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  • Blog, Gadgets, Industry - Written by on Thursday, May 30, 2013 11:35 - 17 Comments

    Tax heat intensifies on Apple Australia


    blog The small amount of company tax which Apple Australia is paying each year (in 2012 it was $40 million off revenues of $6 billion; in 2011 it was $94 million off revenues of $4.88 billion) has become a constant matter of discussion in political and technology industry circles over the past several years, as politicians such as Labor backbencher Ed Husic have questioned how legal, and perhaps more to the point, how fair the accounting practices of Cupertino and other tech giants such as Google are.

    In March this year, Apple Australia managing director Tony King described his company’s relationship with the Australian Taxation Office as “open, frank and candid” and its process of calculating its local tax obligation as “rigorous”. But globally, authorities don’t seem to be convinced, with both British and US politicians really laying the heat on the company and others such as Google over the past several months in separate inquiries. Now that heat is starting to spill back locally. Husic made a speech to parliament this week alleging Apple may have misled Australia’s parliament on its tax practices.

    Husic pointed out that King had told MPs that Apple Australia’s pricing was set in the US, but that accounting arrangements disclosed to the US Senate in its own inquiry had contradicted that testimony. A detailed account of Apple’s Senate testimony is contained in this excellent article by the Guardian Australia:

    “… an Irish-affiliate company, Apple Sales International, “took title to the manufactured products while they were being shipped to Apple’s Asian distribution centres. When they arrived, ASI sold the products to Apple Singapore at a substantial profit. Apple Singapore then resold the products, in turn, to Apple retail entities or end customers … Transferring title in this manner allowed Apple to retain most of its profits in Ireland”

    Husic angrily responded in his parliamentary speech:

    “The US Senate report says the price is determined by Apple Singapore, not the US. I am concerned the committee inquiry has been misled, either deliberately or accidently.

    The corporate structure detailed in the US Senate report was never offered by Apple Australia and when pressed on its transfer pricing or price setting, I put it to the House that Apple deliberately avoided setting out the detail that became evident in the US Senate report. The only thing I agree with Apple Australia on is their statement that Apple: “… have very robust and deep accounting systems”.

    Given the global web of arrangements detailed in the US Senate report, that is the understatement of the year. I call on Apple Australia to either correct the record or provide further detail as to the way it actually prices its products for Australian consumers.”

    Given that Australia’s Parliament is currently in the process of introducing laws that would force more taxation transparency on companies like Apple, and that governments in the US, UK and Australia are all now angrily demanding answers from companies such as Apple and Google on this issue, I suspect that we’ll see some resolution of the tax situation with respect to these giant technology multinationals soon. The amounts of money involved here are astronomical and the amounts of tax being paid are miniscule. That’s never a situation which governments like to see; and it’s about time the issue was addressed.

    Massive corporations should not be able to shift profits around like this, using complex accounting methods to avoid contributing back to the community for their success. That’s just not cricket.

    Image credit: Apple

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    1. Geordie
      Posted 30/05/2013 at 11:40 am | Permalink | Reply

      I liked Bill Gates on this during his appearance on Q and A the other night. How can we maintain both the legal requirement that Apple (or Google, Facebook, Johnson and Johnson and every other company that uses a double Irish Dutch sandwich) pay a certain amount of tax, and then a secondary standard based on some amorphous concept of “fair”? The amount of tax it’s fair to pay should be the legal amount required, if not, it’s the law that’s unfair, not the amount of tax entities pay.

      Write our expectations into our regulations. It’s what we voted you in for.

      • Posted 30/05/2013 at 11:44 am | Permalink | Reply

        To my mind, it’s actually international tax agreements that may be the solution to this — not specific in-country laws.

        • TrevorX
          Posted 30/05/2013 at 1:25 pm | Permalink | Reply

          I think the point is the blatant hypocrisy that requires individuals and businesses to bend over backwards to pay their tax dues and comply with all taxation and regulatory requirements, but then send out the message that if you’re big enough you can essentially avoid nasty little inconveniences like taxation. Wasn’t it Kerry Packer who said (in court, no less) that anyone who pays tax is an idiot? The biggest companies and the richest people pay next to no tax, leaving the poorest and the smallest to pay disproportionately high percentages entages of their far more meagre incomes to support governments and infrastructure that these large businesses derive more benefit from than anyone. Forget about fair, it’s inequitable and longterm unsustainable.

          • Douglas
            Posted 31/05/2013 at 11:55 am | Permalink | Reply

            Packer actually said anyone who pays more tax than they are legally required to needs their head read, and I happen to agree with him!

            Sorry, but if there is a problem with the amount of tax being paid (or not paid), then we need to change laws/framework.

            You can’t expect a company with shareholders not to pay the minimum amount of tax they are legally required to. They are never going to pay more than the letter of the law says they have to, just because of “Mabo, The Constitution, the vibe of the thing”.


