Google Australia increases tax bill slightly,
but results still globally inconsistent

news The Australian division of search and software giant Google has published its latest set of financial results for the 2012 calendar year, revealing that it paid several million dollars more tax than the paltry $74,000 sum it claimed in 2011, but also that its revenues and headcount jumped substantially over that period.

In May 2012, the company attracted significant criticism as it revealed 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.

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.

Industry commentators have labelled Google’s tax arrangements — consisting of the Irish subsidiary and associated arrangements in other jurisdictions — as a ‘double Dutch sandwich’ which allows the company to largely avoid some local taxation jurisdictions such as Australia for the majority of their locally earned revenues.

In its new set of financial results filed with the Australian Securities and Investments Commission over the past week and publicly available, Google noted that its Australian revenues had jumped substantially (from $201.1 million to $268.9 million) over that year. A similar jump in its cost of providing services meant the company claimed that it made a net profit of some $22.4 million, compared with a loss of $3.9 million the year previously. Google listed its income tax expense as being $4.1 million, compared with $74,176 the year previously.

Google Australia’s headcount also jumped substantially in the period, with the company noting that it had some 686 staff as at 31 December last year, compared with 568 the year previously.

However, Google Australia’s financial results are not consistent with its global financial results. The search giant globally made revenues of US$50.1 billion in its 2012 financial year, according to its annual report filed with the US Securities and Exchange Commission, but its net income over that period was drastically higher than the net profit Google claimed in Australia — consisting of US$10.7 billion, or about a 20 percent margin. The proportion of the company’s US versus its ‘International’ revenues in that period also remained quite stable.

In its global financial results package, Google did not break out its results by geography, apart from its results from the US as compared with the rest of the world, apart from its UK revenues. However, again, here there are indications that the company is not disclosing an accurate figure in its ASIC statements for revenue booked from its Australian geography.

For example, the company noted in its financial results that it made US$1.3 billion in revenue from its UK operation in the fourth quarter of 2012 alone (PDF) — a number which has been increasing steadily over the past several years. This would mean it would be likely that Google would be earning somewhere in the realm of US$4 billion a year from its UK operation.

The UK has a higher population than Australia — consisting of some 68 million residents, according to the latest 2011 Census in the country. However, given the similar demographic between the country and Australia, as well as the strength of the Australian economy, it appears likely that Google Australia’s total revenues from the Australian geography would be likely to be much higher than Google has reported in its ASIC statement this week — and potentially even higher than the $1 billion mark analysts such as Frost & Sullivan have estimated.

In France, the country’s government is currently taking a heavy hand with the search giant due to the exact same tax issue with Google’s income being funnelled through Ireland that is seeing the company’s Australian profit kept off the books. The company’s budget minister Jerome Cahuzac said recently that Google had been asked to ‘regularise’ its tax affairs; adding that if talks between Google and the French Government on the issue failed, the case could go to court.

The Australian Government has also recently announced a range of measures to tackle tax situations such as Google’s, with the intent of making such companies’ true revenue picture in Australia visible for tax purposes.

Google has appeared to make some political moves in Australia to form a better relationship with the Federal Government over the issue. For example, in February this year, the company’s global chief financial officer Patrick Pichette met with Prime Minister Julia Gillard to discuss the situation.

Google has normally defended itself on the issue by stating that it is complying with all applicable regulations. When it was attacked on the issue in 2011, 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.”

Image credit: Robert Scoble, Creative Commons