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“Cloak of invisibility”: Husic on tiny Apple tax bill
news Crusading Labor MP Ed Husic has delivered a blistering attack in Federal Parliament on the tiny Australian tax bills paid by global technology giants Apple and Google, accusing the local management of the Cupertino, California-headquartered Apple of maintaining a “cloak of invisibility” to avoid engaging with the Government on such issues.
In late January, Apple published its Australian financial results through the Australian Securities and Investment Commission. They show that over the year to the end of September 2012, Apple pulled in local revenues of $5.99 billion over that year, up 22.9 percent from the previous year’s figure of $4.87 billion. However, over that period Apple paid local income taxes of just $40 million, off net profit of just $98.6 million.
There is a significant anomaly in Apple Australia’s financial results from a profit perspective compared with its global results. In Australia, the company only made a relatively small net profit — $98.6 million, off top-line revenues of almost $6 billion. However, globally, the company in its most recent quarter made a significantly higher net income figure as a proportion of revenue — $13 billion off revenues of $54.5 billion. As a proportion of revenues, Apple’s cost of goods sold in Australia is significantly higher than it is globally, meaning the company pays little tax in Australia compared with its global tax situation.
Similarly, in May 2012, Search giant Google has revealed it expects 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.
Speaking in Parliament yesterday afternoon regarding a new piece of legislation specifically designed to address the issue (among others) of taxation of corporate profits across borders, Labor Government Whip Ed Husic delivered a blistering speech attacking corporations such as Apple and Google for their taxation behaviour in Australia.
“While they generated $6 billion in revenue, they apparently racked up, from what I understand, $5.5 billion in costs,” said Husic said of Apple. “How? They do not manufacture here. They have no factories here. I do not know what their R&D effort is here—I do not know if they are claiming that this is driving their costs up. They have got a growing number of retail outlets, which I am happy about—they are creating jobs locally; that is great—but surely those outlets do not cost $5.5 billion to maintain.”
“They have a head office here, but you would not know it because they maintain a cloak of invisibility and their key management team dodge any scrutiny and refuse to even engage on public policy issues. Given the lack of work they do on that front, you would hardly say that it cost $5.5 billion to maintain a head office here and dodge that limelight.”
“According to Mark Zirnsak of the Tax Justice Network Australia, ‘it seems somewhat incredible that they have $5.5 billion in costs’. I imagine that their costs are probably tied to transfer pricing arrangements, which again is the subject of an element of the amendment bill that we are debating now. I imagine that the costs are tied to that transfer pricing arrangement between Apple’s Australian operations and their US parent. It would be great to learn more about what they do, but Apple steadfastly refuses to engage with stakeholders. Ask anyone who has sought answers from them about their Australian operations and you will hear a common theme: they will not talk.”
Husic said another firm which was “in the frame” was Google. For its own part, he said, the search giant did engage with the Government. “While they will obviously—and all the major tech firms—be a remaining focus on the impact of transfer pricing and the impact of their tax arrangements and what they do in terms of our tax revenue and our base of tax revenue, at least they are willing to engage,” Husic added. “Apple, on the other hand, believe that they are above scrutiny, and that is completely unacceptable.”
“I have been a great admirer of this firm and its impact on the way we engage with IT but, over the course of the last few years, following attempts to get answers on their pricing strategies, my admiration has well and truly dimmed. There have been well-known price disparities between the US and Australian markets that Apple operates in. They are not the only culprit but they are by far and away the most defiant, and Australian consumers have borne the brunt of price discrimination by them and now Australian taxpayers are shouldering a heavy burden too. So it seems that others are seeing beyond the glitz to start driving change on taxation arrangements.”
Husic pointed out that it’s not only Australia which currently has a focus on global corporations avoiding paying local taxes. For example, he pointed out the situation in the UK, where there is currently a debate about the taxation on coffee chain Starbucks.
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 that is seeing the company’s Australian profit kept off the books. The company’s budget minister Jerome Cahuzac said recently 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.
The legislation which Husic was commenting on, the International Tax Agreements Amendment Bill 2012, is designed to do much to instigate the ‘transfer’ pricing issue which may be behind Apple keeping much of its Australian profits small. In addition, Assistant Treasurer David Bradbury earlier this week announced other measures designed to increase the transparency of these kinds of tax situations.
“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,” said Bradbury. “This work will enhance the administration and regulation of Australia’s tax system and capital markets.”
Over the past year, Husic has emerged as one of the key parliamentarians holding multinational technology vendors to account in Australia.
In May 2012, following a public campaign on the issue by Husic, the House of Representatives Standing Committee on Infrastructure and Communications called for submissions to help inform an inquiry into pricing of technology goods and services in Australia, publishing the terms of reference for the initiative on its web site. The results have so far demonstrated a strong groundswell of public anger about ongoing markups on technology goods sold in Australia.
However, not all companies whose products have been mentioned by the inquiry have volunteered to attend to give evidence. US software giant Adobe, for example, declined to appear to give evidence to the inquiry, although it participated in a submission by the Australian Information Industry Association. Adobe has a practice of commonly marking up software products for the Australian market such as its popular image editing application Photoshop — despite the fact that the software is often downloaded from the same site in Australia and the US. Apple gave a confidential briefing to the committee but did not commit to publicly taking questions. The committee is currently considering subpoenaing some of the vendors to force them to attend.
I wrote in late January about the Apple situation:
“I believe it very likely that Apple Australia will push towards the $7 billion revenue mark or higher in its next set of Australian financial results. This is a massive company and a huge part of the Australian economy. With this in mind, I hope that the Australian Taxation Office is keeping a close eye on Apple Australia’s finances. The company is pulling huge sums of money out of Australia at the moment. Taxes of $40 million, off revenues of almost $6 billion? That hardly seems fair.”
And in May I wrote the following about Google:
“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.”
I wholeheartedly support the ongoing attempt by Husic and Bradbury to force some transparency out of these huge multinational technology companies who are pulling hundreds of millions of billions to dollars out of Australia and paying very little tax in return.
Image credit: Office of Ed Husic
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