Inquiry into how Apple, Google and Microsoft rob Australians by not paying Aus taxes

[eschwartz]

Originally Posted by Lynx-lynx

Harry our Gov't considers multi national tax avoidance to be a serious issue for Australia and to that end the Senate has instituted an inquiry. The Aus Gov't does not see the matter of tax avoidance as the mere minimisation of taxation dues, nor a matter that ordinary everyday accountants would be capable of dreaming up and successfully establishing and managing.


Harry and eschwartz, the G20 meeting in Brisbane last year discussed the issue of cross border tax evasion, here's an excerpt from an Article in The Conversation: http://theconversation.com/multinati...rackdown-23421

Spoiler:

The G20 finance ministers have once again agreed to cooperate to counter aggressive cross-border tax avoidance by multinationals.

Many US firms are using tax avoidance schemes for their non-US earnings while they shamelessly claim they are paying appropriate taxes in the source countries in which they operate.

The OECD responded to earlier requests for action from the G20 by initiating the “Base Erosion and Profit Shifting” (BEPS) project, and since then has published an action plan to address the issue. The aim of the OECD is to develop measures to counter aggressive tax avoidance in both member and non-member countries, and to limit the risk of double taxation.

When US multinationals assert that their entire non-US income is derived through the double Irish scheme (see explanation below), and is subjected to a very low rate of tax, the artificial and contrived nature of the arrangements is obvious. The OECD is making progress, but there does appear to be some unintended consequences for the OECD and national governments as they develop measures to counter tax avoidance.

Despite the extra scrutiny facing US multinationals since 2012, when Starbucks agreed to “voluntarily” pay company tax in the UK, tax avoidance activities appear not to have slowed.

Harry, here is an excerpt as to what the Aust Taxation Office (ATO) considers tax avoidance schemes are: https://www.ato.gov.au/General/Tax-p...dance-schemes/

Spoiler:

Each year a significant number of arrangements that are aggressive towards the tax system are promoted to taxpayers. These arrangements reduce total tax revenue in one of three ways: by reducing a participant's taxable income or increasing their deductions against their income (or both), or by avoiding tax entirely.

There are many different types of tax avoidance schemes, ranging from mass-marketed arrangements that you might see advertised to the public to boutique arrangements - specialist financial arrangements offered directly to experienced investors. Some are marketed to individuals, and may exploit people's social or environmental conscience and generosity. Others target self-managed super funds. (follow link for rest of discussion)

Double Irish Dutch sandwich anyone?

I stand by my claim that any legal system which does not recognize its own internal responsibility for this problem-that-I-agree-is-a-problem, is a legally and morally bent legal system.

Originally Posted by Doonge

I'm reading that the Australian law is that you cannot legally game the system? With a law like that, I guess we don't need any more lawmakers: let's just say people have to understand the spirit of the law, no matter how badly it is written, and in doubt should just ditch out money to the governement.

Precisely. It is nothing more than a kangaroo court.

[Lynx-lynx]

My taxation philosophy is simply stated: if a company earns money in a country then the company pays taxes in that country without using tax evasion schemes.

Okay, for those of you in the US what do you think that US$1.7 trillion (it would be more now) could do for your country and it's people?

National governments need revenue and they want to ensure that US multinationals deriving income from within their borders pay an appropriate amount of tax, which is not unreasonable. In these source countries, US multinationals get the benefit of infrastructure and reliable legal systems provided by governments.

Unlike national governments, US multinationals engaging in aggressive tax avoidance are well funded. US multinationals are estimated to be holding more than US$1.7 trillion in undistributed foreign earnings. One of the largest tax avoiders is Apple Inc, which in 2013 was reported to have US$102 billion in offshore untaxed foreign earnings.

http://theconversation.com/multinati...rackdown-23421

For those posters that didn't understand why the law hasn't changed in Aus as yet, then please go back and read the links attached to my posts. Simply put - the way the aggressive schemes work is still being understood and international cooperation is often required.

I'd be more concerned about why the schemes aren't being discussed, investigated and inquired upon by government committee in your country then wondering why on earth we here in Aus would want our taxation dues to be paid by multinationals.

[jackie_w]

Originally Posted by Lynx-lynx

I'd be more concerned about why the schemes aren't being discussed, investigated and inquired upon by government committee in your country then wondering why on earth we here in Aus would want our taxation dues to be paid by multinationals.

