Tax-dodging tech companies should expect no mercy: Expert

Summary:Just because multinational tech companies bring dollars and jobs into the country doesn't mean their tax dodging should be overlooked, according to UTS Centre of Corporate Governance director Thomas Clarke.

Despite bringing money and jobs to Australia, big technology corporations like Google don't deserve a free ticket to escape paying tax, according to University of Technology, Sydney (UTS) Centre of Corporate Governance director Thomas Clarke.

Assistant Treasurer David Bradbury has come out swinging at big multinationals and their methods to avoid paying high taxes in Australia despite raking in plenty of dough in the country.

In what is termed a "double Irish Dutch sandwich" (which actually exists in the accounting lexicon), Bradbury said that companies like internet search giant Google shift profits offshore to countries that have lower tax rates.

These multinationals, which include many technology companies, end up reporting lower revenue figures in Australia, paying the lowest tax rates possible.

"What you can deduce, from looking at some of the public material, is the amounts of tax that are being paid in Australia — corporate tax — in some cases are very modest compared to what some analysts would suggest are the profits and the revenues being generated by some of these companies," Bradbury said in a radio interview on 2GB.

Australia has proposed significant changes to Australia's transfer pricing rule to combat this issue.

Technology companies have been singled out as an example of those that play the double Irish Dutch sandwich game in Australia, but other jurisdictions have started cracking down on them, as well. The UK government has quizzed Google about why it has only paid a paltry £6 million (US$9.4 million) worth of tax, when Google's total revenue in the region was about £395 million (US$619 million) last year.

In France, the government is demanding £159 million (US$252 million) from Amazon for unpaid taxes.

One of the biggest multinational technology operations out there is Microsoft, which has refused to comment on the Australian tax crackdown. IBM has yet to get back to ZDNet.

A Google spokesperson said in a statement that the company has made "a significant contribution to Australia's economy by helping thousands of businesses grow online, providing services to millions of Australians at no cost, as well as employing 650 people locally — we abide by all Australian tax laws."

Indeed, these big companies do bring money and employment into the country, but should Australia obviate them from abiding by local taxation laws as a trade-off for the benefits they bring to the country? Clarke, who is also professor of management at UTS, doesn't think so.

"These companies bring in investment and employment into Australia, but they take several billion dollars in revenue out of Australia as well," he told ZDNet. "Of course they should pay the correct amount of tax, and it's an unacceptable anomaly that they are not doing so, and it needs to be resolved."

Clarke said that large technology organisations are growing dramatically in scale and revenue, which will have an increasingly damaging affect on the countries that they are operating in if they don't pay their fair share of corporate tax.

"As the public discovers more about this, I think people are genuinely annoyed that individuals are taxed when they work in an overseas country and corporations apparently are not doing so," Clarke said.

With Australia poised for a significant change in its tax system for big global companies, it will allow the Australian Taxation Office (ATO) to adjust profits and increase tax "where it considers a multinational's pricing is not at arm's length having regard to its activity here," according to Deloitte partner and economist for transfer pricing group Geoffrey Gill.

"However, the ATO cannot adjust profits if not supported by economic activity and substance here in Australia — which is important in light of the current debate on technology companies, where much of the value is often offshore," he said in an email to ZDNet.

Whether these changes will deter organisations from investing more in Australia is yet to be seen, but Clarke is convinced that it's an unlikely scenario.

"Australia is the only advanced industrial economy of the [Organisation for Economic Cooperation and Development] that's managed 21 years [of] sustained economic growth, and the projections are that will be continued for the next decade or two," he said. "In that context, Australia is a very attractive place to invest in and to operate in, and we will continue to attract investment capital from international corporations despite any changes in the tax laws."

Topics: Legal, Australia, Government, Government : AU

About

Spandas forayed into tech journalism in 2009 as a fresh university graduate spurring her passion for all things tech. Based in Australia, Spandas covers enterprise and business IT.

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Related Stories

The best of ZDNet, delivered

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
Subscription failed.