Tax Inquiry: Google, Apple and Microsoft chastised over failure to answer questions
The local bosses of some of the world’s biggest tech companies have drawn the ire of Senators after pleading ignorance of their company’s tax structures at an inquiry looking at tax avoidance by big corporates.
There were tense exchanges between Senators and representatives of Google, Apple and Microsoft during the Inquiry yesterday, which revealed the tech trio are among 12 technology companies facing major audits by the Australian Tax Office, amid claims of systematic corporate tax avoidance within the sector.
Google Australia CEO Carnegie
In her evidence before the committee the managing director of Google Australia Maile Carnegie said the online behemoth’s local operation reported a $46m profit in 2013, which after research and development credits were paid saw them handover $7m in tax – an effective tax rate of 15 per cent.
However, her evidence also noted that much of Google’s Australian revenue from advertising and other sources – thought to be more than $2bn – is booked through the more tax friendly jurisdictions in Singapore and then moved to Ireland and possibly Bermuda.
“I acknowledge that we do get benefit from that R&D tax credit,” said Carnegie. “That is because we qualify for that but the (ad) revenue that comes from Australia is taxed in Singapore.”
Carnegie was appearing alongside Apple Australia managing director Tony King who said his company paid $80m in tax on revenues of $6bn and Microsoft worldwide tax corporate vice president Bill Sample who admitted that the software giant booked $2bn of Australian revenue through Singapore in the 2014 financial year.
However it was Carnegie, along with King, who drew much of the attention of Senators with the Google MD being pushed on its arrangements in Ireland and other tax havens such as Bermuda.
“Senator I’m not going to say that Google has a simple tax structure globally. What I would say is that we have a simple tax structure in Google Australia,” Carnegie told the committee.
“The intellectual property of Google globally is owned by Google Incorporated which is a US company. Google Inc. then shares the cost and risk of taking that intellectual property to market with another entity in Ireland. There are then two operating structures under them, Google Ireland Ltd and Google Asia Pacific.
“Google Australia basically provides sales and marketing support services to Google Asia Pacific and we also provide R & D (research and development services) to Google Inc. Coming back to your question that is how we go to market.”
When pushed by Greens Senator Christine Milne for details on the “double Irish” tax arrangements, which have helped it minimise tax globally, Carnegie was coy saying she was not a specialist on Google’s global tax arrangements.
“I can take that on notice. I can come back and explain what goes on more specifically in Ireland and other places. To be frank I don’t have those details today”, the Google Australia boss told the committee, only to draw anger from Senator Milne.
“I find it extraordinary that you don’t,” said the Greens Senator. “The whole point of this inquiry is to look at whether companies like Microsoft, Apple and Google pay a fair share of tax in Australia. You get extremely generous R&D concessions in Australia and we have established that. You maximise the expenses in the country that pays substantial rebates and then minimise the tax that is paid through these structures.”
Carnegie defended the arrangements saying they were similar to what Australian mining companies do elsewhere in the world.
“For me the structure is not remarkably different to an Australian mining company who is generating almost a third of its revenue in a market like China but is only paying China 0.4 per cent of its taxes. These are international tax arrangements. What Google is doing in Australia is very very similar to what Australian companies are doing outside of Australia.”
The Google boss was not the only one in the firing line, with Apple’s Tony King forced to deny it has a “tax avoidance” structure.
“We book all of our revenue and sales that we do in Australia in our books locally,” said King. “We book all of the costs associated with doing business here and we buy our products from companies in the Apple affiliate group and we pay tax on all of our sales here in Australia.”
Challenged on whether Apple’s tax structure was also a “‘double Irish” sandwich with Dutch affiliations”, a reference to the tax structure which Bloomberg reports helped multinationals like Google and Apple to bring their tax rate down to 2.4 per cent globally, King denied any knowledge of the structure.
But his stance drew an angry response from Senator Milne: “Oh come on! You haven’t come here to say that,” she said.
King responded: “What I can say Senator is that all of our revenue is in our books here locally.”
Asked by Senators if the Australian Tax Office (ATO), in regards to the audit now being undertaken, felt they were too “aggressive” in their tax planning King said: “Senator, I don’t believe that is correct.”
“I believe our agreement with them expired and we were in renewal discussions when the audit commenced with the technology companies about six to 12 months ago, but those discussions are ongoing.”
King was also asked about what percentage of Apple’s $6bn of Australia revenue goes overseas. But he was unable to answer, taking the question on notice.
“I find it extraordinary that you can’t answer that,” said Senator Xenophon, who threatened to call the executive again before the inquiry in order to get an answer.
Independent Senator Xenophon also duelled with Google’s Carnegie over her lack of knowledge of Google’s tax arrangements in Bermuda.
“I’m aware that Google has a tax relationship with Bermuda,” admitted Carnegie.
“What’s the tax rate in Bermuda,” asked Xenophon.
“Senator I’m not aware,” she replied.
“If I said it was zero per cent would that be right?”, said Xenophon.
“I would not debate it. I would take it on face value,” Carnegie said.
“You’re a senior executive for Google – their most senior executive in Australia – and you are not aware if profits from their Australia operation somehow end up in Bermuda? Where there is a zero tax rate?”
“The profits from Google Australia – we pay them in Australia. The profits from other revenue generated here are paid in Singapore.”
Throughout her evidence before the inquiry Google Australia’s managing director emphasised that the online search giant operated in a global market place and did not need to have local operations in Australia.
“We have a bit of a different business model to other people in that we don’t set any of the prices. That is all done via an auction and so there is no price discussion”, said Carnegie. “It is all done through an auction and the technology and the intellectual property or capital for that auction is very sophisticated and it takes hundreds if not thousands of engineers to create. It can all be run, quite frankly, outside of Australia.
“There is very little need to have people in Australia to be helping to look after that transaction.”
She also denied Google was structured to avoid tax but said it was structured to be competitive.
“Fundamentally Google does not structure itself on tax it structures itself on being competitive. We are not opposed to tax. What we are opposed to is being uncompetitive,” said Carnegie.
“Just like Australia needs to compete with Ireland, the US or the UK for various things (Google) needs to compete with the people at this table as well as Tencent in China and Alibaba which is now incorporated in the US.”
In wrapping up Senator Sam Dastyari, who chaired the inquiry, thanked the companies for attending but noted: “There are some legitimate community concerns about how you are structured… when you look at the structures in Singapore, Bermuda and Ireland.
“It is pretty concerning that some of you would come to the inquiry without basic information.”
Nic Christensen
It’s difficult for people to agree with concepts that are different from the origin of their paycheck. Sadly, this woman wasn’t in control. She was talking too fast and too much. Needs more coaching.
User ID not verified.
Do we honestly expect these companies to not minimise their tax liabilities through every legal means necessary? Clearly the rules need to change if we expect any real movement on this issue.
User ID not verified.