Google paid just 1.5 percent of its total revenue in Australia last year.
(Xinhua reporter Chen Ning reported) on August 22, Australia`s Senate hearing on the tax avoidance issue of multinational companies, the four big technology giant Facebook (Facebook), Google (Google), Apple`s (Apple) and Microsoft`s (Microsoft) finally admitted their overseas tax avoidance and admitted that they would shift most of their profits overseas to low-tax countries in an effort to circumvent Australia`s high taxes.
Two years ago, on April 8, 2015, the tech giants also denied Australia`s tax avoidance charges at a Senate hearing on multinationals.
Why are these self-styled "tax avoidance geniuses" now willing to "self-expose their weaknesses"? How did they avoid taxes in high-tax countries, such as Australia, to what extent did they evade them? How does Tan Bao goverment deal with it?
Flamboyant tax avoidance magic
It has become a secret to the industry that tech giants use loopholes in America`s tax laws and differences in tax laws across countries abroad to evade huge taxes. The tax avoidance scheme has been nicknamed "double-layer Irish-Dutch sandwich (Double Irish with Dutch sandwich)" tax avoidance.
In short, this tax avoidance trick can be divided into two steps (for example, Google):
The first is the double Irish Act. Under the U.S. Tax Code, US companies` overseas subsidiaries can retain income from "non-American Intangible assets" (non-US rights to intangible property) until the overseas subsidiary transfers profits back to the United States.
With this tax loophole, Google first set up two branches in the low-tax state of Ireland, one in charge of sales and one in charge of operations; Alphabet, Google`s American head office, then transferred its intellectual property to Ireland`s operating subsidiary; Ireland`s sales subsidiary then gathers the profits Google earns around the world, requiring global advertisers and users to pay the sales subsidiary; Finally, after receiving the payment, Irish sales "rightly" transferred most of its revenue to Irish operating companies in the name of paying royalties.
Ireland is the lowest-taxed EU country, with corporate income tax of just 12.5%. Google cleverly saved large taxes compared to Australia`s 30% corporate income tax.
However, if revenues are transferred directly from Irish sales companies to Irish operating companies, Irish corporate income tax is required. To save the tax, Google also set up another operating company in the Netherlands. Ireland and the Netherlands are exempt from income tax on transactions between companies in EU member states.
This is the Dutch Sandwich Act. That is, Irish sales transfers sales revenue to Irish operating companies in the name of royalties and then to Bermuda, a zero-tax havens, through the transfer of Dutch operating companies. Once Google`s overseas revenues are transferred to Bermudian`s Shell account, it will be hard to recover. In the process of overseas revenue transfer, Google only has to pay low corporate income tax in Ireland and low transaction tax in the Netherlands.
In accounting terms, "double-layer Irish sandwich" is typical of "transfer pricing," in which multinationals transfer profits made in high-tax countries to low-tax countries, thereby paying as little tax as possible.
A large number of tax avoidance
Google posted A $1.14 billion in revenue and A $16.6 million in taxes in 2016, compared with just 1.5 percent of total revenue, according to (The Weekend Australian), a magazine that cites accounts of multinational technology companies. It employs only 1300 people in Australia. Facebook`s tax avoidance was even more powerful, with A $327 million in profits in Australia last year and only 1 percent of income (A $3.3 million) in taxes and fees, compared with just 120 employees. Apple also pays a small amount in Australia, earning A $seven billion five hundred and sixty eight million a year and paying just A $128.2 million in taxes, or 1.7 percent of its income. Apple employs only 3729 people in Australia.
The huge amount of tax avoidance paid by the tech giants is conceivable. But this is a bit of a convergence. Last year, Facebook`s profits in Australia jumped to A $327 million from A $33.6 million in 2015, and income tax costs rose to A $3.3 million from A $ eight hundred and fourteen thousand in 2015, the Sydney Morning Herald reported. This is largely due to Facebook`s inclusion of advertising revenues in Australia last year for the first time in total profit. At the hearing on Aug. 22, Facebook Global Vice President of Taxation and Finance, Price (Ted Price), admitted that before Australia`s Anti-multinational avoidance tax Act (Multinational Anti-Avoidance Law) came into effect last year, Facebook revenues in Australia would be registered in Ireland. Because the local corporate tax rate is only 12.5%.
Richardson (Damon Richardson), Google`s global tax director, also said at the hearing that until this year, the company`s revenues in Australia will be registered through overseas subsidiaries. But at present, all advertising revenue generated by Google in the Australian postal code area will be taxed through Google Australia.
Australia strictly checks tax avoidance
Although the number of taxes paid by these supercompanies is still modest, tax avoidance in Australia has improved. What caused the tech giants to make changes?
In a sense, their change was not voluntary, but a compromise made by Tan Bao (Malcolm Turnbull) goverment`s heavy blow to multinational tax avoidance.
Independent Senator Shanofeng denounced Google`s accounts as "nonsense." (photo by News Corporation, Australia)
On January 1, 2016, the newly revised multinational Anti-avoidance tax Act (MAAL-Multinational Anti Avoidance Law) came into force. The tax applies to multinationals operating in Australia with global revenues of more than A $1 billion. It requires tax-avoidance multinationals to double the amount owed, plus interest.
A year later, the federal goverment introduced the transfer profit tax, which was formally implemented on July 1, 2017. The transfer profit tax applies to multinationals with global revenues of more than A $1 billion and Australian companies with revenues exceeding A $25 million. The tax, also known as the Google tax, aims to limit tax avoidance by shifting profits among multinationals. Under the new tax law, once multinationals transfer profits generated in Australia to countries with a corporate income tax of less than 24 percent, Australia`s goverment will impose a 40 percent tax rate, 10 percent more than the 30 percent standard corporate income tax, as a punishment.
Australia`s (ATO), on the other hand, is also eyeing these "tax havens" and is investigating tax avoidance by multinationals such as Google, Apple, Facebook and Microsoft. At the hearing on the 22nd, tax chief Jordan (Chris Jordan) publicly accused the multinationals of being irresponsible. "I`ve had enough," he reprimanded.
Australia`s goverment legislation and regulatory two-pronged, technology giants naturally rein in, tax avoidance is not as serious as in previous years.
