ATO in the compliance area..

       If income tax doesn’t work then we need to scrap it and come up with a better system. That is not terribly hard to work out surely. Continual bitching about the problem and doing nothing is a sure sign of incompetence.

       30+ years of the same complaint would suggest that there is either incompetence or some serious corruption.IMHO.

       • GongGav
         Posted 06/02/2013 at 12:39 pm | Permalink | Reply

         Fair enough. i’m just pointing out that with all the debate going on, most people dont actually understand what the issue is. They just see “Apple paid $40m out of $6b” and switch off. You’re clearly not one of those people.

         Its not our system thats causing the problem, its tax law and how it relates between Ireland and the Netherlands. Two systems we have no control over.

         I used Apple because it an easy example – they charge $600 to get an iPad into Australia (or thereabouts, its close enough). Its THAT transaction that ultimately causes the problem. After that its pretty basic accounting.

         So whats wrong with an importing company charging an amount thats pretty close to market value? Its been an issue for decades, as you say, but until now most countries were able to simply ignore the problem.

         Nothings changed, except the GFC has made most countries tax revenue drop dramatically, so now they are eyeballing these arrangements as hopefully a quick source of income. It wont be.

         As you say, embarassing them isnt going to solve the problem.

         • Ren Leahy
           Posted 06/02/2013 at 2:53 pm | Permalink | Reply

           I would argue the fact that transfer pricing essentially exists to avoid paying tax, and that we do not take it into account (or legislate against it) is a flaw in our tax legislation.

           Tax avoidance is illegal, the trouble is proving transfer pricing is avoidance rather than minimisation.

           • GongGav
             Posted 06/02/2013 at 3:45 pm | Permalink | Reply

             Definitely Ren, but at what point does the transaction stop being arms length? Thats the problem, Apple and Google’s transfer pricing IS arms length. Nobody can prove otherwise. If they could, you better believe the various countries around the globe would be cracking down on it, and cracking down hard.

             Again, I use Apple as the easy example. They import an iPad into Australia, and charge Apple Australia $600 for that import (give or take). The transaction is an arms length transaction, therefore the transfer pricing is legal.

             The result being that largest part of the transaction is exported outside our jurisdiction. The smaller part gets disolved a little more with local costs, ultimately meaning tax is paid in Australia on only a small portion of the entire cost.

             Every step is correct and legal by our rules. Where do they change the rules to make this illegal, without breaking the system even more?

             These are issues for every imported product. At some point the local distributor pays a foreign entity, meaning that portion of the cost leaves our shores.

             • Ren Leahy
               Posted 07/02/2013 at 9:52 am | Permalink | Reply

               Actually I disagree, I think all you would need to do is provide specific consolidation rules that define control. This would not effect your small to meduim business importer as its unlikely they have lost their controlling interest to a global multinational.

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