It's also frequently discussed on radio and TV in the UK. The British 'man-in-the-street' is usually outraged when asked to comment. Unfortunately I'm afraid fjtorres may be right

Odds are it is political grandstanding to make it look like they want to *do something* while understanding that if they actually do something the reactions and consequences won't be good for them.

I suspect fear of said companies closing up shop and taking their business elsewhere has something to do with it. The government-of-the-day (doesn't matter which party) hates mass redundancies, especially in Election year (i.e. next month).

[Lynx-lynx]

Originally Posted by jackie_w

It's also frequently discussed on radio and TV in the UK. The British 'man-in-the-street' is usually outraged when asked to comment. Unfortunately I'm afraid fjtorres may be right

I suspect fear of said companies closing up shop and taking their business elsewhere has something to do with it. The government-of-the-day (doesn't matter which party) hates mass redundancies, especially in Election year (i.e. next month).

Yeah, it needs international governmental co-operation to achieve the best outcome, but at least recurring exposure, inquiries and actual law changes have some deterrent effect. Inch by inch, eh.

[Doonge]

As much as I understand governement need taxes, and that we need a governement (I'm not an anarchist), I don't think "what do you think that US$1.7 trillion (it would be more now) could do for your country and it's people" is a healthy way of seeing things.

The same way one cannot equate pirate volume to sale losses, one cannot say those companies would have made the same profit had they paid full "fair" taxes.
Additionally, but I know I'm ignorant on the subject, I believe governement make their own bed. They complicate taxes because it benefits them, but they are not happy when loopholes are being exploited (loopholes that they might have helped set up themselves, because they haves ties with business too)?

It's money grabbing, and I don't feel concerned. I'm interested to learn what kind of service the governement provide to those businesses that is worth 1.7 trillion dollars though. You mention that, but what does that mean? (it's not a rethorical question, I never wondered much about that).

You also stated your taxation philosophy, but what does it even means?? Taxation evasion occurs when there is more to gain than to lose by doing it. It costs money to figure out how to avoid taxes, and it's risky aswell (and it damages the brand name).
Think of the taxes as a burden to the businesses in a competign world. If taxes are heavy and you are honest while others aren't (and can get away with it), you die.

[Pulpmeister]

Just to clarify my post back on page 1:

I didn't say that what they were doing is legal; I wrote that they said what they are doing is legal; i.e it is their opinion. Also that they said that "everyone is doing it" (but not everyone is. Me, for instance.)

This is not unique to Australia. Tax dodging is big business in UK and USA and other countries, with many big multis doing exactly the same thing there.

Maybe it would be simpler to have no corporate income tax as such, but, say, an annual licencing fee which is a percentage of gross turnover. The Hollywood Movie Star technique. Forget about profits; creative accounting can eliminate those; go for gross receipts.

[Little.Egret]

Originally Posted by Lynx-lynx

My taxation philosophy is simply stated: if a company earns money in a country then the company pays taxes in that country without using tax evasion schemes.{...}

Hee!

So you have to define in law what "earns money in a country " means.

Which is where we came in.

Are books downloaded from the Amazon Kindle store Amazon.com.au an example of "earns money in a country " ?

Amazon.com ?
Smashwords.com ?

If Coffee Kingdom were an Oz coffee chain and pays the owner of the name, an Irish company, for the right to use the name, the payment reduces taxable profits. Does the Australian Government refuse to recognise that ?

If so, does the Irish government seize payments to Fosters ?

[murg]

Originally Posted by Little.Egret

If Coffee Kingdom were an Oz coffee chain and pays the owner of the name, an Irish company, for the right to use the name, the payment reduces taxable profits. Does the Australian Government refuse to recognise that ?

This is exactly the problem. Coffee Kingdom just happens to pay the Irish company the amount of its profits for the use of the name.

[AnotherCat]

Originally Posted by murg

This is exactly the problem. Coffee Kingdom just happens to pay the Irish company the amount of its profits for the use of the name.

That is not the problem. If that is the market worth of the use of the name then in most (probably all?) western tax jurisdictions it is an allowable deduction.

If it is not the market worth of the use of the name (and that use may also include associated management services (say as in a franchise or other rights), etc. then the problem is that the revenue in the name users jurisdiction is too lazy to challenge it and, if necessary, prove their case in court to establish a realistic valuation.

[AnotherCat]

"Inquiry into how Apple, Google and Microsoft rob Australians by not paying Aus taxes "

Talk about calling the kettle black!

A country full of ex convicts calling law abiding international businesses robbers!

