Labor demands tax action on transfer pricing
The Federal Labor Party has demanded the Government bring Australia’s international taxation regulations into line to deal with multinationals such as Apple and Google, which are siphoning billions of dollars of revenue out of Australia while paying only small amounts of local tax.
In a statement issued this morning, Shadow Assistant Treasurer Andrew Leigh called on Treasurer Joe Hockey to show strong leadership at the G20 Finance Ministers’ meeting this week to achieve global action to crack down on “multinational corporations that pay little or no taxation at all”.
“Since coming to office, the Abbott Government has talked a big game on multinational profit-shifting. But all it has done is to water down Labor’s sensible reforms that ensure multinationals pay their fair share,” said Leigh.“On 14 December 2013, Assistant Treasurer Arthur Sinodinos announced that it would abandon a $700 million measure to prevent multinational firms reducing their tax bill.”
“On 4 January 2014, Senator Sinodinos said he was considering abandoning measures that required 200 of Australia’s largest firms to disclose their total income, taxable income and tax paid.”
“The Coalition seems to favour loopholes and secrecy – not fairness and transparency. It’s not fair that under existing rules global firms can siphon profits earned in Australia to low-taxing countries. That’s hundreds of millions of dollars of tax revenue lost that could go towards Australian hospitals, schools and infrastructure,” Leigh said.
The issue has been a long-running one with relation to the technology sector. In the year to 28 September 2013, for example, Apple recently reported that it made $6.1 billion in revenues, with gross profits up 7.4 percent to $529.4 million. However, the company continued to pay only a small amount of tax in Australia, listing its local corporate income tax expense as $36 million for the period, despite the fact that it made $6.1 billion in revenues.
The reason Apple pays so little tax in Australia is that as a proportion of revenues, Apple’s cost of goods sold in Australia is significantly higher as listed in its ASIC documents than it is in the US, meaning the company pays little tax in Australia compared with its US tax situation.
Similarly, for the 2012 calendar year, the Australian division of search and software giant Google paid a meagre $4.1 million in tax(compared with $74,176 the year previously), despite the fact that industry analysts regularly estimate that the company makes over $1 billion in revenues from Australia each year. Much of the revenue is not counted in Google Australia’s financial results as it is billed from offshore.
Corporations such as Apple and Google, which make huge sums of money from sales in Australia but have not historically paid tax sums commensurate with those revenues, have been under the microscope recently. The Labor Federal Government had planned a raft of tax reform measures to deal with corporations that the Australian Taxation Office suspected were not dealing at proper arm’s length terms with their foreign associated entities. However, the Coalition has stopped short of committing to tackle the issue.
Internationally, a number of European countries such as the UK, France and Italy have enacted new tax laws to deal with the situation.
“When tax rules allow businesses to shift their income away from where it was produced, it erodes that country’s tax base and shifts the burden onto individual taxpayers,” said Leigh today.
“International tax rules are not keeping pace with changes in the digital age and the realities of doing business in our globalised world. Rapid and dramatic shifts in global economic activity, driven largely by e-commerce, pose very real and significant risks to Australia’s corporate tax base and the tax bases of countries right around the world.”
“There is a pressing need for action. This week’s G20 finance ministers is a potential watershed moment in international tax policy,” said Leigh. “Labor advanced a fair agenda to combat tax avoidance and evasion. It’s up Joe Hockey and Arthur Sinodinos to take up the baton left by Wayne Swan and David Bradbury so multinationals pay their fair share of tax. Until they do Australian households and businesses will have to take on a higher tax burden and local communities suffer.”
Other first-world jurisdictions are clearly moving to tackle this issue, and it is time Australia did as well. The rules as they stand are currently substantially unfair and let the multinationals get away with blue murder. If revenue and profits are earned in Australia, it should be taxed in Australia — that’s a basic for any tax system.