Google Australia: ~$1bn in revenue, $74k in tax

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news 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.

In its latest set of financial accounts filed this week with the Australian Securities and Investments Commission, Google stated that it received some $201.1 million in revenue in the 2011 calender year in Australia. Expenses largely associated with its significant Australian headcount of 568 staff ($143.5 million) and advertising costs ($18.9 million) meant the company made a loss on paper of $3.9 million in that period. Both Google’s revenues and losses were up over calendar year 2010.

In the statements, Google accounted for just $74,176 in taxation for that year, compared with $1.1 million for the year previously. It had $46 million in cash and cash equivalents on hand as at the end of December last year.

In its financial statements, Google Australia did not list its activities as being the provision of advertising and software services, both of which it charges Australian customers for. Instead, it noted that it has agreements with its US parent, Google Inc, and a company called Walkway Technologies for the provision of research and development services, and with Google Ireland and Google Asia-Pacific for the provision of sales and marketing services. Consequently, almost all of Google Australia’s revenues were listed as being for services thus rendered to those companies.

“The company’s service revenues are generated under service agreements with Google Inc, a company incorporated in the United States of America, Google Ireland Ltd and Google Asia-Pacific Pte. Ltd, all of which have Google Inc as their ultimate parent company,” Google wrote in its ASIC filing. “As a consequence, the company is dependent on the operational support of Google Inc, for future revenues and profit under the agreement.”

Google Australia’s financial statements were audited by accounting firm Ernst & Young, with partner Meredith Scott certifying in the documents that the financial report of Google Australia “gave a true and fair view of the company’s financial position as at 31 December 2011”, and that it complies with applicable laws.

Since Google Australia’s financial statements were published, the company has come under significant criticism from various media outlets for the amount of revenue it declared, and the amount of tax it claimed it should pay.

The Australian newspaper reported that local analyst house Frost & Sullivan had estimated Google Australia’s revenue from the local ad search sector at closer to $940 million a year. The Financial Review listed similar estimates, but Google spokesperson Johnny Luu told the newspaper Google’s actual annual tax expense for the 2011 calendar year was $781,461, and that it complied with all relevant tax rules.

If it is true that its Australian revenues are close to $1 billion, the way that Google Australia accounts for its revenue does not appear to be consistent with the way other major technology companies account for their revenue in Australia.

In January, Apple, a major rival of Google, published its own financial statements for its 2011 financial year, noting that it made $4.88 billion from its Australian division in the year to 24 September 2011. The company made $190 million in local profits, and paid $94 million in tax in Australia. IBM Australia also filed its financial results over the past several weeks. The company made local revenues of $4.5 billion, with Australian profits being $428 million, and taxation taking a $119 million chunk out of IBM’s pocket.

In January this year, Mashable reported that Apple maintained much of its profits in so-called “offshore tax havens” which allowed it to stop the US Government from taxing it to the full extent possible in its home country.

In 2010, The Huffington Post wrote about IBM’s taxation purposes: “In December 2008, the Government Accounting Office reported that 83 of the 100 largest publicly-traded companies in the country — including AT&T, Chevron, IBM, American Express, GE, Boeing, Dow, and AIG — had subsidiaries in tax havens — or, as the corporate class comically calls them, “financial privacy jurisdictions.'”

However, in Australia, neither Apple nor IBM appear to use the same technique as Google with respect to tax accounting. The pair’s financial statements do not contain references to similar international subsidiaries in locations such as Ireland that Google Australia’s do, and both pay significantly more corporate income tax in Australia.

It’s not the first time Google Australia has been in a similar situation with respect to its taxable income in Australia. In May 2011, the company reported similar finances. In a statement at the time, a Google Australia spokesperson said: “Google complies fully with all relevant tax legislation in all the countries in which it operates, including in Australia. That means that we contribute to all relevant local and national taxation schemes – as well as providing employment for over 400 employees in Australia.”

opinion/analysis
In this article we have compared Google’s revenue disclosure and taxation approach to that of several other major technology companies operating in Australia; direct competitors of Google’s in several areas that also make significant amounts of money locally and are known internationally for their success in areas such as taxation minimisation.

However, neither company appears to take the same approach that Google does in Australia when it comes to disclosing how much money it is making locally and how much tax it is paying on those revenues. It appears that Google is going far beyond what large corporations such as IBM and Apple are doing in terms of taxation minimisation in Australia.

