blog It’s become fashionable for Australian politicians to complain about how little tax global technology giants such as Apple and Google are paying, and it’s hard not to sympathise with this kind of standard whinge. After all, is it really fair that Google’s Australian division makes an estimated $1 billion in revenue, but can pay as little as $74,000 in company tax? Or that Apple Australia can pay company tax as little as $40 million, off local revenues of $6 billion? These amounts are especially galling when you consider the unrepentant attitude of the companies involved.
However, not everyone agrees with the proposition that the Australian Government should be fervently tracing what many see as Australia’s due from the global technology elite, cooperating with other global tax authorities in an international game of ‘where’s the offshore tax haven’. Writing on the ABC’s The Drum site, Institute of Public Affairs senior fellow Julie Novak argues that globally, countries are competing to be centres of taxation, and that Australia should start playing the game better, as low-taxing countries such as Ireland have:
“On balance tax havens have contributed to our global economic prosperity by encouraging tax competition, enabling footloose capital and labour to move to economically hospitable environments and thereby limiting the worst fiscal excesses in high-taxing countries.
From the mid-1980s to the late 2000s Australia lowered its economically inhibitive high corporate and personal income tax rates, encouraging tax competition and allowing domestic workers and firms to keep more of their own earnings in their pockets. The best way for Australia to now deal with the tax haven challenge is to join them by returning to the global tax competition contest.”
Theoretically, as a believer in the power of private sector competition and restricting the power of government, I agree with Novak. Australia, effectively, is a competitor in the global tax stakes, and we should be doing everything we can to attract major corporations on-shore to host their billions of dollars with us. By taxing companies less, you increase the potential for larger scale. A small percentage of Apple’s global profits, after all, is actually a large dollar figure. A figure that Australia is largely missing out on — but rival countries are reaping the rewards from.
However, there is a key problem with Novak’s theory. Efficient competition usually assumes a level playing field. But when it comes to countries, there are no level playing fields. Australia, with its complex economy, is simply not in a position to compete on a tax footing with tiny economies such as Barbados, Bermuds and the British Virgin Islands, which have little to lose from cutting their corporate tax rate and delivering favourable situations to the likes of Apple. We have to pay more attention to our domestic companies; to give artificial favourable status to multinationals to keep their billions here is nothing less than a race to the bottom. A race we would lose.
Still, as a small business owner and technology commentator, it’s also true that I would personally like to see Australia’s company taxes drastically reduced and incentives given to technology multinationals to set up more of their operations in Australia. It would very likely be a good thing if Australia could do more in this line, and pay more attention to our neighbours. In general, I’d like to see more smart solutions to these kinds of problems/opportunities from the Australian Government, and less focus on digging things out of the ground and propping up failing industries such as vehicle manufacturing. If the Australian Government can spend millions on an outdated company like Ford, surely it can take a smarter approach to an innovative and incredibly profitable company like Apple.
The IPA is a laissez-faire business lobby, she would say that. I’d be amazed if they weren’t seeking to push more and more of the tax burden onto workers.
Oh well, the Ken Henry Review said the same thing; that the people most hurt by high corporate taxes are the workers and consumers.
I guess it’s a good thing for Apple workers Apple only pays 0.6% then?
Errr, the Gillard government are already doing that by pushing Superannuation up to 12%.
The IPA support low tax overall, and also low government spending. Focus on what’s necessary, leave the rest for private operators to figure out. Not a popular idea around here I understand, but no need to misrepresent that the IPA stands for.
How precisely is increasing mandatory Super contributions “increasing the tax burden”?
hey guys,
just a quick one — any conspiracy theories about the IPA will be deleted. Play the ball, not the man.
Renai
Renai – bringing up an established pattern of extreme behaviour is *not* an ad hominem attack.
The IPA is regarded by a great many observers as a fringe group. You may like them and they may be backed by main stream media but it doesn’t make them a main stream or even credible voice. And certainly one where you should keep their unspoken Rand-ian philosophy front and centre.
Which other ‘Think-tanks’ of a non-extreme lassez faire background are you publishing uncritically?