        • Stephen
          Posted 30/05/2013 at 1:37 pm | Permalink | Reply

          That will never happen – the vested interests in place protect this space too well and the politicians’ responses are really just theatre.
          There was a great example of the in-built corruption this week when the recently retired head of the UKs HMRC (their tax agency) took up his new posts with Deloitte, whom he’d been accused of being too close to and cutting sweetheart deals, and HSBC whom had also had deals cut with the tax office.

          As long as there’s this revolving door between those writing the laws (usually the big 4 seconded to the government), those enforcing the laws (ditto) and those advising their corporate clients on how to avoid the very taxes they designed, the situation will not change.

          Don’t make the mistake of thinking international tax is broken, it is working exactly in the manner it was designed to.

          Have a look and you’ll see that actual corporate taxes collected in the USA, UK and Australia have dropped from around 30% of the real taxes to around 2-4%. And they’d like it to drop even lower.

      • GongGav
        Posted 30/05/2013 at 1:32 pm | Permalink | Reply

        Thats a big part of the problem Geordie, they ARE paying the legal amount. Its no one country thats caused this, but a roller coaster of incentives that have created a honey pot. And no country has the right to tell another country how to set up their tax laws, so we’re left with a situation where, because its universally recognised that imports and exports get treated a certain way, loopholes can and will appear.

        Here’s an example using Apple. Say you’re buying an iPad, with a shelf price of $600. Apple US makes the item, sends it to the Asian hub in Singapore. Transfers the asset to them for $450 per unit. Singapore then transfers the asset to Australia for $500, who ultimately sends it to the stores for $550. All above board so far.

        Product ends up on the shelf for JB HiFi, where you buy it for $600. Apple Australia has it on their records as earning them $550, forming part of their turnover. Reality is, they paid $500 to get the product, so have only made $50 on it. That $50 has to pay local running costs, wages, etc.

        How do you tax the product? Thats a fairly standard route for an import into Australia, and in the end it means 80-90% of the price is sent offshore. People get caught up in the $600 when in reality the important number is really only $50 or $100, depending on the point of view – the amount relevant to profits made in Australia.

        And no one country can possibly solve that.

        Renai’s right in that its going to have to come down to some international tax treaty to sort these problems out, but you still have the same problem – the problem moves outside of everyones jurisdiction, and any solution becomes near impossible to implement. Irelands loophole is there for a very good reason – they need companies to invest in Ireland to get them out of trouble.

        These companies are doing nothing illegal, and until the key markets (in this case Irelands foreign company laws, and the Netherlands intra EU transfer pricing laws) are closed this specific scenario is going to keep getting repeated.

        And even if/when those holes are closed, another will appear. They wont quite get as much benefit, but it will still be better than the alternative of 30% or so.

        Having said that, it came out in the US that the Apple Ireland part of the problem (last step of the chain, not first Irish stage) isnt actually an entity anywhere. They’re just a shelf company in Ireland, and may not have any substantial existance. Rules could be created around that, and drive the profits back to where the wholesaleing was originally done. They also havent lodged a tax return anywhere for 5 years…

        • SMEMatt
          Posted 30/05/2013 at 2:31 pm | Permalink | Reply

          One of the thing that has brought this a head in the US is there is some pressure from these companies to be able to bring the profits back on shore without paying tax as the money is currently stuck in tax havens doing no one any good including Ireland.

          • GongGav
            Posted 30/05/2013 at 3:31 pm | Permalink | Reply

            Apple found a nifty little solution to that problem. Their cash reserves are overseas, where it does no good to the good ol’ US shareholder. They’ve been trying to lobby for an amnesty to bring the money into the country tax free, with no luck – they bring it in, its going to be classed as repatriated earnings, added to that years earnings, and subject to US company tax laws, or about 30%. What theyv’e been trying to avoid the whole time.

            So, the solution. In short, they’ve bought $100b in bonds, or something like that. For the purpose of the bonds, the money is as good as cash, and recognised by the financial institution as collateral. Worst case scenario, apple makes a “loss”, bring some of the cash back into the country to cover that “loss”, meaning a net profit of zero and no tax.

            Reason they can do this is because the interest rates over there are so low they’re basically giving money away. It then becomes cash reserves in the US that arent subject to tax laws. So Apple’s managed to get the best of both worlds. Tax free money to pay out a dividend to the shareholders, while maintaining their cash reserves offshore.

            • Stephen
              Posted 30/05/2013 at 4:27 pm | Permalink | Reply

              During the Bush years (2004) there was a ‘one time’ tax amnesty which was meant to reset all of this behaviour. What it as lead to, however, is the corporations now realise that with sufficient lobbying they can get this whenever needed – thus Apple park the $100+ billion dollars of profit offshore until they can bring it in with 0% tax applied.
              It happened before and it’ll happen again.