Of course, Google Australia does pay more tax than its ASIC statement would indicate — at the very least it would be paying many millions in income tax for the 500-odd staff it employs locally. And I’m sure that its spokesperson’s claims this week that its real tax figure in Australia is closer to $800,000 is correct.

However, that doesn’t change the fact that it appears as if fellow technology companies IBM and Apple are paying at least a hundred times more in real dollars in tax in Australia than Google is.
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.

Image credit: Posted by Mark Anderson under Creative Commons (original from Walt Disney)

49 COMMENTS

  1. Tax laws need to change (not just in Oz but around the globe) when such a large corporation pays less tax than a handful of blue collar workers.

    Pete

  2. Renai, wouldn’t it be nice if you stood up for small government rather than demanding the Federal Government impose additional taxes?

    The fact of the matter is that if a company makes a loss, then clearly its taxable income will be negligible. The same rules apply to other businesses.

    I applaud Google for taking advantage of pro-business tax policies in other countries. Clearly Australia isn’t shining beacon in that regard given the current Government’s propensity to increase taxes on various sectors whilst donating billions to failed industries like the car and steel industries.

    On another note, if by your own admission you know little about Australian taxation law – why not ask for a comment from a qualified tax lawyer? You seem quick to “correct” the record and “misleading” statements of the opposition in relation to the NBN, but are quick to insinuate that what Google is doing is somehow ‘evil’ and robbing the taxpayer.

    Come on, you know you’re better than that.

      • Renai, Google Australia is a separate (loss-making) entity. The Australian Government has no jurisdiction over the US Parent company, obviously.

        • “Google Australia is a separate (loss-making) entity.”

          No, it’s not. Google Inc decides whether it makes a loss on paper or not. It does not organically make a loss.

          • ‘On paper’ – are you kidding? You make it sound like it’s some surreptitious tax evasion exercise when it is all perfectly legal. Online ads are sold via off-shore subsidiaries of Google Inc., namely Google Ireland. This is the reason why the search business income is not declared in their Australian financial statements, as is perfectly permissible under Australian law and international accounting standards.

            Yes, Google Ireland and Google Australia are wholly owned subsidiaries of Google Inc., but they’re legally separate entities. That Google Australia manages to make over $200 million without the online search business is surprising, despite the small loss.

            As for your comparisons to Apple – it has the benefit of several large & highly-trafficked retail stores in various Australian cities which is the reason why it has relatively high declared revenues & profits here.

          • hey Robert,

            I’m sorry, you’re not rationally contributing to the conversation here. I already acknowledged that I don’t know whether Google is breaking the law here. That’s not the issue, as I noted; the issue is whether or not the law should be changed to enforce them paying more tax on local revenues of $1bn than $74k. Simply not disclosing your true local revenues is not acceptable.

            With this in mind, and prior similarly irrational conversations I’ve had with you on Twitter over the past year or so, I’ve decided to ban you from further participating in Delimiter until the end of 2012. My opinion is that you don’t have a willingness to contribute to the conversation in the open style which Delimiter focuses on.

            Please see our comment policy here:

            http://delimiter.com.au/comments-policy/

            Cheers,

            Renai

          • Renai

            As I commented to someone on Twitter this morning, the mere fact that Journalists and analysts “think” or “estimate” that Google should be worth $1bn in Australia does not make the income line in the books arrive at the result. I see no evidence of $1bn of income, other than hearsay.

            Now, I’ll happily agree that on a worldwide basis, the income generated by Google from Australian based clients will likely be more than just the income of Google Australia, however I have no evidence to support that. Further, I haven’t looked to see whether their consolidated accounts in the US disclose their income on a regional basis.

            I don’t consider Apple (box shifters) nor IBM (box shifters and bums on seats consulting) to be relevant comparison points. I imagine that you can do a find/replace on this article for other global software companies such as Facebook; having said that, I have no idea whether Facebook have companies resident in Australia.

            The tone of this article reminds me of the attack on Atlassian last year for accepting funding from outside of Australia. The focus on payment of income tax within Australia speaks to a failure to appreciate the global scale and complexity of the software industry and it’s largest players. To measure a company and it’s activities based solely on elements of one jurisdiction or another doesn’t present a balanced view.