Making an exception for this comment as it provides an amusing opportunity to comment.
“unspoken Rand-ian philosophy”
Ever wondered what the company is that publishes Delimiter? Try “LeMay & Galt Media”. Check the bottom of this page.
“Which other ‘Think-tanks’ of a non-extreme lassez faire background are you publishing uncritically?”
I wasn’t aware that I’ve ever published any IPA stuff “uncritically”, but thanks for your (with zero evidence) allegation that I am biased. I usually direct this sort of query to this post here:
http://goo.gl/Z9NfQ
John Galt from Atlas Shrugged?
Confirm :)
Read it?
It’s been on my “to do” list for about 3 years now, just need to find some spare time :)
“There are two novels that can change a bookish fourteen-year old’s life:
‘The Lord of the Rings’ and ‘Atlas Shrugged.’
One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world.
The other, of course, involves orcs.”
John Rogers
Mmm, IPA….
I’ve no issue with business tax/payroll tax lowering, per say, but it MUST be at a rate equal to productivity improvement. Otherwise, we’re shooting ourselves in the foot.
Productivity has to rise in this country before we can truly compete internationally. Simply lowering business tax is not a way to legitimately compete globally for business.
Do you mean in a similiar fashion to how wages will always grow with inflation + productivity?
Yeah? http://en.wikipedia.org/wiki/File:US_productivity_and_real_wages.jpg
So I take it you are linking US labour market figures as you believe our labour market should be more like that in the US?
Just pointing out that your blanket statement of “wages will always grow with inflation + productivity” is not actually true…
Ahh, It was a sarcastic comment in reference to the Australian market; as ideally you want labour costs to grow at approximately the same cost as inflation + productivity.
Look at Australian wages, mining, oil and gas, manufacturing would be some great examples or the AMWU in the 1970’s of what happens when wages grow too fast.
It’s not always the unions that push wages up, mining (or any boom industry) is a big culprit too. To attract skills (in a limited skill pool) to remote areas, they pay considerably higher wages than the norm. Mining (especially in a boom) actually causes a lot of problems for the rest of the economy (manufacturing is currently feeling a lot of pain thanks to the dollar staying so high due to mining exports).
There’s a lot on nuance to it that a simple “Given X, Y=Z” doesn’t really cover, and both sides of the labour/management equation can cause “blips” either way.
But in a nutshell, were pretty lucky in Australia that our WPI is actually so stable, but it’s not a “law” that it remains so.
Yeah I know it is not purely unions; Rio Tinto has been de-unionised until recently but wages rose, supply and demand will have just as much of an effect. I quote the Metal workers union in the 70’s as a great example for when wages grow to fast though as an extreme example. All the rest were just sectors where wages have grown fsater than productivity and hurt competitiveness on a global scale.
Something is seriously wrong when the entire tax bill for Google in Australia is 3-4 times what a typical worker pays! They can argue it this way or that but their “don’t do evil” mantra is absolute horse$*%t
Isnt that still better than requiring many millions or billions (industry wide) in taxpayer funds to stay in Australia?
Yes, but that’s like saying a ship with a hole in it is better than a ship which has capsized. Perhaps so, but no one’s having a good time.
What level of development do these companies provide in Australia? Google does have heaps of engineers here in Australia – this is where Google maps came from. Facebook has about three staff. Microsoft is a pure sales front with no development. Apple has no dev staff here at all. Big Tech companies should make a concomitant commitment and hire new grads
The solution to this is a higher gst and lower corporate taxes. Means we get revenue from the sales apple makes in australia, while also encouraging them to move R & D / other non sales activities to Australia.
Australia is at the moment not suited to a super low taxation environment as we have too many expensive services to provide (and more in the pipeline), and a long tradition of heavily subsidizing certain areas.
A higher GST accompanied with lower taxes in other areas provides a fair way to gather that revenue. I cant understand why this isn’t bipartisan, as the so called regressive parts of the tax are so easy to fix.
In other words, make the consumer pay a higher price and let the company keep all of its profits. Who wins? The company’s shareholders, and no one else.
