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  • Gadgets, News - Written by on Thursday, February 7, 2013 13:50 - 17 Comments

    “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.

    opinion/analysis
    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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    1. WillyChuck
      Posted 07/02/2013 at 2:03 pm | Permalink |

      http://www.theregister.co.uk/2012/11/25/tax_and_tech_biz/

      • PeterA
        Posted 07/02/2013 at 2:44 pm | Permalink |

        Great article; that seems to forget what it says.

        It says the cost of taxation is borne by the workers and shareholders. It explains that; it sounds about right.
        (Something like; Shareholders because they earn less profit? and Workers; because companies are mobile; and being able to move out of a jurisdiction means they have to take less money overall in order to encourage companies to base themselves somewhere? – I might have the workers one wrong – IANAE)

        So; if you increase taxes; chances are a company will leave your shores and base themselves somewhere else to do their business, unless your workers take a pay-cut (Please correct my errors here!)

        But; Apple don’t have any workers here they will cut. Oh sure; they might have what, 30 stores? But that is all tax-deductible AND part of the reason they are earning a significant portion of that 6 billion dollars.
        Leaving what? Australian workers do NOT shoulder the burden of any additional tax on Apple. only American shareholders do. At least, that’s my interpretation of the situation regarding Apple.

        Google on the other hand, is a very different situation. As I understand it; it sounds like there is:
        – Google Australia; that doesn’t earn any money subsequently paying a nominal tax amount – 74k?
        – Google Ireland, that sells advertising on the internet. Which avoids GST because of the low prices making sales exempt from GST (made up for by large volume).

        This is very different from Apple; which has Apple Australia selling iPads, and then charging itself a bundle to buy iPad stock from Apple Ireland (or wherever their tax avoiding scheme makes them book their sales to then transfer it out and stick in a tax haven).

        I dunno; my interpretation of the actual schemes is probably way off (extra info welcome I would prefer a more accurate view of what is going on in each of these 2 cases) but the article you posted from the reg doesn’t seem to actually clarify anything, nor does it convince me that to save the workers burden of taxation on these 2 companies that we shouldn’t tax them.

        Because their “workers” will not be effected by these taxes, because they are pretty much at minimum local staffing anyway.

    2. Brendan
      Posted 07/02/2013 at 2:05 pm | Permalink |

      If Husic wants to fight the good fight – raise legislation to change, or at least review Tax laws. Apart from bluster, very little actual policy effort is going on here.

      • Posted 07/02/2013 at 2:31 pm | Permalink |

        As Husic mentions and is also mentioned in the article by him; Is that they are currently debating a senator’s bill introduced by Husic (I’ll have to look up the name of it) which does partially address this problem.

        It basically (when approved) forces the lower house to create a tax-legislation ammendment which would see this loophole closed.

        • Brendan
          Posted 07/02/2013 at 2:42 pm | Permalink |

          Cool. That would be a pretty recent bill, then.

          • PeterA
            Posted 07/02/2013 at 2:45 pm | Permalink |

            Yep; if you read the full article above it said:

            “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.”

            In fairness; I guess the above was the *middle* of the article, and not the start or the end.

            • Posted 07/02/2013 at 3:20 pm | Permalink |

              in fairness, some of the snide comments are not really necessary, either…

              but hey, whatever floats your boat…

    3. Posted 07/02/2013 at 2:16 pm | Permalink |

      what the person on the street thinks is fair is irrelevant. what is relevant is the law.

      if they are following the law, then the companies involved should give a big middle finger to mr. husic.

      he should concentrate his efforts on getting the offending law changed.

      plenty of companies, not just IT ones, follow tax reducing strategies. plenty of ordinary people too. the laws in place allow them to do this. it’s not the companies fault.

      bearing all this in mind, if they ARE engaging in illegal dealings, then kick their arses…

      • GongGav
        Posted 07/02/2013 at 2:38 pm | Permalink |

        There are two offending laws in play here – actually 3.

        First, is what they call transfer pricing. Basically, if a company transfers an asset to a related company (Apple Ireland to Apple Australia) then it has to be what they call an arms length transaction. Which means it has to be comparable to what it would cost a non related company/person. And if the numbers are similar, as they are, its very hard to prove otherwise.

