Tax boss rebukes Google, Apple and Microsoft over Senate inquiry eviden

Commissioner Chris Jordan delivers rebuke to multinational tech giants contesting evidence they gave to a Senate inquiry into corporate tax avoidance

The tax commissioner, Chris Jordan, has delivered a public rebuke to multinational tech giants Apple, Google and Microsoft, vigorously contesting evidence they gave to a recent Senate inquiry hearing into corporate tax avoidance.

Jordan told a Senate hearing on Wednesday the companies had provided highly partial accounts of their accounting activities relating to effective tax rates, arm’s-length pricing, and transfer pricing.

The commissioner declined to be drawn on whether the evidence amounted to a misleading of the Senate, but he said “we do take issue and dispute some of the comments that have been made.”

He insisted their evidence – in essence, a defence of the sophisticated corporate structures which allow most revenue from Australian operations to be taxed in lower cost, offshore jurisdictions – could not be taken at face value.

“We would assert that this is the point of the audits that we are undertaking – to determine whether aggressive tax planning is taking place,” the commissioner said.

The Greens leader, Christine Milne, asked Australian Tax Office (ATO) witnesses whether it was their on-balance view that Apple, Microsoft and Google were transferring money through hubs in Singapore to “tax havens where they pay no tax.”

“They may be paying a small amount of tax in Singapore on a margin but, at a high level, what you said is correct,” Jordan told the hearing of the Senate’s economic references committee.

The commissioner then went into detail about the evidence supplied by the tech giants and the resources companies in the first week of April.

He said Apple had told the inquiry into tax avoidance that all of its revenue from the sale of products was recognised in Australia. The company had gone on to say they paid an “arm’s length price to their international affiliates for these products.”

Jordan said the ATO was currently auditing Apple to contest whether its affiliate sales “are in fact struck at an appropriate price.”

“Similarly, Microsoft stated that the profits from its Australian business are earned primarily in Singapore – approximately $2bn, with $100m remaining in Australia,” Jordan said.

He said an audit by the ATO was trying to determine whether or not this was an appropriate split of revenue. “We further understand that much of [Microsoft’s] Singapore profits are paid out as technology fees and end up in Microsoft Bermuda,” Jordan said.

The commissioner said Google had given evidence that their Australian revenue from advertising was booked in Singapore, and tax was paid in Singapore.

“Whilst it is true that some tax is paid in Singapore, we believe it is a very small amount, as the revenue booked in Singapore is moved to a tax haven – Bermuda,” Jordan said.

“This means the majority of profits made in Australia end up in Bermuda where no tax is paid.”

Jordan then moved on to evidence given by resources giants Rio Tinto and BHP.

The commissioner said the ATO was “robustly testing” Rio Tinto’s arguments that they had an amount of approximately $719m profits in a Singapore hub as a result of “arm’s-length transactions”.

“In addition, Rio also stated that they had a small ‘immaterial’ adjustment which they paid to us. Although perhaps immaterial for Rio in an accounting sense, we note it is substantial from our perspective, in the order of $100m,” Jordan said.

Jordan confirmed the ATO was engaged in a “open audit” of BHP’s accounting activities for the past five years. “To complete the picture, we would also note that BHP is still currently disputing amended assessments in the order of multiple hundreds of millions of dollars arising from the previous Singapore hub audit,” he said.

In more general terms, the commissioner said: “Many of the companies who have appeared have quoted high effective tax rates, or ETRs, as indicators of their tax performance.”

“The selective use of these ETRs on different bases has the potential to obscure the position of these companies and their historically aggressive tax positions,” he said.

Jordan’s detailed rebuke has prompted the Senate’s economics reference committee to consider whether to recall the companies to explain the discrepancies between their evidence and statements on Wednesday by the ATO.

The committee was considering its options on Wednesday.

The commissioner also used his appearance to reject arguments the ATO lacked resources to take on profit shifting and avoidance by large multinationals.

He said the ATO’s redundancy program did not impact on these operations. “Any talk that our redundancy program has had an adverse impact on our capability in our area dealing with public groups, large corporates and internationals is simply not true.”

The commissioner also dismissed concerns raised in previous hearings that the ATO enjoyed a “comfortable” relationship with the four major accountancy firms that advise companies on their tax affairs: PricewaterhouseCoopers, KPMG, Ernst and Young, and Deloitte Touche Tohmatsu.

Concerns were raised about senior tax office staff migrating to senior roles with the big accounting firms.

“There were views also about our relationship and movement of expertise between the big four accounting firms and us,” Jordan said. “To think these days that any organisation is an island with people locked in or locked out is outdated – especially in a complex system such as the tax system.”

“In my judgement, the best teams and operators are those that have qualifications and a mix, as well as depth, of experience and perspectives.”