    2. Craig
      Posted 30/05/2013 at 6:09 pm | Permalink | Reply

      Have been following the US Senate news on iMore.com. Interesting article on this:


      Interesting part regarding the ‘non-entity':

      “Apple Operations International (AOI) is a holding company incorporated in Ireland. Being incorporated in Ireland, that corporation is not a US taxpayer. End of story. It also just so happens that because of Irish law (which probably requires a certain number of employees or physical presence) it is not an Irish taxpayer either. So AOI doesn’t pay tax. But that’s missing the point. AOI is a holding company. All it does is collect payments from other Apple subsidiaries (payments that have already been taxed) and manage the money from a central location. The money AOI collects in the form of inter-company dividends has already been taxed.”

      Its all interesting stuff.

      • GongGav
        Posted 30/05/2013 at 6:55 pm | Permalink | Reply

        Close. The money hasnt necessarily been taxed, its been through a tax regime. Its the key part of the loophole that makes it legit – somewhere, at one point or another, by the time it gets to that holding company one country or another has run the tax laws over it.

        In this case, the Netherlands, where its subject to taxation on its way in as rofit, but laundered back to zero (or very near zero) on the way out thanks to its intra-EU tax breaks.

      • Northern Blue
        Posted 01/06/2013 at 8:37 am | Permalink | Reply

        I think it is an even simpler situation than GongGav states. Basically all of Apples IP is owned by the Irish company. So a fee is paid by the Apple enterprises around the world (and others no doubt) to this Irish based company. This puts a cost on the various international Apple enterprises thus reducing their profitability and so also their tax payable in those host countries. The income goes into the Irish company which is subject to very low comparative taxe rates.

        What works here is that there is a legitimate business cost for IP usage and so the issue of profit transfer becomes cloudier (as compared to, say, just raising a part’s costs when it goes into another country which can be easily identified). Secondly you have a low tax state hosting the company and, if nothing else, they get an immediate profit benefit out of the taxation rate differential.

    3. Scott
      Posted 31/05/2013 at 9:09 am | Permalink | Reply

      Simple solution is to simply add a this company is not paying tax import tariff to every product sold. Apple and others are already ripping us off blind let’s see how consumers would react to a 30% price hike. It’s not as if we have to buy Apple products as there are many replacements. They are playing us for fools lets try turning the tables on them.

      Its simple really if Apple wants to sell products here then pay some tax or the consumers will have to pay it via increases to their own personal tax as governments try to fill the revenue hole left by the corporate greed in paying next to no tax.

    4. Bob.H
      Posted 31/05/2013 at 10:44 am | Permalink | Reply

      Sorry guys but what we have here is exactly the same problem faced by the Music industry and Film industry. A failure to adjust to the modern international, internet connected world.

      Tax has been calculated on profit since it started. It is called Income Tax for that reason. The manufacturing of where the final net profit for an international company is going to occur is an old an honoured practice which is perfectly legal. All that is happening is that the international companies are ensuring that the profit will be subject to the smallest amount of income tax possible.

      The hype about the internationals not paying their fair share is to be honest, undisguised jealousy with no rational basis.

      If the international companies should be made to contribute more then find a new way of extracting a contribution from them. Don’t sit there and whinge about the inequity of the current business model not working.

      Now I wonder where I have heard that before..

    5. Andre
      Posted 31/05/2013 at 1:17 pm | Permalink | Reply

      “I suspect that we’ll see some resolution of the tax situation with respect to these giant technology multinationals soon.”
      Your faith is touching but misplaced. Unless the resolution is just shifting a few chairs and mouthing of platitudes.
      As mentioned in another comment , any taxation reform to take account of globalisation, that has it’s benefits, and failings like this situation, would require a global response. Past history says not.
      Bob H, It’s nice to see that you see the documented disparity between tax paid and profits made as Hype. I wonder how small a tax payable will have to be not be hype? “Old honored practice” such as you cite is from another era. Would you like an “Old honored practice” such as having to put a needle on a record to be the best we have now as well?

      • Bob.H
        Posted 31/05/2013 at 2:22 pm | Permalink | Reply

        I am not really sure what you are trying to say Andre.

        Seems to me it is just so bloody hypocritical for the media in particular and also the politicians to complain that international companies like Apple and Google are not paying their fair share of tax. They didn’t write the tax laws or the amendments to the law the politicians did..

        The simple fact is, that if the tax laws aren’t working then bloody well replace them with something that does work and don’t just sit on your fat arse and whinge which is what the MSM and politicians are doing at the moment. In this respect they are no different to the content distributors whinging about copyright infringement.

        • SMEMatt
          Posted 02/06/2013 at 12:24 pm | Permalink | Reply

          “They didn’t write the tax laws or the amendments to the law ”
          There is a fairly good chance some of them did or at least have a significant say.

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