        The other offending law(s) are in Ireland and the Netherlands. Money gets moved from Ireland to Netherlands. The transfer pricing laws in the Netherlands kick in, but the Dutch laws say transfer pricing doesnt get calculated between EU jurisdictions. Then when the money gets back to Ireland its been effectively laundered, so it gets taxed in Bermuda, where the tax rate is nil (from memory).

        So its a series of transactions that creates the problem. All we can control is that first transfer from Apple Ireland to Apple Australia. And thats going to be very hard for Husic to get changed.

        • PeterA
          Posted 07/02/2013 at 2:48 pm | Permalink |

          Double Irish Dutch sandwich with your choice of tax haven sauce?

          • GongGav
            Posted 07/02/2013 at 3:55 pm | Permalink |

            Something like that :) Its the double irish dutch sandwich part that causes all the problems, and what we have no control over. Close that down, more funds should flow into our jurisdiction and hence be taxable, but whatever rules they try to impose here are going to have a very minimal effect.

            The part of the process we have control over isnt being hugely misued, its merely a conduit into the system that IS misused (by our tax laws), so I’m not sure what can actually be done about it.

            To put it a different way, what dollar value would people expect Apple to have paid? I’m willing to bet plenty of people will believe it should be $1b or more, simply because they dont understand the difference between gross and net profit, nor how importation works in practice.

      • PeterA
        Posted 07/02/2013 at 2:50 pm | Permalink |

        he should concentrate his efforts on getting the offending law changed.

        FTFA: 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

        *sigh*

      • Posted 07/02/2013 at 3:02 pm | Permalink |

        “he should concentrate his efforts on getting the offending law changed.”

        Read the article :)

        • Brendan
          Posted 07/02/2013 at 3:17 pm | Permalink |

          Yes, okay, I re-read the article. You’ll excuse me for missing it in amoungst all the rest of the political posturing.

      • Gene W
        Posted 08/02/2013 at 9:12 pm | Permalink |

        What I don’t understand is why people treat “the law” like…it’s perfect, or divine, or it simply cannot do wrong, and that obeying it is 100% good and breaking it is 100% evil. If anyone thinks this, they should consider for a moment just where laws come from.

        The Apple case is a pretty good example of how you can exploit the hell out of the law to avoid paying your fair share.

    4. Posted 07/02/2013 at 3:06 pm | Permalink |

      i did read the article, gents. i was merely agreeing with the article’s premise.

      give me a modicum of credit…

    5. Isaac
      Posted 08/02/2013 at 10:38 am | Permalink |

      The issue is not Australia’s domestic tax laws – it’s the international tax treaties that Australia has entered into.

      To take Google, as the apparently most egregious example. When I buy AdWords, I am contracting directly with Google Asia Pacific Pte. Ltd., a company incorporated and tax resident in Singapore (GAP).

      Presumably, GAP is taking advantage of the terms of the Singapore- Australia double tax agreement. Under the terms of this agreement, GAP would not be liable for taxation in Australia on business profits unless it carries on business in Australia through a permanent establishment (broadly, this is a fixed place of business, say an office or warehouse). GAP doesn’t have a permanent establishment in Australia – Google’s Australian offices are operated by other Google subsidiaries and these do not constitute a permanent establishment of GAP in Australia.

      Australia therefore has no taxing rights over the advertising income earned by GAP from Google’s Australian clients.

      This is all perfectly legal and all of Australia’s DTAs have similar provisions. It just happens that Singapore taxes this income lightly or not at all, which is why Google has set up shop there.

      From memory Apple runs its Australian iTunes store through a Singapore subsidiary as well, though the profit shifting mechanisms it uses for its hardware sales are different. A large proportion of Apple Australia’s profits will be funnelled through Ireland as royalties and licensing fees (subject to a final 10% royalty withholding tax in Australia per the Irish DTA) and profits on hardware sales in Australia would likely be attributable to the United States or other countries under OECD transfer pricing principles (attempts by Australia to tax more of this would be met with great resistance from those countries’ tax authorities).

      Unfortunately, fixing the situation will require a major renegotiation of dozens of DTAs, a major review of well established transfer pricing principles, and co-operation from every other country involved. This is unlikely to happen soon and if it does happen it will be because the US initiates the process – Australia will get nowhere on its own.




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