Let’s have the technology giants harmonise their Australian prices with their international (e.g. US) prices, before we discuss raising the GST and lowering company taxes.
“In other words, make the consumer pay a higher price and let the company keep all of its profits. Who wins? The company’s shareholders, and no one else.”
LOLwhat?
If apple sells a iPad for say $500 and pays $100 tax does it really matter if the tax is paid $50 GST $50 Income or $100 GST? At the end of the day, the money always comes from the consumer and is redirected from the shareholders to the government.
There are issues with the concept, but that’s not one of ’em.
You’re right, ultimately the consumer pays the tax, in the long run anyway.
But companies don’t really operate in the long run, they’re just about maximising profits.
Companies cannot pre-empt the cost of income tax and add it to the price, because
1) they cannot predict their net profit
2) if they increase their prices to absorb the income tax, their competitors will undercut them
Income tax therefore actually taxes companies on their profits, scaling based on their relative success in the market compared to their competitors.
But if you simply increase the GST, everyone’s prices rise, so while less sales will be made overall, no one’s relative position changes, and the cost is passed directly to the consumer.
Companies are fully aware of this – that’s why Michael’s suggestion would be attractive for companies, despite consumers.
There is this misnomer that Apple is generating $6 billion in sales in Australia and very little of it is taxed. That is not true. All of Apple’s products attract the 10% GST. Even the value-chain attributable to Apple’s overseas operations can’t escape the 10% government take.
The GST is essentially a value-added tax which taxes all factors of production at an equal rate. The virtue of this is tax rate settings do not arbitrarily distort the underlying production decisions of how much labour or capital to employ by making one cheaper or dearer on an after-tax basis depending on the relative government impost.
The separate tax on corporate profits is essentially a second tax overlaid on value-add attributable to capital. Capital is effectively taxed twice — first, when paying GST and second, when filing corporate income tax returns.
A more efficient way of raising government revenue is to just lift the overall GST tax rate. Fiddling around with the corporate tax rate or other individual tax rates only creates distortions in labour and capital allocation. For example, raising the corporate tax rate lowers the after-tax return on capital. This discourages capital investment. With less capital to work with, the productivity of labour is lower resulting in lower wages.
The thing is that Australian consumers are paying that $545 million or $600 million of sales tax, not the company. Taxes on profits cannot *directly* be passed onto consumers, especially as increased prices relative to their competitors would affect their sales and therefore profits; but GST increases the prices of EVERY product. If this was *only* about raising revenue, then you could certainly jack the GST up, but that’s effectively just a tax on Australians’ personal income, and affects lower incomes more than higher incomes (you know, because someone ten times richer doesn’t buy ten times as many iPads). The idea is to get more tax out of these companies’ existing profits (i.e. fairness), not simply raising government revenue.
A third benefit to the GST is that it is very hard to avoid;
If you make sales in a country you are oblidged to pay GST.
Isn’t that the only benefit?
Higher GST also punishes those that don’t even own an iPad, like a lot of pensioners and folks on welfare.
I’d prefer to see any money moved out of Australia taxed at a set rate, if a company reinvests it here, then they get a much lower rate.
The solution isn’t higher GST – consumers will just wear that cost. You still haven’t addressed the problem – that the company is paying very little tax as a proportion of profits, because it obfuscates the profit figures through offshore fund shuffling. Taxing consumers even harder is the antithesis of a solution to this problem – what you’ve done there is zero in on the most damaging net effect of the situation and come up with a plan to make it worse. *golf clap*
No, the ‘solution’ to the problem from an abstract sense is to find a way whereby companies pay tax broadly in line with individual obligations. Well, that and applying the same mechanism to the ultra wealthy who use the same structures to avoid individual tax as they apply to their businesses. If everyone pays essentially the same proportion of tax to their actual, realisable income, individuals will pay substantially less tax than they do today. With a simplified ubiquitious tax system you could also vastly simplify tax law. If you could make it an automatic electronic deduction you could eliminate the need for individuals to waste time, effort and money on annual reporting and tax returns.