[Lynx-lynx]

Originally Posted by AnotherCat

"Inquiry into how Apple, Google and Microsoft rob Australians by not paying Aus taxes "

Talk about calling the kettle black!

A country full of ex convicts calling law abiding international businesses robbers!

Proudly!!!

EDIT
What's NZ doing to get the big internationals to pay their full taxes?

[gmw]

I am all for the inquiry to discover if companies are subverting the law, or if they are not subverting it but still aren't paying the level of taxation expected, then the inquiry should make appropriate recommendations for changes in the law.

But otherwise I agree with Harry. Shareholders have legal rights and expectations. Some companies do make certain charitable donations, however paying more tax than legally required would not normally come under the heading of charity. ... But what else would you call it if a company you had shares in included in their annual report "$2M legally required tax, plus $8M extra tax because we thought that was more reasonable" ? And if that extra meant a significant hit to your dividends, how happy would you be?

Of course, complicated company structures involving various international intermediaries makes it all very messy. But most shareholders would be similarly unhappy if the company chose structures that meant the company was no longer competitive and began to lose ground to others. Anyway, as we see here on MR, many individuals are content to purchase through overseas intermediaries in order to circumvent regional constraints, often bypassing things like regional taxes, and yet that is okay?

The law has to deal with constantly changing situations, which is why it usually lags behind.

It seems a bit odd to be arguing on this side when recently I was critical of publishers charging regional premiums for books ... but, hey, I never claimed to be perfectly consistent. The principles are actually much the same: if the company can get away with it they are almost obliged to do so, both in the name of their responsibilities to shareholders and in their need to remain competitive. That's Capitalism for you. If we want to force people and companies to be socially responsible we'll have to move to a different framework.

[AnotherCat]

Originally Posted by Lynx-lynx

Proudly!!!

EDIT
What's NZ doing to get the big internationals to pay their full taxes?

Well if an international company's subsidiary in NZ does not pay its taxes on its profits then it is taken to court.

If it is an international company overseas (an Australian one, for example) that exports goods or services to NZ then that company pays taxes in the country it is resident in (in Australia, for example).

That is how tax works.

To give you an example based on myself. I have worked for many years as a consultant (Yeah, I know, no cheek please ) for both local and overseas clients. So, for example if a client in Australia phones me to do a report for him, then I charge him for the time on the phone and the time preparing the report, he pays me and I pay tax in NZ, not in Australia. If he asks me to send him some software over the internet then the same. If he comes to NZ and asks me to pay for then charge him for us both going for a helicopter ride (yes it has happened ) then the same.

But if he asks me to send him a piece of machinery then again the same except he may be liable to duties and GST on its crossing the border into Australia. That is HIS Problem and the AUSTRALIAN Governments problem not mine, and as another has said it is taxes at the border on its own citizens (whether those be Australian companies or people) that apply, not some misguided effort to tax non Australians.

And there is the crunch, just as, for example, NZ'ers do not have to abide by Australian laws unless they are in Australia, NZ companies do not have to abide by Australian laws (because by definition they are on the NZ Register of Companies and so never in Australia) so they do not have to pay tax in Australia (as Harry and others have already alluded to). Now if a NZ company has a subsidiary in Australia then that subsidiary is on the Australian Register of Companies then that pays tax in Australia, however if the NZ parent company of that subsidiary makes a supply to an Australian citizen then the NZ parent company pays tax in NZ, not Australia, and if the subsidiary in Australia plays no part in the supply then it pays none.

And just because the NZ company tax is less in NZ (28% vs 30% in Australia) that still does not mean the NZ parent company has to pay anything in Australia. And the same applies if the parent company is in a country where the company tax is 15% say (like Hong Kong, ? haven't checked there recently) or zero (like some others). But if the parent company repatriates profits to its country of residence (say the NZ parent repatriates profits of its Australian subsidiary to NZ) then it may have to pay tax on those, or part of those in its own country. Then if those profits are distributed by the NZ parent to its shareholders by way of a dividend then the shareholders pay tax on the dividend they receive less the tax paid already in NZ by the company (Imputation).

Now some people take some sort of ill informed moral high ground and loathe countries that have no company tax. I had never thought much about it until I did some work for a client in one such country and spent some time there on business visits; that country has no tax on company profits and no personal taxation either (it had a flat payroll tax and sales taxes), it also has no natural resources to export.

