news US technology juggernaut Apple has revealed it only paid an extra $4.5 million worth of corporate tax in Australia in its 2015 financial year, despite the company making an extra $1.8 billion in local revenue, taking its local taxes to a paltry sum of $85 million off record Australian revenues of $7.8 billion.
Today Apple sent its annual financial results document to the Australian Securities and Investments Commission. The document represents the only detailed financial transparency which Apple — one of the world’s most valuable companies — makes available to the Australian public about the worth of its local operation.
In the document, Apple reveals a remarkable set of figures about how its Australian operation has fared over the past 12 months. The company’s total revenue from its Australian operation rose by 29.5 percent in that period.
This percentage figure would be notable in any other organisation, but in Apple’s case it represents a staggering increase in real-world revenue due to the sheer scale of Apple’s operation. The jump means that Apple made an extra $1.8 billion in its 2015 financial year compared with its 2014 financial year, with the company pulling in a total of $7.8 billion over the period from Australian customers.
However, despite the huge gain in its revenue in 2015, Apple’s Australian financial results reveal it only paid an extra $4.5 million of corporate income tax expense in the period, making a total of $84.9 million, compared with $80.3 million the previous year, when it made $1.8 billion less revenue.
The company claimed in its financial results that it cost it $7.2 billion in “cost of sales” to make its $7.8 billion in revenues in Australia, leaving it with a gross profit of only $638 million in Australia. The majority of that was whittled down by sales, marketing and distribution expenses of $435 million.
This meant that Apple claimed in 2015 that it had a taxable corporate profit of just $208 million off its $7.8 billion of Australian revenue. This corporate profit figure was actually down $44 million on Apple Australia’s 2014 corporate profit figure of $252 million, despite the fact that Apple made $1.8 billion more revenue in 2015.
Apple’s 2015 Australian financial results were audited by Ernst & Young.
Apple’s Australian margins relating to the cost of selling its goods and services in Australia do not reflect the company’s global margins. For example, in October last year the company revealed in the US that its gross margin was between 39 percent and 40 percent, making it one of the most profitable companies in the world.
The company’s Australian results do not reflect this margin, with the company effectively stating this week that its cost of goods sold makes up 92.3 percent of its revenue.
This would appear to indicate that the company is pricing the cost of its goods sold in Australia at a far higher rate than the company is accounting for the cost of its goods sold in its global financial results.
The news comes as technology companies such as Apple are increasingly coming under pressure globally to be more transparent about their taxation affairs and to even repay money which countries believe they are owed for local sales.
For example, Google has recently agreed to pay £130 million in back taxes in the United Kingdom. In addition, Apple has agreed to pay €318 million to Italty to settle a tax dispute.
In Australia, the Federal Government has repeatedly outlined plans to tackle multinational companies over their tax practices. However, such attempts have so far amounted to little in terms of real-world action.
Over the weekend, independent Senator Nick Xenophon publicly queried how much Google currently owed Australia. “It could be in the hundreds of millions – we need to know,” Senator Xenophon said. The South Australian Senator sits on the Senator’s Economics Committee, which has recently conducted an inquiry into corporate tax avoidance.
Companies such as Apple and Google featured extensively in the inquiry.
Delimiter has contacted Apple Australia representatives to invite the company to comment on its tax practices in Australia.
The size of Apple’s Australian operation has also grown substantially over the past few years. In 2011 the company had 1,505 local staff, but by the end of September 2012 that figure had jumped to 2,418. Apple’s new financial results indicate that at the end of August 2015, its Australian workforce had grown to 3,672.
Apple Australia’s mammoth revenue growth over its 2015 financial year (which ended at the end of August 2015) appears to be attributable to new product lines and the renewal of existing lines.
The company’s iPhone 6 line initially launched in September 2014 in time for that year’s Christmas sales period. The iPhone 6 line debuted a new, larger form factor option (the iPhone 6 Plus) as well as a new design and substantial technical improvements over the previous iPhone 5S line.
Much of the iPhone 6’s peak sales period would have been included in the Australian financial results which Apple detailed today.
Apple also launched its new Apple Watch wearable unit in April 2015, which would have been expected to substantially bolster its financial results.
In my personal opinion, the situation regarding Apple’s tax practices could not be more clear. The company made an extra $1.8 billion from Australians over the past year and yet paid only an extra $4 million in corporate tax. This situation may be currently legal — but it is certainly not fair. The Government must act to rein in the ridiculous amount of profit which companies such as Apple and Google are funnelling offshore. Apple is making a mint from Australia, and it must contribute its fair share back. Currently, it is not.
I am personally a small business owner and an out-and-out capitalist. Because of this, I do not usually approve of governments intervening in businesses and markets unless it is strictly necessary. However, there is a limit. In this case it is clear that Apple is not abiding by the spirit of the Australian taxation system — even if it is abiding by the letter of the law. The company’s latest set of financial results send a strong signal that the law needs to change.
Image credit: Apple