The solution is to find a way in which companies pay a larger proportion of tax on the money they already make. Not add an extra tax on that they can push down to consumers, as that defeats the purpose. Make it impossible for them to avoid. Reasonably enforce cross-region price parity. If you can’t raise prices to cover the increased tax burden and it is enforced in such a way that you must pay it on sales made within the country, that ensures the burden of tax remains with the companies, that ensures a more equitable and fair tax system, and that ensures such a dramatic increase in government revenue that they can offset it against individual tax rates, and maybe even reduce the rates of company tax because so much more tax revenue will be captured overall. Consider the implications for economic growth and stimulus resulting from both individuals and small to medium businesses having greater disposable income as a result of a reduction in their rates if taxation.
You cant ” obfuscate” sales. Thats the whole idea!
A sales tax is also long term the only sustainable revenue source. In 10 years when you are working from home for a company on the other side of the world, and holding most of you assets in Bitcoin, good luck taking income or corporate tax!
The only fair, sustainable tax base for a government in the 21st century is a sales tax.
You may not be able to obfuscate sales, but you also achieve nothing except to tax consumers (regressively).
I have a feeling we’re having the same argument that people had 15 years ago.
Having said that, in the scenario you described, you’d absolutely be right, but we’re not there yet, and let’s not confuse who’s actually being taxed, or be misled that this isn’t ultimately an enforcement issue.
“You may not be able to obfuscate sales, but you also achieve nothing except to tax consumers”
Just for clarification here – GST taxes consumers and therefor is bad. Income tax on the other hand ???
Are you talking about personal income tax? Personal income tax and GST both tax people/consumers, but personal income tax is more equitable (fairer) than GST because…
GST is a regressive tax. If someone makes $1000 a month (after income tax) and someone else makes $10000 a month (after income tax); and you charge them both, say, $110 a month for their internet connection, including $10 of tax. You’ve taxed the lower income earner 1% of his income, but the higher income earner 0.1% of his income, on that service. This will almost always be the case, because someone who earns more spends a lower proportion of his income, and the identical good or service incurs an identical dollar value in tax on the consumer irrespective of the earnings of the consumer.
If you’re talking about corporate income tax, I’ve already explained my position above. The gist of it is that it actually taxes profits, because corporations operate in the short term, and face price-based competition from their competitors, so they cannot raise prices to absorb the tax as that would reduce their sales and therefore profits. Monopolies selling necessities could, I guess, but they’re price-setters anyway.
Your analysis is deeply flawed. You are ignoring the rest of the income that both the wealthy / non- wealthy person have to spend.
If that iPad was the only item they spend money on then it would be accurate but most people will spend their income.
If you apply the GST to the rest of the income spent then both people will end up paying approximately 10% as tax.
To be more specific the way it is setup in Australia, it could even be progressive due to the nature of the exemptions on the GST. As people in the lower income percentiles will spend a larger proportion of their income on items exempt from the GST they will pay proportionately less tax.
It is not deeply flawed; you can’t simply dismiss my entire argument by chucking a label on it, Michael.
I accounted for that. I said that lower income earners, generally, spend a greater proportion of their income than higher income earners, so they are taxed more as a proportion of their income. You’re trying to tell me that, generally speaking, someone who makes a quarter of a million dollars a year spends the same proportion of their income on goods and services within Australia, as someone who makes $40,000 a year. I mean there’s obviously variation – some higher income earners have large families that they have to support, and so they do spend more than their counterparts who don’t have large families – but the general trend is there.
I am aware that there are GST exemptions, but those simply patch up the issue caused by GST, they don’t solve it, and they certainly don’t make it progressive.
Sorry I missed that line as I focused on your example.
You are approaching it from the wrong angle. To show that the GST is regressive you cannot use a micro-economic approach. You need to look at how people in the lower income percentiles allocate their disposable income (consumption vs savings vs tax) and how people in higher percentiles do so.
It is regressive because people in higher income percentiles tend to save more income and savings do not incur the GST. (Granted this would have been odd pre-GFC, considering the savings proportion for the whole country was negative.)