That country is also consistently among the top few countries in the world insofar as GNP per capita is concerned as are its citizens' average personal incomes. It, of course, is a popular place for companies to reside in even though such a company's shareholders may all be in (lets just say) NZ and all its business be done in other countries through its subsidiaries resident in those countries. It is commonly pushed by those taking the high moral ground of ignorance that it is immoral that such companies "are not paying ANY tax", but the actual situation is that if the company is to distribute its profits to its shareholders in NZ then those shareholders then in effect pay the company's tax as the profits will not come with imputation credits.

For example, if a NZ shareholder's marginal tax rate is 33% (the highest rate in NZ) then, broadly speaking, dividends received from a local company will come with a 28% imputation credit (or lesser amount if the company has paid less tax than that) for the tax the company has paid already on those profits (profits are not taxed twice here, nor are they in Australia, for example) and so the shareholder, in effect, pays around 5% tax on the dividend received. If the company the shares are held in is resident in a zero company tax country then the shareholder receives no imputation credits (not only because the company has not paid any tax but also because there will be no bilateral tax agreement covering imputation with the foreign country; for example we do not get Australian imputation credits here on dividends paid by Australian companies) and so the shareholder pays his full marginal rate of 33% on those dividends.

So the outcome is, broadly speaking, that even though the company is resident of a tax free country when it comes to repatriating its profits to its shareholders back in NZ those shareholders in effect pay the company's 28% tax in NZ (which for dividends from a local company they would not pay) plus the above mentioned 5% of their own.

However, that means that the tax is only paid on distributed profits so the profits the company retains for capital expansion, R&D, etc. are not taxed and so leaves the company with more cash for business growth or new endeavours. It also means that those retained profits remain with the non resident NZ owned company and so are still part of the collective wealth of NZ. Now all that may or may not be regarded as a good thing, depending on whether on believes in a free capitalist economy or in a socialist one where government attempts to micromanage centrally (without exception, always poorly- there are no successful examples).

Moving on to imported digital material (ebooks, software, videos, etc.) that are imported as digital files across the internet then the argument is that no VAT/GST/duties is collected. But as was covered a bit in a recent thread it is not the exporting company's responsibility to pay that. Nor can they be forced in law to do so as the laws of the importing country cannot apply to it (and cannot be enforced), but as I said in that other thread they may be able to be jawboned into voluntarily doing so by blackmail or other threats (e.g. threat of banning from government contracts in the importing country, the stirring up of hatred of the foreign company as activists are now doing).

The difficulty is how does the importing country go about collecting GST/VAT/duties on those essentially invisible transactions that come in over fibre optic cable rather than in a box. What most people do not realise this issue has been around for many decades in that imported services also do not come in boxes and so many have not been subject to GST/VAT/duties (certainly so in NZ and I suspect most other similar jurisdictions). So, taking my example way, way above where I might charge for my time talking over a fibre optic cable to a client in Australia that charge received by me is not subject to border taxes.

But, as I have been at pains to point out, the collection of taxes at the border crossing are the responsibility of the importing country, not of the foreign exporting company over which it has no jurisdiction even if it has a local subsidiary that played no part in the supply. If they cannot work out a way to do it and they want the tax then that is the importing country's problem and no one else's.

If the foreign company has a local subsidiary that played a part in the supply (whether the supply is in a box or comes over a fibre optic cable) then it will be liable to company taxes on the profits gained from that part of the supply. What some people are saying (and they are saying that even though their having no understanding of tax law nor any knowledge of how great a part the local subsidiary has played in the imported supplies ) is that such local subsidiaries are not paying enough tax. Now if that is the case then it is only due to the laziness of the importing country's local Revenue in not pursuing the local subsidiary for company tax on its part played in facilitating the imported supply, or if their is disagreement over the magnitude of the profit to be taxed then not pursuing it through the courts.

While I have used NZ, Australia and another nameless tax free country as examples, things work roughly the same throughout the western world. I have not named the tax free country as doing so for such countries usually arouses rabid and immoral noise from the apparently, so they tell us, "moral" activist types.

Wow that was a filibuster (and the appearances of a bit of a lecture ) so I am off to the 'fridge to get a tinnie. Anyone else got this far deserves one too, it is my vicarious tax free shout .

[Lynx-lynx]

@anothercat, so do you think Starbucks should have paid the UK taxes or not?

Gee, this country that you're not naming (because they are often shamed?) Should be able to withstand chatter about it, shouldn't it?

(And whilst trying to absorb your very informative post I too am enjoying arvo tea. [Daylight savings has finished here.])

[Billi]

A little polemical item:

http://www.itwire.com/opinion-and-an...0–-shame