            My follow up would be to pore over their global consolidated accounts, and see whether they disclose a global effective tax rate. If you want to measure the worldwide activities and income, then you need to evaluate the worldwide tax impost. I haven’t looked for their published accounts (with the all important notes, which is where the good stuff is) online, but this might be a good place to start (http://www.google.com/finance?q=NASDAQ:GOOG&fstype=ii).

            C!

          • Now that it’s the weekend, and I have nothing better to do than look at more financial statements, a quick review of the link I posted earlier (http://www.google.com/finance?q=NASDAQ:GOOG&fstype=ii) tells me the difference between profit before and after tax is $2.5bn. That suggests roughly an effective tax rate of 21% on their world wide income. Those are not the numbers of a company doing evil or hiding income.

            C!

          • Bit harsh, seems like he’s just proposing an alternate point of view to you Renai.

            Seems a bit churlish to wield the big moderators’ stick.

          • As mentioned, I’ve tangled with him before on Twitter; and there is no possibility of him changing his views on these kinds of things. He will argue incessantly and rudely.

          • Not being illegal doesn’t make it right Robert. I’m a capitalist at heart but what Google is doing, while legal is a dodgy business practice.
            I don’t know what is supposed to be done about it, but it is dodgy and somehow needs to be stopped.

          • Actually had a similar case with one of the mines up north.
            One paper they made a lost because they were being billed by the parent for freight and other expenses reducing royalty payments. Little wonder why there was objection when they wanted to expand the mine.

            I will second just because it is legal doesn’t mean it is right.

          • All that aside though, it’s interesting to note that you have responded to the comment in regards to obtaining the opinion of a qualified tax lawyer.

            If this was an NBN article, we’d have government report citations, various opinions from various industry sources, BT executives, Optus executives, Simon Hackett, attacks on Tony Abbott and Malcolm Turnbull and the whole raft of Australian IT community throwing their two cents in.

    • Robert, Renai’s account of Google’s tax behaviour seems pretty straightforward to me. No-one’s saying it’s illegal. It is up to each of us to judge how we view that conduct.

    • “Renai, wouldn’t it be nice if you stood up for small government rather than demanding the Federal Government impose additional taxes?”

      Why on earth does Renai have an obligation to pursue your own personal political philosophy? If you want to push for small government, start your own blog.

  3. Google is not doing anything different to a lot of international companies in manipulating their reported Australian profits in order to minimise their tax. This is nothing new and has been happening for decades.

    The tax paid by their employees doesn’t count in my opinion as it is the employees responsibility.

    What does count and is not included in their financials is the amount of GST that they pay. Local revenue of $201M would suggest a fairly decent GST contribution.

  4. Bob,

    I have a business which advertises with Google AdWords.

    All invoices are issued by Google Ireland. There is no GST at all.

    Google is simply moving profits to jurisdictions with minimum taxes. I wish i could do that

    • “All invoices are issued by Google Ireland. There is no GST at all.”

      Very interesting. With a turnover of $201M it is a wonder the ATO hasn’t taken a close look. I know they don’t chase the GST on purchases from overseas by individuals where the value is less than $1K but forgoing potentially $20M from one supplier seems a bit strange.. Hoges would be real impressed :-)

      • The $200M likely does not count this revenue. If the invoice is generated by Google Ireland then that review would be on Google’s tax filings in Ireland. My guess (though obviously I have no idea) is that the $200M is mostly coming from peering arrangements with ISPs and cross-promotions and stuff (e.g. the YouTube Symphony thing).

        The $1b that Renai is talking would include the revenue from AdWords. When an Australian business buys ads from AdWords, they’re buying them from Google Ireland, not Google Australia. I have a hard time seeing how there is anything actually illegal there, and I would actually say it’s part of Google’s fiduciary duty to it’s shareholders to do everything it can to minimize the tax it pays — you could even argue that it would be illegal the other way around: if Google was paying the (presumably higher) taxation rate required in Australia when there was no legal obligation to do so, it’s shareholders could theoretically sue it for breach of fiduciary duty.

        I don’t think it’s even possible to make a law that says “if you have a subsidiary in Australia, then all revenue from Australian customers must be booked through that subsidiary, and not one in another country”. But even if you could, then all you’d do is cause Google to close down it’s Australia office and move to another country. I can’t think of a way to “force” Google to pay taxes on it’s AdWords revenue from Australian customers that wouldn’t end like that.