However, you cannot draw an analogy from 1 item as people on larger income will purchase many more items and therefore pay much more GST in dollar amounts. People on higher incomes will also have to pay a much higher proportion of their income as income tax.
There’s nothing there I disagree with you on, but you and I have reached completely different conclusions.
I’d hazard a guess that those on higher incomes may also do more of their spending outside of Australia (such as when they go on holiday) than those on lower incomes, and invest their surplus income in say shares, so that would also have the effect of reducing the GST they pay despite reduced saving.
But the bottom line, I think, is that GST is, at best, a means of raising revenue – but it raises revenue from consumers doing spending in Australia, not companies making profits in Australia.
Are you deficient in your ability to read basic English, or simply changing the subject while attempting to appear to continue the discussion. I said nothing about obfuscating sales; the word was profit, a completely different thing. You’re trying to direct the discussion to focus around your limited concept of a sales tax, which is misleading.
It is trivial in the extreme for businesses to avoid taxation fixed to retail sales. You assert that a sales tax is the only long term sustainable solution, but this completely ignores all business input activity. And before you try to claim business to business sales and service activity is subject to GST, that is only true so long as a transaction occurs and that it occurs within Australia between Australian businesses. If it involves an offshore entity, no GST. If two companies keep transaction records in internal accounts and only reconcile in a single transaction at the end of each financial year (such as insurance companies do between each other for claims and expenses) you lose much if not all transactional tax. If companies allow alternative remuneration systems (such as trades for stock) as a way to reconcile accounts, there is no sales tax or it is vastly reduced. If companies transfer funds between each other using international branches that bill costs back to the Australian arm there is no sales tax.
Don’t get me wrong – a tax based on profits in today’s regulatory environment is open to abuse and manipulation. But shifting to a sales tax dependant system merely shifts more of the burden to consumers without addressing any of the limitations that prevented the income tax system from operating effectively – you’re effectively penalising consumers for the behaviour of multinational companies and the super rich.
The only truly ‘fair’ system is a transactional tax within a strongly regulated environment. A nominal tax of less than 1% per electronic transfer of funds on every single transaction that occurs in Australia will substantially reduce taxation for consumers and even most businesses, while substantially increasing government revenue.
This would have to be heavily regulated to ensure all businesses and entities operating within Australia use accounts that are subject to the transfer tax, and that they actually make physical transactions for every input and output event – running internal accounts to keep transfers artificially low must be eliminated and audited. I would suggest, however, that such regulation would be substantially simpler, less burdensome and cheaper to operate, oversee and audit than our current (extremely complex) taxation system.
But then there are substantial obstacles and objections to implementation of a transactional taxation system which are far beyond the scope of this discussion. My point was merely to agree that there are alternative funding and taxation models that are vastly superior to income tax. A sales tax system, however, is not – it is actually inferior because it shifts the tax burden to those least able to pay while not fixing the causes undermining the existing income tax system.
The other Michael’s point is that it is extremely difficult to avoid a tax that is based as a fraction of your turnover (sales).
“It is trivial in the extreme for businesses to avoid taxation fixed to retail sales”
Could you give an example?
Australia is at the moment not suited to a super low taxation environment as we have too many expensive services to provide (and more in the pipeline), and a long tradition of heavily subsidizing certain areas.
What “expensive services” are you thinking we ditch?
Perhaps its an idealistic view, but shouldn’t the world be jointly focussed on eliminating the usage of tax havens by big businesses? Rather than just giving up, and lowering taxes in the faint hope it might make them do more business here?
“However, there is a key problem with Novak’s theory. Efficient competition usually assumes a level playing field. But when it comes to countries, there are no level playing fields. Australia, with its complex economy, is simply not in a position to compete on a tax footing with tiny economies such as Barbados, Bermuds and the British Virgin Islands, which have little to lose from cutting their corporate tax rate and delivering favourable situations to the likes of Apple. We have to pay more attention to our domestic companies; to give artificial favourable status to multinationals to keep their billions here is nothing less than a race to the bottom. A race we would lose.”
Exactly.
