Representatives of Google, Apple and Microsoft Australia today appeared before a hearing into Corporate Tax Avoidance convened by the nation's Economics Reference Committee, and all struggled to explain just where the money goes or whether what they do is fair.
All three also admitted, after being told they were permitted to do so under Parliamentary Privilege, that they're being formally audited by the Australian Taxation Office (ATO). Australia and other OECD nations have, of late, promised to clamp down on multinational tax avoidance. The admission that the ATO is investigating the three shows action has ramped up, down under at least.
It's not hard to see why: Apple's managing director for Australia and New Zealand Tony King explained that the company generated AU$6bn in sales last year and paid $80m in tax on $250m of profits. That skinny margin comes, he said, from the fact that Apple Australia pays other members of the Apple group for the kit and content it sells here, but that the cost of developing those products is baked into the prices it pays even though product development is all done in the USA.
Senators on the committee suggested this practice inflates the costs Apple subsidiaries pay for products and therefore represents cost-shifting, and therefore a scheme to evade tax. That line of questioning seems fair given Apple Australia seems to be operating on a margin of about four per cent but the company reports gross margins of 38 per cent. King retorted by saying Apple complies with all Australian laws and that the prices it pays for products are set after rigorous discussions with the ATO.
Google's local arrangements, as explained by managing director for Australia and New Zealand Maile Carnegie, see it perform sales and marketing services for Google Singapore. Those services are provided at a rate set after comparison with commercial providers of such services, such as marketing agencies. Google Australia pays tax on the revenue it receives to provide those services to Google Singapore. But Google's main money-maker – ad sales – are all paid for in Singapore where company tax is levied at just 17 per cent, and ten per cent under some circumstances. Australia's company tax is thirty per cent.
That discrepancy led Carnegie to argue that Google is not opposed to paying tax but “is opposed to being uncompetitive”. She also argued that because Google's ad products were developed outside Australia and operate outside Australia, there's no logic in the revenue they generate being taxed in Australia.
That suggestion went down worse that Carnegie's earlier idea that Google can probably afford to be excluded from Australia's research and development assistance programs, which netted it $4.5m last year.
Microsoft sent Bill Sample, corporate veep for worldwide tax to the hearing. He blamed Microsoft Australia's practice of booking all local sales in Singapore on the company's early management decisions to adopt a structure whereby it operates regional sales and distribution hubs. National offices, he said, offer “marketing and support services”.
Your correspondent is acquainted with Microsoft personnel resident in Australia and in receipt of bonuses for meeting sales targets. Just how that's “marketing and support” is anyone's guess, and the Committee's Senators pressed that point. Sample didn't have a neat answer, but did admit that Microsoft's use of Irish tax arrangements are in decline because the product line that was given the “Double Irish Dutch Sandwich” treatment is in decline.
Several questions were posed to the effect of how much money goes to tax havens. All three executives failed to answer directly, Apple's King in particular appearing evasive as he stuck to a line that Apple pays all taxes due on its profits.
The Committee's sitting for another two days, and members seemed keen on having Microsoft, Apple and Google appear again to offer straight answers to questions such as “I just bought an album on iTunes: how much of that money goes to tax havens and how much is taxed in Australia?” The three executives, mostly grudgingly, said they'd be pleased to provide such details in future. ®