Google restructures tax arrangements to onshore advertising revenue in Australia

Google Australia has restructured its business so that local advertising revenue will now account towards the company's income.

"Effective 1 January 2016, Google Australia restructured its business such that it will recognise revenue from the marketing and selling of certain services and products to Australian based customers," the company stated in its 2015 financial report to the Australian Securities and Investments Commission.

Google Australia books its advertising revenue from Singapore where the tax rate is lower. It said it has a service agreement with Google Inc, for the provision of R&D services, and a service agreement with Google Ireland and Google Asia for the provision of services and marketing services.

Google Australia went on to say it is unable to "reliably" estimate the financial effects of the change as of the date of signing the financial report given the preliminary stage of the restructure.

For the 2015 financial year, Google Australia's profit before income tax came in at AU$50 million, down from AU$58.7 million recorded last year.

But after paying total income tax expense of AU$2.9 million, profit after tax came in at AU$47.1 million, down by about AU$2 million from the previous year. Tax expense during the year was AU$16 million, up from the previous reporting year that recorded AU$11.7 million.

However, the tax amount was only a tiny fraction when compared to total revenue that amounted to AU$502 million for the year, up from AU$439 million recorded the previous year.

The report also showed the company has AU$71.6 million in deferred tax assets, which the company could potentially use in the future to reduce its tax bills.

During the period, the company also claimed AU$5.2 million in tax deduction for R&D.

The restructure by Google comes as the federal government cracks down on tax avoidance by multinationals operating in Australia.

At the end of last year, the Greens voted with the Coalition to pass legislation that resulted in multinational companies with annual revenue above AU$1 billion report income, tax, and transfer pricing arrangements to the Australian Taxation Office (ATO), and the penalties for tax evasion increased.

The new legislation, which came into effect at the start of the year, means multinationals need to provide the commissioner of taxation with information of transactions between each Australian-based subsidiary and its associated overseas enterprises, along with the amount transferred and the business' reasoning for its transfer pricing determinations.

The implementation of the new laws by the Australian government was part of recommendations that were made by the Organisation for Economic Cooperation and Development (OECD) from its G20-commissioned base erosion and profit-shifting (BEPS) project. Under BEPS, the OECD expects to be able to retrieve as much as $240 billion in lost revenue each year through dodgy tax practices across the globe, which it claims represents up to 10 percent of global corporate income tax revenues.

A recent report by a trio of University of Technology Sydney academics revealed foreign multinational companies and large private Australian companies involved in technology were getting away with paying an effective corporate tax of 7.6 percent. The report stated that in 2013 and 2014, Australia lost AU$5.36 billion in corporate tax revenue from just 76 multinational corporations, including Google.

"Out of Google's global revenues in 2014, only 0.54 percent was booked through Australia. The Australian economy generates almost 2 percent of the world's GDP," the report said. "For a company so closely integrated into all aspects of business, it would be expected there would be a closer correlation between Australia's share of GDP and our share of Google revenues."

Last month, the Australian Greens Party unveiled an 18-point policy plan in further efforts to stamp out tax avoidance by multinationals operating in Australia. It claimed the plan would raise at least AU$1.69 billion in additional revenue.

The policy proposed for changes to be made to tax law, public disclosure, enforcement, and global diplomacy.

"Whether you are Google or Chevron or Glencore, the time for paying your fair share starts now," said Greens spokesperson for Finance, Senator Peter Whish-Wilson. "When businesses don't pay their fair share of tax then governments can't provide the services we all rely upon."

Some of the suggested changes included reversing the Australian Taxation Office's staffing cuts in order to ensure there is a sufficient staff level to assure multinationals are paying what they owe, as well as to establish a high-level tax recovery unit made up of the top 20 tax accountants and legal specialists working in the private sector.

The Greens also believes the tax disclosure thresholds need to be lowered for both private and publicly listed companies, so that companies that make AU$50 million of income in a year will disclose their tax activities.

Google along with Apple have previously been called out by the federal government for employing the so-called Double Irish Dutch Sandwich method. Both companies also admitted last April that they were both being audited by the ATO for tax avoidance.