“the world be jointly focused”
I couldn’t help but lol at this :)
You’re right, but it’s too idealistic.
Yes, it’s idealistic, but then why would you want to go the OTHER way?
I mean, it’s basically the relationship between the master and the slave. If the slave is obedient, the master treats him kindly; the most obedient, loyal slaves – they get dressed the best and fed the best, but of course, the master still owns him. If the slave rebels, the master punishes him, and of course still owns him. But if the slave escapes, or kills the master, the master no longer owns him; but he could only have done this if he had first chosen to rebel.
Should we flatter the master in hopes of better treatment, or should we stand up and assert our own power over ourselves?
Apparently, Ireland is now doing a review of it’s taxation thanks to the…help…Apple gave the US government in it’s committee meeting.
Whether they change anything remains to be seen though.
I note that Ireland has public debt about 110% of it’s GDP vs Australia’s 11%, and the Irish economy is still barely out of recession. I would have throught that would be evidence enough of the failure of a super low business tax regime.
They allowed their banks to go waaaay out on the deep end, and then when the roof fell down, they spent all the taxpayer’s money bailing out those same banks. That really hurt.
Overall though Ireland was an occupied country up to about 1930, and for a long time they struggled as a rural backwater. Their “Celtic tiger” strategy in the 1990’s was a high risk, high borrowing, and high tech strategy. It mostly worked, even when you take into account recent setbacks their trend in GDP growth has been better than most of their neighbours.
http://en.wikipedia.org/wiki/Celtic_Tiger
They allowed their banks to go waaaay out on the deep end, and then when the roof fell down, they spent all the taxpayer’s money bailing out those same banks. That really hurt.
So your saying their strategy wasn’t as good as ours then, and if they’d actually regulated better they could have avoided it?
We manufacture products in Australia, and import nearly identical products, all of which get offered to customers.
As a manufacturer, I would be attracted to Australia if there was a low corporate tax rate … and low wages, and an incredible work ethic, and ease of importing/exporting, and other similar industries so I can enjoy the benefits of a cluster, and excellent transport infrastructure.
However, if I was just trying to hide my money, only secrecy, a non-extradition treaty, and an incredibly low effective tax rate would be needed to entice me.
If I wanted the best of both worlds I’d just go to Taiwan, or China. Wait … isn’t everything I buy at the shops made in China already? Oh, I guess as a manufacturer I’m cottoning on a bit later than most, and still making stuff in Australia.
To be honest, if I was a manufacture, nothing much would attract me to Australia. If I was into R&D or Services though, that’s a different proposition…
When looking at this whole issue, its worth understanding some history and background. The current system of tax treaties and international structuring arose from a desire by many national governments to try and maximize the tax revenue they collect. They did this by recognizing that there are constantly situations where an international corporation may be obligated to pay tax on the same revenue but numerous times. Of course, this would result in no net revenue and the corporation going bankrupt. Therefore in order to attract the good or service to their jurisdiction; try to get as much tax revenue as possible; and try to encourage the corporation to set up some of its physical structure and work force in their jurisdictions, countries like the US, UK and Ireland set up tax treaties between themselves and other countries. It is key to understanding this underlying motivation for the current system. This system arose not out of some noble desire to relieve taxpayers of the “unfairness” of double taxation or even at the bequest of the lobbyists of those taxpayers. It came out of a logical self-interest of various governments.
With this background in mind, let’s look at the Apple situation and compare it to Google and Starbucks (which are also under fire in the international media for their tax planning).