        • I think it is certainly possible to make such a law. Frankly, if I reside in Australia as a citizen, I am expected to pay tax on what I earn. The same situation should be true of Google.

          $74k tax off revenues of ~$1 billion? That is not fair. Many tiny Australian small businesses — restaurants, for example — would pay more tax than that.

          • Yeah, but what I mean is, if you make a law requiring them to pay hundreds of millions per year in additional taxes, then it would be cheaper for them to just pack up and move to another country. Having Google here is better for the economy than just the taxes they bring in.

          • Then we’d have no Google _or_ Amazon and even more offshore purchacing (or pirating) would happen. I fail to see how it would help, but it would be nice if it were possible.

        • I don’t think it’s even possible to make a law that says “if you have a subsidiary in Australia, then all revenue from Australian customers must be booked through that subsidiary, and not one in another country”.

          The maximum amount you can tax a legal entity is the actual income that flows through that entity. lf some income relating to a particular transaction of interest doesn’t flow through that entity, the Australian Government can’t make a claim against it.

          In most tax matters, the discretionary rule-making powers of the ATO largely relate to denying deductions against taxable income. The only way the ATO can “challenge” Google Aust’s declared income is if the services rendered are not adequately compensated for by the overseas entities that Google Aust serves. In other words, Google Aust should not be making a loss.

          For example, if I were to setup a local company that provides market research services to Amazon in the US so that they can customise their web portal to suit Australian consumers, all sale transactions are still between Amazon US and individual Australian buyers. The ATO can’t impute the gross value of these sales to my company just because l provide support services to Amazon in marketing their wares to Australian consumers. Google Aust presumably performs a similar role.

        • The only way Google Aust would deserve a greater share of the profits that Google Inc earns from the Australian market is if the “rights” to profit from Google’s search technology were assigned (or franchised) to different territories. If this was the case, then the ATO would rightly insist that Google Aust earns an appropriate return on the IP assets that it owns.

          As things stand, Google Aust is just a simple service provider. A lot of US tech companies assign ownership of IP to subsidiaries incorporated in tax havens — this way they can minimise tax liabilities in high tax jurisdictions by funnelling large royalty payments overseas. Since most of Google’s IP is developed in Mountain View, it’s tax jurisdiction such as the United States that have more reasons to be pee-ed off than Australia.

    • Isn’t it wonderful how the law is basically you are not allowed to have the goal of minimising tax when making investment decisions, you have to be structuring etc in a certain way for another purpose (and, because that will provide me more money because I pay less tax is not an acceptable answer).

      And yet, multi-nationals are allowed to do this all they like…it’s such a load of bullshit.

      If you are rich you can legally evade tax, if you aren’t supremely wealthy, pay up sonny.

      • Oh not to mention, Apples profit of $190M on that $5B is a load of bullshit, they make around 25% profit on their revenue…which is insane in itself.

  5. Reminds me when I used to work for the Australian arm of a global manufacturer. We never made any money (and probably paid bugger all tax) because we paid highly inflated prices back to the parent company for the goods (and services) we purchased from them.

  6. The way international tax laws are set up, multinational companies like this can essentially set up where they pay their tax, and inevitably thats going to be the lowest rate they can. You’d be amazed at where the head offices for some companies are, for that reason alone. Why pay over 30% tax here, when you can pay 10% in Ireland (to pick a random country)?

    Its not hard to internally bill each other to move costs about, and as soon as that billing comes from offshore, thats where the money goes. According to tax law, Googles probably paying the right amount of tax.

  7. If the author is so incompetent as to write complete nonsense like that Apple and IBM “directly compete” with Google, how can we trust or believe anything else he writes?

    • He said Apple competed with them, and they do. The too common common mobile phone OSs are Apple iOS and Google Android. Not to mention browsers competition. Online sales through iTunes and various Google stores. I guess he is a hell of a lot more competent than you.

      • Google licenses Android to the manufacturers. They’re the ones who compete with Apple over phones.

        And when was the last time anyone paid for a web browser? 1996? So, no Google-Apple competition there, either.

