news International technology companies such as Google, Facebook and Amazon may not be paying their fair share of Australian tax, Shadow Communications Minister Malcolm Turnbull said this week, with local tax laws not having caught up yet with the challenges of the digital environment.
In early May, Google Australia revealed that it expected 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. The remainder of the company’s incoming is believed to be funnelled through its Irish subsidiary. Ireland is believed to offer Google a more favourable tax environment for its global revenues than countries such as Australia or the US.
In an article published on his website late yesterday, Turnbull said an important long-term issue in terms of Australian public policy was “the erosion of our tax base due to the growing significant of online commerce and offshore-domiciled service providers in many sectors and markets”. “Many transactions which previously generated economic activity and tax revenue in Australia no longer do so,” the Liberal MP wrote.
“An advertisement on a Google search page may be hosted by a server located overseas, and the advertisement may be sold by a company located in Ireland – but nonetheless from the Australian user’s point of view it is as “present” on his device as an advertisement on The Australian or the Sydney Morning Herald website. Equally the largest seller of books to Australians is Amazon – yet there is no GST levied on those sales, and no Australian tax is paid on the profits earned from them, as opposed to the taxes once paid by the Australian-based book sellers Amazon has, in many cases, put out of business.”
Turnbull said debate currently underway in Europe over the issue illustrated that there was “no quick fix” to the issue, or “indeed any broadly agreed consensus as yet that a fix is necessary”. Also, the Liberal MP added, he wasn’t as yet proposing any specific change to existing tax laws, flagging a shift in Coalition policy or even suggesting that Google’s activities were illegal. However, Turnbull said, there was a question about whether current taxation law was adequate in the new, converging digital world — and broader issues were at play.
“In the case of advertising dollars once spent at Australian media outlets but now increasingly diverted abroad, a diminished local tax base is only part of the challenge created by this shift,” he said. “It also reduces the resources available for gathering and publishing news, which reduces the media’s ability to hold political, corporate or institutional interests to account. And it adds to pressure for consolidation. Scrutiny of powerful interests by a robust, fearless, professional and diverse media is fundamental to the operation of any democracy.”
“All of this is entangled with free trade issues and Australia is by no means unique,” the MP added. “Just about every country in the world, or at least those with open access to the Internet, is facing challenges and questions of this kind.” Turnbull linked the issue to several inquiries which the Federal Labor Government has recently held into the future of the media, stating that neither inquiry had bothered to examine these sorts of taxation issues in any depth, “despite their critical importance to the financial viability of our publishers and broadcasters of news, and the threat to Australia’s tax base”.
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.
Turnbull’s approach here is characteristic of his much wider approach to policy formation. In short, he reads widely about international affairs in his portfolio, consults with key Australian stakeholders, and attempts to discern how the global experience can be translated into solid Australian policy, with local expertise and knowledge. In theory, this is the right approach, and I wish more Australian politicians would take it. However, in this sort of situation, I would have to say that it’s clear that Turnbull is taking the wrong approach on this issue. Why do I think this?
Firstly, it’s important to understand that the Federal political and media arena is currently a nightmarish, populist bullpen, where supposedly mature figures from both sides of politics are constantly backstabbing each other and feverishly checking the daily opinion polls in order to ascertain whether their latest weasel moves have had any impact on moving the needle of political opinion. Turnbull’s attempts to interject rational, reasoned debate into this raucous cacophony come across as a relic of a bygone era. Sure, many of us in the media and political spheres would dearly love to see that era come back, but frankly it doesn’t look like that will happen any time soon. In short, Turnbull’s intellectual consideration of this debate needs to get a bit more emotional oomph to make any headway.
If Turnbull really wants to tackle the issue of Australian taxes going offshore (as they very clearly are), he needs to make this a populist issue. Instead of conducting calm interviews with the Financial Review and issuing rational statements raising questions on the issue, he should be standing up in the House of Representatives and lambasting Google, Facebook and Amazon for their ridiculously transparent attempts at avoiding their Australian tax obligations. He should be dragging these companies before parliamentary inquiries on the matter. And he should be raising these issues with populist media outlets such as the Daily Telegraph and commercial radio stations.
Only then will it become the sort of national issue it could be.
Why do I know that Turnbull should be doing these things? Because we’ve seen these tactics succeed spectacularly with Labor backbencher Ed Husic, who for six months has been pushing a very similar popular bandwagon: Local pricing markups on technology goods and services in Australia.
While Turnbull is beating around the bush on transfer pricing and being featured in calm editorials in the AFR, Husic already has his parliamentary inquiry being set up on the matter; he already has national press coverage; and he already has local technology vendors running scared. If Turnbull is at all serious about the taxation issue, he should be aiming for the same outcome and using every weapon at his disposal. To do anything less is to reveal that he wasn’t truly serious about it at all. Right now, light touches get nowhere in Australia’s tragically dumbed down political discourse. Those who wish to enact serious change need to apply the sledgehammer every chance they get.
Image credit: Office of Malcolm Turnbull