Google, Apple and Microsoft defend tax set-up that shifts revenue offshore

Executives tell Senate inquiry paying tax overseas for Australian sales is how the global tax system works, while News Corp Australia demands Netflix pays GST

Senior executives from three major tech firms have defended corporate structures which allow most of the revenue from their Australian operations to be taxed in lower cost offshore jurisdictions.

News Corp Australia used its appearance at the committee to extol the virtues of its loss-making broadsheet, the Australian, and implore senators to impose a goods and services tax on Netflix, which competes with News’ movie streaming service.

Maile Carnegie, managing director of Google in Australia and New Zealand, told the Senate inquiry into corporate tax avoidance she could not disclose Google’s Australian revenues, but said in 2013 Google had paid $7.1m in tax on $46m in profits.

Most of Google’s Australian revenue was taxed in Singapore because Google Australia provides sales and marketing services to Google Singapore.

Asked whether she thought this was a reasonable arrangement, Carnegie said that was a question for politicians to answer

“When I think about morality I don’t think about it in terms of geographic boundaries … we are not opposed to paying tax but we are opposed to being uncompetitive … when I think about the morality, the people who need to answer … are the people sitting on your side of the room,” she told the senators.

“I am not saying whether those arrangements are right or wrong … they are simply the way the global tax system is working.”

Bill Sample, corporate vice president for worldwide tax for Microsoft Corporation, said in the 2014 financial year Microsoft had also booked about $2bn to Singapore in revenue from products and services sold in Australia and around $100m in revenue in Australia.

All the revenue from an Australian buying an Xbox, for example, would be accounted for in Singapore.

“Products and services sold to Australia are sold by our Singapore group, sales people primarily located in Singapore, our customers are billed by the Singapore group … so consulting services revenue is reported in Australia and non consulting services and software revenue is billed and accounted for on our Singapore books,” he said.

Tony King, Apple’s managing director for Australia and New Zealand, confirmed his company had paid about $80m in income tax on revenue of more than $6bn, but denied this amounted to aggressive tax planning.

“Our tax is paid on our net profit … every time we sell a product there is a cost of doing business, products like an iPhone are complex pieces of technology with enormous R&D associated with them … we pay our income tax on revenue minus all of our costs,” he said.

The committee had earlier heard from associate professor Antony Ting from the university of Sydney, who said that if Apple’s Australian subsidiary sold an iPad for $600, about $550 was ultimately taxed in Ireland and about $220 of that $550 was never taxed at all, anywhere in the world.

King insisted he did not know what the Australian subsidiary would pay for the iPad, except that it was “an arm’s-length price determined in accordance with a now-expired advance pricing agreement struck with the Australian Tax Office”.

All three companies are being audited by the tax office.

The treasurer, Joe Hockey, has warned Australia is “losing control of our destiny from a taxation perspective” because of “holes” in the tax treatment of multinational corporations and has flagged a so-called “Google tax” in the budget similar to the new “diverted profits tax” in Britain, which requires multinationals to pay a rate higher than the company tax rate on profits sent offshore.

But the tax office and tax experts appearing before the Senate committee were divided about the usefulness of a “Google tax”, saying it should be seen as a stopgap measure while the OECD finalised an international response to profit shifting.

Ting said it should be viewed as a “plan B”, alongside the Organisation for Economic Cooperation and Development (OECD) efforts. He said it would be possible to design a diverted profits tax without contravening Australia’s tax treaties – but this would mean it could not be a “carbon copy” of the British version.

Professor Richard Vann from the University of Sydney law school also urged caution, saying uniform multinational efforts through the OECD were the best solution, but a diverted profits tax was probably better than doing nothing in the meantime.

Vann said there were “systemic flaws in the transfer pricing rules” which were ultimately “not something we should fix on our own”.

Google has proposed that Australian tax breaks for research and development should be spent in smaller start-ups rather than companies like Google.

“My concern is it can be used for research and development that would have happened even without the credit … the research and development tax credits are not the primary reason we are investing and doing research and development in Australia, those credits could be better targeted to start ups,” Carnegie said.

News Corp Australia’s chief executive officer, Julian Clarke, dismissed a recent report in Fairfax papers that News Corp in New York had “siphoned off $4.5bn in cash and shares” from the Australian operations “virtually tax free”, saying it was wrong.

The company’s chief financial officer, Susan Panuccio, said $4.5bn had been repatriated to the US parent company in two transactions – one as a result of a separation of the News businesses, which had no tax implications, and one a “repatriation” of an $838m tax refund it received after a long-running dispute, upon which Panuccio said it was also not liable to pay tax.

But Clarke was keen to impress upon the senators the unfairness of tax arrangements applying to the Netflix, which recently began Australian operations but does not pay GST, unlike News Corp Australia’s on demand movie and tv streaming site Presto or the Fairfax and Channel Nine site Stan.

“Netflix pays no GST, they have been able to price themselves below our company Presto, and the Fairfax joint venture with [Channel] Nine. This is an unfair, it is not a level playing field and we will be looking to parliament to fix this problem – we have to apply GST to the selling price, they have now priced themselves below our two organisations,” Clarke said.

And when questioned by Greens senator Christine Milne about why News Corp continued to fund the Australian newspaper, Clarke said it was done in the national interest.

“With due respect, and I probably don’t expect you to agree with this, but I consider the Australian as the finest national newspaper … we think it is a very important part of our total business … and we think this nation of ours needs a very strong national newspaper like the Australian to do exactly what it is doing,” Clarke said. “It is absolutely involved in policy, in understanding the parties and the policies they bring to the fore.

“If the Australian wasn’t there there would be nobody doing what we are doing.”