You could be forgiven if you missed the article in the business pages of the SMH on the weekend (17th Nov 2012) titled “Tax minimization schemes – How Savvy Multinationals are Curbing their Tax Bills” by Ben Butler and Georgia Wilkins.

Not the most arresting title in a section of the paper that your average Joe probably doesn’t frequent all that regularly. I should say, I’m not an avid reader, but generally flick through the section most weekends, scanning for articles that might be of interest to me and relevant to a number of business’ I’m involved in. This process is made somewhat easy, as the industries that I’m most interested in are the computer, IT and Internet sectors who, over the recent decades, have incubated some of the worlds’ most successful and iconic brands including Apple, Amazon, eBay and of course Google.

As a result of this fame and fortune, the newspapers themselves love to leverage these monolithic brands, by using the logos of these companies as sign-posts to attract the reader’s attention – and attract my attention, (last Saturday), they certainly did. Not, however, just because of their well-oiled marketing technique, the article is a great piece of investigative journalism on the tax avoidance practices on some of the world’s most loved and respected brands.

You should firstly know a bit about me so that you can understand my perspective on this. Just before heading to bed last night, I booked a cab to the airport via my Apple iPhone via an app I’d previously down loaded through the Apple App store, I checked into my flight on an m-site and received my boarding pass as an MMS. I spent the 20 mins cab ride to the airport this morning singing the praise of progress and innovation to my Belarusian born driver on my way to work (at a digital communications agency). To say I’m an advocate of the Internet and innovative practices would be a serious understatement.

So when I read Ben and Georgia’s report, I was as shocked as I was mortified, and was catapulted back to the days of the dot.com boom (and subsequent bust). A time where the word ‘Internet’ only summoned up feelings of disdain and disgust for the average Joe who’d invested his life savings into the magic of the Internet, before having it very quickly ripped away from him as ‘savvy’ businesses used their corporate trickery to extract every last dollar from his pocket.

Well, it feels like it’s happening all over again, but on a scale that is only one step removed from these big businesses putting their proverbial hands in everyday Australian’s pockets, taking the money that we earn and depositing in off shore ‘tax efficient’ havens and depriving the country of hundreds of millions of dollars that should rightly be being used to fund public projects such as healthcare, education and infrastructure.

Don’t get me wrong, I have actually heard about businesses using off-shore accounts to ‘efficiently’ tax their incomes, but I really thought that ‘those’ businesses were the unscrupulous; the dodgy online casinos, the porn sites and the Nigerian money launderers, not the brands we know and trust.

Here’s an extract of the article to bring you up to speed:

“An Australian business buys an advertisement on Google Australia, aimed at luring Australian customers to its Australian website. According to Google, this transaction takes place in Singapore.

It used to take place in another low-tax jurisdiction, Ireland, but in May last year Google switched to Singapore ”to provide a better online advertising experience”.

“Revenue reaped from Australia and other countries in the region, including Bhutan, the Philippines and Pakistan, flows directly to Google Asia Pacific, headquartered in the Lion City.”

“Estimates of Google’s Australian advertising revenue reach as high as $2 billion a year, but none of that money passes through its local subsidiary.”

“Instead, Google Australia subsists on services income from a head office in the US and Google outposts in Singapore and Ireland.”

It declared a loss of $3.9 million last year, and paid just $74,176 in Australian tax.” (1)

Yes, that’s right; Google made and estimated $2 BILLION dollars in revenue last year. And they paid less tax than $75 THOUSAND in tax.

The irony, as the article points out, is that at a recent event in Sydney, the Google Australian CEO, Nick Leeder, accused the government of being a “conservative thinking country” by not investing more taxpayer money in the National Broadband Network (NBN). Investing what money I hear you ask? The money that Google should have been paying in Australian company tax were it operating in this country, with any integrity. (The NBN by the way is an infrastructure project that Google will be a massive beneficiary of.)

Really Google?! “Don’t be evil!”?*

But Google are not the only ones. Another comment in the report states:

“Paperwork filed with corporate regulators around the world reveals the Australian arm of Apple, Google and eBay form part of these structures, held at arms lengths from their US parents through intermediary companies located in tax havens.”

“Apple Australian revenues reached $4.87 billion last year. It’s most recent tax bill was paid on $190 million profit.” (That’s $57 Million in tax or 1.14%, not the expected 30% that other Australian based businesses’ are paying.”

These are the brands we know and trust, the brands we love and respect. Aren’t they?

Positive Change

But there is hope on the horizon, ‘Positive Change’ as it were.

The article revealed that the tax office has begun fighting these corporations and has hit Apple with a $28.5 million dollar bill for back taxes (although I’m sure this is only a drop in the ocean of what should be paid). “Last month the federal government announced changes to its transfer pricing laws, making it harder for companies to shift profits from high –tax regions to low-tax ones.” These are no doubt complicated laws that cross over international borders that no doubt take many years of policy makers time and an expense of lawyers to sure up.

Parting Questions

(For anyone who wants to wade into the conversation)

1) Why is this article not front page news on every newspaper in Australia?

2) Why is Gerry Harvey chasing the GST on ecommerce purchased items valued less than $1000 brought into the country through sites like Ebay and not focussing his media clout on this issue?

3) Why when I told my Belarusian cab driver this morning about the injustice that was going on, he replied excitedly by asking, “Do you have the iPhone5!?”

*“Don’t Be Evil.” – Google’s informal corporate motto originally suggested by Google employees Paul Buchheit and Amit Patel (the creators of Gmail)(2)

Sources:

(1) http://www.smh.com.au/business/how-savvy-multinationals-curb-their-tax-bills-20121116-29hhm.html#ixzz2Cv1Hnw8P

(2) http://en.wikipedia.org/wiki/Don%27t_be_evil