        OK, they compete in the music/app arena. But not very well, according to these two web pages:
        http://news.cnet.com/8301-27076_3-57328804-248/despite-growth-google-trails-apple-in-app-dollars-spent/
        http://blog.flurry.com/bid/83604/For-Generating-App-Revenue-Amazon-Shows-Google-How-to-Play

        Also, I notice you mentioned nothing about IBM.

        Bottom line: what’s to stop the ATO from auditing Google? Not much.

        • I said compete over the OS. Google are pushing Android, Apple iOS. Apple don’t directly make phones either. They compete.

          I didn’t mention IBM because Renai didn’t claim they competed. He mentioned them simply as a large IT style company that pay Australian taxes.

          Bottom line is, don’t call people incompetent when you cannot read with comprehension. Currently Apple is probably Googles biggest competitor. Not in the search engine arena, but as you said about browsers, when did you last pay to use a search engine? I thnk they would fear competition from Apple, and maybe a little off MS if Windows phone sells anything than Yahoo.

          • Whoa, the author actually changed the first paragraph of the “opinion/analysis” article some time between 3:43 pm and 6:16 pm.

            Sadly, I didn’t take a screen shot, so there’s no way that I can prove it… :(

          • The referenced paragraph is different from how it was when I first read them. I apologize, though, for specifying that *you* made the change when anyone with access to the Delimiter CMS could have made the change.

          • I can assure you that paragraph has not been changed. I am the only person with access to the Delimiter CMS.

            Cheers,

            Renai LeMay
            Editor + Publisher, Delimiter

          • In my original post (dated 05/05/2012 at 3:43 pm), I promise you that I pasted the phrase “directly compete” from your article, and it referred to Apple and IBM. That phrase doesn’t exist anymore in the article.

            Sadly, it didn’t occur to me to take a screen print, so I can’t prove my assertion.

          • “In this article we have compared Google’s revenue disclosure and taxation approach to that of several other major technology companies operating in Australia; direct competitors of Google’s

            The phrase is still in there mate. Read it again.

          • Ahhh, I didn’t see that one myself. I searched for directly compete. Ron may have a point on IBM. I am not sure in what way they compete with Apple. I was unaware of any overlap in their products and services with Apple. They may do though as IBM is involved in so many areas.

          • There are lots of areas in which Apple has similar solutions to IBM … Server hardware, email platforms, desktop productivity suites and so on. It’s a bit tangential, and there is generally the business/consumer divide, but they are comparable.

  8. The great thing is google works for the good of mankind, unlike the Aussie government. Google continues to make its billion while only paying a bit in taxes.

    How’s that CSIRO payout working for ya, Aussie government? You didn’t INVENT wifi. Your “scientists” [lol] didn’t invent hidden-node discovery. You got a patent on CRAP and you monetized it.

    Way to go. Australia is now the SCO of the 2000s. (If you don’t know what that means, why don’t you CSIRO it? oh wait. that means nothing. google it then. )

    Now go back to your cradle and suck on your bottle. There’s no more feeding here. Not on google. Not on the rest of the Internet.

    M

  9. Nothing wrong with the maxim of ‘minimise’ rather than ‘avoid’ tax. Perfectly legal. The deputy tax commissioner told me that personally twelve years ago when GST was being introduced.

    You have a responsibility to your shareholders to maximise their investment and minimise your expenses, including tax.

    If you don’t, there would be a horde of angry people beating down your doors.

    A ‘for-profit’ business is not a charity.

    After the witch-hunt to get even with the jibes on TV that Hoges made a few decades ago that drew enormous bad publicity, I suspect the tax department is slightly more hesitant to tilt at windmills these days.

    After all, Google is your friend, isn’t it?

  10. I have not finished reading all the posts yet so I’m sorry if this is a duplicate.
    My current book read is Treasure Islands by Nicholas Shaxson. His web page is at http://treasureislands.org/
    While I do not know any details about the financial information on Google, I sure just about every billion dollar business would use a tax haven.
    This is a good story Renai.

  11. I had to scratch my head at some of the figures quoted for Google AU – the cost of salaries averages out to $252,640 per person. That’s far and away above research facilities such as the CSIRO, which in itself is about a third above the national average for advertised positions. Makes you wonder just what they do to earn such high levels of pay.

    If nothing else, Google should still be liable for GST on the services they provide in Australia. If the revenue estimates are correct at 1B, there should be significant GST revenues showing up somewhere. If there isn’t, that is the first loophole that needs to be closed.

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