ATO may investigate Apple, Google

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blog Remember that year when search giant Google made revenues from its Australian operations estimated at north of $1 billion, but paid corporate taxes of just $74,000? Or the year that Apple made $6.1 billion in revenue but paid just $36 million in corporate tax? Yeah, good times, good times. Well, the good times may well be over for these technology giants, with the ABC reporting (we recommend you click here for the full article) that the Australian Taxation Office has (finally) set up a dedicated task force to tackle the situation. The site reports:

“The ATO will not say which companies it is looking into, but there is speculation that Apple and Google are on the list given recent accusations that they have been shifting profits among global subsidiaries as a way of lowering their tax bills.”

Some readers have levelled criticism at Delimiter recently, claiming that we’ve been too harsh on Apple and Google, and that there are other companies who should also receive our reproach for the minimal amount of tax they pay in Australia. Well, we’ve been listening. Some of the other companies we’d like the ATO to take a very close look at indeed include Amazon, Facebook, IBM, HP, Dell and Samsung. These foreign companies are some of our favourites in terms of their very solid products, and they are very important to Australian consumers and businesses. These are businesses we really can’t live without right now.

However, as a consequence, they all enjoy very large revenues in Australia but base their operations overseas. My message to the ATO is this: Let em rip, boys. It would be fascinating to see whether all of these tech giants have been as “open, frank and candid” as they claim about their tax affairs. If they have, they’ve got nothing to hide. If they haven’t, then it’s time they reform their operations to make sure they’re behaving equitably. And if people say I’m not being fair here, please remember: I own my own business too. I pay corporate tax, just like everyone else ;)

Image credit: Matt Aiello, royalty free

7 COMMENTS

  1. This is hardly surprising – the ATO must be desperately scrambling to fill the gaping hole in their revenue left by that enormous payout to News Ltd.

  2. Totally agree – let em rip.

    Google lost my business (which admittedly wasn’t much) because of their attitude to paying tax here. Apple, well my righteous indignation benefits from the convenience of not being an Apple person but I would make the same argument.

    I have some inside contacts with the ATO so I have been hearing somewhat of a narrative about this for a while and think it is well beyond time.

  3. There are a number of large foreign owned interests here, many of which shift income around and thus affect tax; everything from print media to mining, communications, manufacturing and investment.

    I would hope a little more sense and logic exists within ATO’s review and they cast a wider net to encompass a number of foreign owned interests.

    Really if this is just ends up as a politically expedient witch hunt for tax from primarily Google and Apple then it’s a pretty poor effort.

    I have to call you on this, though “If you’ve not done anything wrong, you have nothing to hide” – that has been used as a far too frequent (and very flippant) excuse for all manner of ill, and to explain away far too much.

    We all would be smart enough, perhaps, to realise that situations aren’t often quite that simplistic.

  4. What do people expect the result to be out of this? How much of Apple Australia’s $6b in revenue do people expect them to pay in company tax?

    I’ve been pretty outspoken on this issue, and copped a fair bit of debate along the way. My issue is this – to use the poster child, lets assume Apple Ireland is overcharging Apple Australia $100 per item, and that ends up back in Australia and taxed. Result is ~$1b more income, and about $300m in company tax to Apple Australia.

    People then jump up and down crying that they are only paying 5% of their revenue in tax, and demand they get looked at again. Then again. Then again. When will it be enough?

    I have repeatedly pointed to Woolworths as a local example – on $58b in revenue, they paid about $1b in tax, or roughly 2% of revenue. A very similar number to Apple Australia. Why is it OK for Woolies to get away with it, but not Apple Aus?

    There is an issue here, dont get me wrong. But it might not be as big an issue as MSM wants to report. People I talk to about this have regularly argued that they had $6b in turnover, they should pay 30% of that as tax – $2b as an easy number. By that reckoning, should Woolies be paying nearly $20b on their $58b turnover?

    Most people dont understand the difference between revenue and profit, and the MSM isnt helping the situation. They report a story like this, with Apple as the Big Bad, but dont report the story of Woolies being exactly the same.

    Why do you think that is?

    FYI, a simple Google search for Woolies 2013 annual report will confirm my numbers.

    • “Why is it OK for Woolies to get away with it, but not Apple Aus?”

      Because Apple has much, much higher profit margins on its products than Woolworths.

      • Was going to make a joke about evidence, but wasnt worth it :)

        Seriously though, this is what the whole issue boils down to – the profit margin of these companies.

        Apple’s whole process siphons that off in what appears to be a legitimate (but socially immoral) process, and at the end of the day its only going to be that profit margin that gets deemed in the various markets, but what IS their markup?

        Common knowledge shows it costs $300 to make an iPad we pay $800 for. Whoever makes it has their markup, then Apple Ireland sells the product to Australia. The gap between the manufacturer, and Apple Irelands price is the core of this problem – pun intended.

        Apple Ireland pays GST on that price as well, so their markup isnt as much as people think. Numbers:

        Manufacturing: $300
        Makers markup: $50 (guesstimate, but its got to be something)
        Cost to Apple Aus: $600 (guesstimate, wont be far off that)
        GST on sale: $54

        After that, the money is in Australia, and taxed correctly. Before that, at the manufacturing point, likewise.

        So to use rounded numbers, and I know these are guesses, but I dont think they are massively out of whack, Apple pays $350, and gets about $550. Whats that $200 as a markup? About 60%? That $200 chunk is the whole key here, so what should it be to make people happy?

        Thats going to be close enough to whats actually happening, so is 60% a fair markup for their “parent” company? Yes, there are guesses in that, but I dont think they are far off the mark and nobody else has come out with anything, so how about it? Would $150m more in tax make people happy? Somehow I doubt it.

        If 60% markup is too much, what IS a fair markup, and who determines that? Plenty of businesses have much larger markups than that – look at the jewellry industry as an example.

        I’m just trying to get across that the problem isnt as bad as people think it is and even if a solution is found, its still not going to make people happy.

        Google on the other hand is a different argument, because there is no core product that has manufacturing, importing or exporting, so its a pure paper trail.

        I can not and will not go into detail, but I have experience with this. I get the problem, seriously, and trust me its not the end of the world here in Australia.

        Lets say Apple’s markup should be 40%, and an extra $50 per item stays here and we get another $150m in tax revenue. The problem doesnt stop there, because the US will be clamouring for that remaining $150 to get taxed in the US. Or China will claim that $150 is a result of something built in China, so should be taxed there. But it wont be here.

        Thats where the real battle over this will be – where the rest of the money ends up getting taxed.

  5. Don’t forget that there are traditional companies pulling off the double Irish-Dutch sandwich with as much revenue as they can too.

    Take News Limited as an example; if you buy a full page ad in the Daily Rupert, do you get invoiced by News Limited (ABN 47 007 871 178) or is there an intermediary? A News paper could ‘sell’ you space in their rag as a ‘sales agent’ for a locally registered, Irish owned company. That local company could then buy it from an Irish registered ‘affiliate’ for more or less the same price, so the only revenue the ATO get is the GST, less operational deductions. The Irish registered company then buys the actual advertising space from News Limited at a massive discount, and pushes the profit through the taxation loophole created by the US tax laws that Apple, Google, et al use to hide their profits. End result? $854m tax refund for News!

    And I’m not saying News do this, but they could, and it would be totally legal; morally bankrupt, but legal.

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