-Many US politicians and citizens want these three companies to pay US tax on its WORLDWIDE income, including income earned from foreign customers. They argue that while this may not be legally correct, it is MORALLY correct because all three companies were a) Founded, IPOed and has their headquarters in the US; AND b) The citizens of the US are suffering in a financial downturn and “deserve” this money;
-Many foreign politicians and citizens want these companies to pay more tax on the revenue generated from customers in their country. They argue that while this may not be legally correct, it is MORALLY correct because a) The company is deriving income from tax resident individuals and corporations; AND b) The citizens of these countries are suffering in a financial downturn and “deserve” this money;
-All three companies want to maximize their net revenues (“gross revenues” minus “expenses including tax” equals “net revenue”). Each company used the tax treaty network and international structuring regime to minimize their global tax burden. As part of this structure they may have to set up operations in places like Ireland; or assigned intellectual property rights to places like the Netherlands. However there are important differences between these companies;
-Starbucks needs to respond to this “Moral but not legal” obligation demand because a) it has physical facilities in the foreign country which could be picketed or damaged reducing sales; and b) There are many competitors in these countries who could easily service customer needs and decrease gross revenues. As a result, it is logical that Starbucks may consider paying more tax in the foreign country or the US than legally obligated in order to maintain gross revenues and thereby maximize net revenue.
-Google is different in that a) it does not have or need physical facilities in a given country to deliver its service; b) With all due respect to other search engines, it is not really realistically worried today about losing customers to its competitors. Therefore, the current controversy is unlikely to significantly reduce people from using its products and services. As a result, it is logical that they will not consider paying more tax anywhere than legally obligated;
-Apple derives gross revenues from various products (hardware and software) which has competitors. Some of the sales of their products and services derive from physical retail outlets and some does not. the question of whether Apple products (with their hardware and software integrated) is unique enough to avoid a drop in revenues.
The end result is that the US or foreign country push to have Google pay more tax to their country is probably doomed to failure UNLESS the US or the foreign company can show that Google did not properly operate the tax structure they set up. Whether the Reuters uncovered “UK sales team” is sufficient to undermine the Google UK tax structure is a legal question, not one that will be settled in Parliament or the courts of public opinion. As a tax lawyer, I can tell you that the Reuters revelations about UK employees is interesting enough to warrant further investigation but hardly a slam dunk that Google was offside. Investigation and adjudication will tell. If Google is currently tax-compliant then you have to look at the practical levers to force Google to pay more tax than they are legally obligated.
Starbucks sells a standard physical commodity which is readily available from other competitors and is clearly subject to pressure. “Search” is not a standard physical commodity today and whether through perception or reality, it is a far and away market leader. As a result Google is not motivated by self interest to pay more tax to maintain gross revenues. Where Apple considers itself (closer to a standard replaceable commodity or a unique product) will determine where they will respond and volunteer to pay more tax anywhere than they are legally obligated.
Well……lets face it, Starbucks make crap coffee (in fact I’m pretty sure it’s the worst coffee I’ve ever had). While they are international, I doubt they do that well outside the US.
@Tinman
Umm….they’re MASSIVE here in Asia. Like twice the size of the US overall….
Cool, didn’t know that. I saw a sh’t ton of Seven-Elevens, and a few Hard Rocks while I was over there , but never any SB’s. Guess I need to get into the cities there a bit more :o)
AGF (Amazon, Google, Facebook….but you can add in many other “Net companies” like eBay) is the real problem for the US (for some of the reasons you brought up). No real physical presence anywhere, and if they (US Feds) tick them off too much, they can just headquarter to the Caymans or something similar very easily…
Something that hasn’t really come up yet, but will effect the US severely, are companies like Apple moving their IP/patents outside of the US like Apple have done. Modern tech corporations effectively are the IP and I expect the US Feds to get more agitated about that once it sinks in.
This crosses over what I’ve repeatedly said. What, exactly, do people think the result will be if this ‘problem’ is magically solved?
Australia wont see much more revenue, if any. The bulk of it will still go offshore, and get taxed elsewhere. If anything, we lose, because the US wants even the legit Aussie taxes to fall under their banner.
Thanks for the post David, most people dont really understand where the problem actually is, and think its a simple case of tax avoidance when its far far more complex than that.
Well if they don’t sell a product which the public buys in sufficient quantities to generate a profit, their tax position is pretty moot!
At the end of the day, if Apple didn’t gouge us so much, I expect a lot more would feel sympathy for them. As things stand, Apple should pay their fair share for the services they use.
Julie Novak manages to get it wrong in so many ways it’s difficult to count them.
