Tax-dodging tech companies should expect no mercy: Expert

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.

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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, Government, Government AU, Australia

Spandas Lui

About Spandas Lui

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.

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11 comments
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  • Austrailia's Greek Gambit

    Well, I guess if you're gonna go under, might as well do it while everyone else is going under too...
    Tony Burzio
  • At what point does

    "Do no evil" become a joke or has that shark already been jumped?
    hubivedder
  • Cracking Down On Obeying The Law?

    Aren't these politicians doing the chest-thumping the same ones who created the regimes that made these sorts of maneouvrings legal in the first place?
    ldo17
    • Exactly

      It's one thing to be criticised for breaking the law, another to be lambasted for following the system in place. You can't judge companies for not clouding decisions/processes with morality, they exist to make money by following applicable laws.
      Don't blame the companies - sort the legal tax loopholes and then the companies will be forced to comply.
      Little Old Man
  • Watch for a New Search Tool

    Grand standing politicians are right about Google, but how well have they covered their trail of tax giveaways to political contributors.
    jnffarrell
  • Unless that was part of the plan to make Australia pert of the world

    Someone in Australian government thought tax breaks were a were a good idea. Now that the witch hunt has begun. I'd like to know who that was. Obviously it was before Google was a gleam in Apple's eye.
    jnffarrell
  • Tax their turnover!

    He's a solution, tax these companies on turnover. The Turnover Tax (TT) a sort of GST where they pay a "deemed" turnover tax rate that represents the tax office rate of return for the industry sector. Then they will have no incentive to pay tax avoidance "royalties" to parent companies in the Netherlands or Irish Republic. Of course if they then do make profit at the end of the day, the Turnover Tax can be credited back aginst the compay tax.

    Can't see why this woudn't work a treat! ;-)
    jeffgrainger
    • It will force them offshore.

      By taxing the turnover it will just force these companies to either a) close down local operations and run exclusively offshore (not difficult for the likes of Google which don't need to be located in a specific geographic location) or b) put all sales through an offshore company so there is very little turnover in Australia anyway.

      The thing is these companies aren't dong anything illegal. This is the system and the laws that are in place, and competitor countries will always try to attract businesses by giving tax breaks.

      The question is, do we want international trade or not? Scrap international trade and you close the loopholes but by doing so, we will also lose out on many other things and it would seriously affect the greater economy. We can't have it both ways.

      At the end of the day, the govt/ATO wants their cake and to eat it too.
      deanzdnet
  • Simple Solutions

    Solution One: Simplify Tax Codes (definitely needed in the U.S., where our tax codes have more words than all of the works of Shakespeare combined and no, that is not an exaggeration)

    Solution Two (even easier): Do away with all taxes and replace them with one simple flat sales tax or VAT that does not exceed 10% total for all taxes combined (i.e. in the U.S., combined State, Federal and Local sales taxt would not exceed 10%).

    Simple, eliminates loopholes and makes sure that everyone pays their fair share of taxes, as taxes get paid when you buy stuff.
    cmwade1977
  • Tax them all!

    Big Business should not be allowed to harbor money abroad. You sell or generate revenue in one country then it should be taxed by that country.
    Rob.sharp
  • Oldest game in the world

    Moving profits to low tax jurisdictions is the oldest game in the world. My economics professor lectured about it 35 years ago. His example was low tech. A steel company mines coal in one country, mines iron ore in second country, and makes steel in third country. By changing price of non-arms-length transactions slightly, company moves all profits to lowest tax jurisdiction. With high tech it is probably easier. Australian tax rate must be not too bad because Google showed some profit in Australia. Google could have easily shown a loss in Australia. There are numerous ways to solve this problem. Countries must have the will to stand up to multi-national corporations.
    waltersokyrko