Media rants: Michael West on big tech and big tax avoidance

Michael West
By Michael West | 17 December 2014

Michael West is business columnist at The Sydney Morning Herald

The coming year promises to bring even greater scrutiny of tax avoidance by tech giants such as Google, Apple, Facebook and Twitter. Executives from Google and Apple will be called to appear before a parliamentary inquiry into corporate tax avoidance, which will draw unprecedented scrutiny of their aggressive tax schemes and their advisers from the big four global accounting firms.

It is a rich irony that the new breed of hightech advertising firms are neck deep in busting the privacy of others – not to mention exploiting their intellectual property – while they jealously conceal their own affairs in labyrinthine structures designed to avoid tax. Facebook and Twitter have even won special exemptions from the corporate regulator, the Australian Securities and Investments Commission, which allow them to be deemed not part of a large corporation. Since when were $100 billion companies such as Facebook not large corporations? Such relief orders mean they don’t have to produce full financial statements in Australia, so they can hide the likes of transactions with their own associates overseas; again, avoiding tax.

While media pressure will increase in 2015 on government and its agencies for greater disclosure and transparency, powerful vested interests will be lobbying hard behind the scenes to reduce disclosure and compliance from its already pitiful levels. Although public recognition of the scourge of multinational tax avoidance, particularly in the media and technology sectors, is at all-time highs, so, unfortunately, is the campaign to hide things from the public and the tax office.

This is a global issue and the knock-on effect of tax avoidance by the new breed of tech players is eroding government budgets. Established multinationals are asking themselves: ‘Why do we have to pay tax when these guys don’t?’ They are mimicking the aggressive schemes employed by the likes of Google and Apple.

Shell Australia, for instance, which used to have a full board of directors in this country has now effectively become a puppet for Shell headquarters in Europe. Its “mind and management” is no longer in Australia, and with it has gone any notion of civic and corporate duty to pay income tax in Australia. So Shell, which has more than $20 billion in revenue, has been reducing its tax bill progressively to zero.

It’s not just the new multinationals skiving their tax obligations, of course. News Corp last year managed an $882 million tax rebate from the Australian Tax Office. Impressive.

Google is a case in point when it comes to concocting cynical tax structures. While it pretends that all the advertising and advertising services it sells to Australian businesses – purchased by Australian companies to advertise to Australian customers on Google – is as an Australian business, it is actually run by resellers through Singapore – and pays a far lower tax rate. Meanwhile, its actual business here is servicing three other Google entities overseas with research and development solutions. It, therefore, exploits Australia’s generous R&D tax breaks, even though it has transferred intellectual property developed here to offshore structures.

It is doubtful whether this structure is even legal as Part 4A of the Tax Act requires that the “dominant purpose” of a transaction must be commercial rather than tax-driven. It seems clear that such structures have a dominant purpose of avoiding tax, but to prove this the Australian Tax Office would need to drag Google Australia into the Federal Court – something it is reluctant to do.

Its “mind and management”, moreover, is obviously not in Australia. Two of its three directors are resident in Mountainview, California, while only one, Mark Stewart Tucker, is listed as living here. Typical of the lack of accountability of these companies, Tucker refuses to respond to questions. Google Australia is nothing more than a puppet for Google Inc, structured for tax purposes.

There are still many multinationals operating with proper civic and legal duty here. If you search the accounts, for instance, of Nestlé Australia it will show a full board of directors, a set of “general purpose” financial statements providing proper corporate details, and they pay far closer to the 30% tax rate than the tech giants. As an Australian company they take their tax obligations seriously.

Google Australia, until recently, has been referring to its country head here, Maile Carnegie, as managing director, although company searches show she is not listed as a director at all. Its defence is that it pays what is legally due and employs more than 800 people in Australia. Ultimately, though, this is a business which is pretending to be Australian.

The public outrage at multinational tax avoidance has reached critical levels. While the government is demanding that its citizens be “lifters” not “leaners”, the most powerful corporations in the country are also some of the biggest leaners. The looming Senate inquiry will inevitably encounter pressure to soften its terms of reference.

Chief executives will be loath to attend, lobbyists will attempt to tie the senate committee up in useless red-tape issues while avoiding the broader principles at play. The Greens, who called the inquiry, are not compromised like the major parties by political donations, but the major parties will be under fierce pressure to knee-cap the inquiry. This will be the battlefield early next year.

Google executives have already decried the “naming and shaming” by Fairfax Media and others of the leading tax avoiders. They claim it is counterproductive to the debate.

If the debate is had, however, behind closed doors by tax experts and their big clients, nothing will be done to address the deterioration in corporate tax revenues. Multilateral solutions, such as agreements by the G20, have long proven useless.

Reports from tax insiders confirm that the reputational damage done to brands such as Google and Apple for failing to pay tax is having an effect; it is thwarting the implementation of further aggressive tax schemes.

New legislation is needed to address the tax challenges of the digital economy, but even if the government were to properly enforce the present laws – and insist on, for instance, the filing of full “general purpose” financial statements – that in itself would deliver billions to the government’s bottom line. The enemy of reform is – as usual, and unsurprisingly – lobby groups, political donations and government lethargy and cowardice.

Michael West 
Business Columist 
SMH

Michael West's article first appeared in The Annual 2014 (12 December). There's more where that came from. We've also got Media Rants from Sunrise's David Koch, Women's Weekly editor in chief Helen McCabe, radio talent Merrick Watts and Ross Stevenson and Gruen Transfer's Dan Gregory. The Australian's editor in chief Chris Mitchell also let rip on “digital evangelists” and advises us all to “keep our pants on” over mobile

In the Photo Essay CMOs, CIOs and data kings align: Woolies, Qantas, Quantium, Nestlé, Contiki, Telstra, NRL and more talk about the new frontier of marketing. Read an excerpt of Woolworths Tony Phillips' and Tony Davis' take here.

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