Firstly, Google does choose to discretionary business here. They pay the most expensive thing of all Australian programmers wages. It’s not like they don’t have a choice – there are programmers all over the world. Apparently our tax regime doesn’t seem to have been a problem.
Secondly, the argument isn’t about whether Google outsources it’s ad marketing operations to Ireland. Clearly, it doesn’t. If you deal with Google Ads in Australia, you deal with an Australian company who pays Australian taxes, employing Australian people, who all work in Australia selling products that will be delivered in Australia to other Australians. Unlike the programmers they employ, they probably don’t have much of a choice in this. Australian want to deal with Australians, particularly when you are paying 10’s of thousands a month. That isn’t going to change regardless of how Google is taxed.
Thirdly, Australia is already a low tax country, so by Novak’s reasoning we should be out-doing Ireland! Don’t believe me, look at this: http://www.treasury.gov.au/Policy-Topics/Taxation/Pocket-Guide-to-the-Australian-Tax-System/Pocket-Guide-to-the-Australian-Tax-System/Part-1 Note how we are lower than Ireland.
You may not like people dismissing the IPA as a bunch of fringe lobbyists, but this sort of “analysis” is pretty much par for the course from them. They are not doing analysis, they are pushing an ideology. Yes, occasionally that ideology may yield the right answers. But so does a broken clock.
We may be a low tax nation compared to Ireland in a simple comparison, but it is my understanding that Ireland is only one part of the chain of companies involved.
Due to the chain of countries and companies involved (centred around Ireland) these companies have a tax rate on its way towards zero.
It isn’t zero; they do pay some tax. But there is a reason they don’t pay Australian taxes, and that is because Australian taxes are higher than the amount they pay at the end of the day.
Excellent link, thanks Russell
Your link shows that we have a low tax income / GDP ratio. This does not show which taxes form the bulk of our income. It is still possible to have a higher tax/GDP % than us and a lower corporate rate due to other taxes like a VAT.
It is disingenous to compare taxation across the economy as a whole to taxation across a single sector.
Oh for pete’s sake. You could google it yourself.
http://www.taxreview.treasury.gov.au/content/Paper.aspx?doc=html/publications/papers/report/section_5-07.htm
Again, our corporate tax rate is lower than most.
But the point was the tax rate has nothing to do with the point Novak makes. Novak is effectively saying Google will not do stuff in Australia is (which boils down to employing Australians to do work in Australia) unless our tax rate is low.
This is blatantly wrong. Google runs an ad agency in Australia, which employees Australians. These Australian’s sell ad’s to other Australian’s, designed by Australian’s, delivered by a CDN in Australian, which are viewed by Australians. They don’t employ people in Ireland to do this job, they don’t run servers in Ireland to do this job, they don’t deliver these ads to the Irish. All Ireland does (or whoever is at the other side of the Dutch sandwich) is email the invoice and bank the cash.
Novak bangs on about how Google chooses to pay tax for all this activity in the lowest taxing principality. Talk about banging on about the obvious – of course they do . Novak is arguing this is a good thing – we should continue to let Google pay no tax on work done by Australian’s, sold to Australian’s. Yeah, right. There is only one winner in race to the lowest taxing country is the the place that doesn’t levy a tax at all. So I presume that is what Novak is arguing for. Oddly, would you believe that it is pretty good definition of the IPA’s and Novak’s idea of utopia?
I am amazed you or indeed Renai, can’t see through the smoke screen. This is all bullshit. It isn’t a Tax problem. Google would use Australian’s to design and sell ad’s to Australians, regardless of what the tax rates are. This is an accountancy problem.
On balance tax havens have contributed to our global economic prosperity by encouraging tax competition, enabling footloose capital and labour to move to economically hospitable environments and thereby limiting the worst fiscal excesses in high-taxing countries.
Her argument is that, tax havens avoided governments spending too much money…Good thing too, I would hate for any of that 6 billion dollars Apple booked to have been spent by the Australian government, I am so happy that Apple got to keep it all and spend it on … nothing. (don’t they have 100+ billion dollars in cash reserves they can’t spend?)
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