Tech companies in tax avoidance inquiry crosshairs

The Australian Senate yesterday voted in favour of a motion put forward by Greens party leader Senator Christine Milne to launch an inquiry into corporate tax avoidance, just in time for November's G20 summit in Brisbane.

The inquiry, which is being carried out by the Senate Economic References Committee — the same committee that has been charged with reviewing Australia's taxation treatment of bitcoin and other cryptocurrencies — is expected to provide its report by the first sitting day of June 2015.

Milne suggested that by pulling up some of the largest businesses operating in Australia on their tax domestic commitments, the government could plug its revenue shortfall without removing funding from social services.

"Instead of pulling safety nets out from under people in our community who most need support, the Abbott government should look for ways to raise revenue from those who can afford to pay," said Milne in a statement.

The inquiry, which will look at "tax avoidance and aggressive minimisation by corporations registered in Australia and multinational corporations operating in Australia", is set to place in its cross hairs some of the biggest technology companies operating in Australia, including Apple, Google, and Amazon.

The federal government has previously called out companies such as Google and Apple for using the so-called "Double Irish Dutch Sandwich" method of funnelling money through countries outside of Australia to pay very low taxes domestically, despite significantly high revenue from Google's advertising and Apple's products sold in Australia.

Earlier this year, it was revealed that Apple had raked in AU$5.9 billion in revenues in Australia and New Zealand, but, after increases in expenses, the company reported a drop in net profit to AU$58.4 million, allowing the company to pay only AU$40 million in taxes — compared to AU$94.7 million in 2011.

At the time, Labor MP Ed Husic raised a question in Parliament asking how Apple could have AU$5.5 billion in costs.

"How? They don't manufacture here, there are no factories here. I don't know what their R&D effort is here," he said. "They've got a growing number of retail outlets, which I'm happy about — they're creating jobs locally — but surely, those outlets don't cost AU$5.5 billion to maintain?"

More recently, reports indicate that Apple has paid just AU$193 million in tax to the Australian Taxation Office on the AU$27 billion worth of Apple products that the company has shifted since 2002. This equates to just 0.7 percent of its turnover.

By contrast, Australia's going corporate tax rate for companies is 30 percent.

Dr Antony Ting, a senior lecturer in taxation law at Sydney University, told the ABC that Apple uses a form of "transfer pricing" to shift taxable income to low tax countries, a method that sees it purchase its stock from what is effectively a "paper company" subsidiary in Ireland — a low tax country.

Meanwhile, at least one of Australia's largest telecommunications companies is also likely to be scrutinised, according to a report by multi-industry union United Voice and the Tax Justice Network Australia.

The report says 29 percent of Australia's top 200 companies are paying an effective corporate tax rate of 10 percent or less, while more than 14 percent have an effective tax rate of 0 percent, with Optus' parent company SingTel named as one of the country's top tax avoiders.

"Following the release of the report, the community was shocked to learn that many of Australia's largest corporations are legally eliminating the need to pay tax at all or reducing their tax bills to 10 percent or less," said United Voice national secretary David O'Byrne. "The Senate Inquiry will help the Australian people understand how Australia's corporate tax system is broken, and hopefully how we can begin to fix it."

The union's Who Pays For Our Common Wealth? report estimates that Singaporean telco powerhouse SingTel has 32 subsidiaries in "secrecy jurisdictions" — regions ranked by The Financial Secrecy Index according to their financial secrecy and scale of activities — including Singapore, Bahrain, and the Cayman Islands.

The report estimates that SingTel has an average annual foregone tax figure in Australia of AU$713 million, second in foregone tax ranking only to Twenty-First Century Fox, which was estimated by the research as having racked up AU$1.6 billion in annual foregone tax.

The report shows that SingTel has an average tax paid amount of AU$284 million, off the back of the AU$3.3 billion average pre-tax profit, resulting in an effective tax rate of 9 percent — well below Australia's 30 percent corporate tax rate.

However, SingTel said in a response to a Straights Times article citing the report's findings that it is headquartered in Singapore, with legitimate businesses in 25 countries across three continents. It is dual listed on the ASX and the Singapore Exchange.

"SingTel's Australian subsidiaries undertake all their legal and governance responsibilities diligently, including their Australian tax obligations," said SingTel.

The report said that while Telstra's annual taxation is in line with Australia's 30 percent corporate tax rate, the company also has 46 subsidiaries in "secrecy jurisdictions", including the British Virgin Islands, Bermuda, Hong Kong, and Jersey.

Telstra has, in fact, been expanding its legitimate international business operations over the past few years, building up its Telstra Global arm, which now claims offices in Hong Kong, mainland China, Taiwan, India, Japan, Singapore, Indonesia, and Malaysia, along with other regions.

Meanwhile, the report showed that TPG Telecom is paying tax in excess of the 30 percent corporate rate, with an effective tax rate (ETR) of 41 percent, and iiNet with a 33 percent ETR.

By contrast, the report's worst offenders, including James Hardie, CFS Retail Property Trust Group, and Westfield Retail Trust, have an ETR of 0 percent.

Telstra had not replied to a request for comment at the time of writing.