Australia's 'Google Tax' Has Been Approved

Image: iStock

A 40 per cent tax rate on multinational companies that use overseas tax havens to avoid paying tax in Australia was passed by the Senate last night. The diverted profits tax (DPT), also known as the “Google tax”, will begin on 1 July, 2017.

DPT was a key part of treasurer Scott Morrison’s budget measures last year. The government hopes it will deliver $100 million in revenue annually from 2018-19.

The DPT only applies to multinationals with a global income of more than $1 billion and an Australian income of more than $25 million and follows on from the Multinational Anti-Avoidance Law (MAAL), introduced in January this year, which targets artificial profit shifting by multinationals.

The new law means Australia is just the second country in the world, after the UK in 2015, to introduce such a company tax. The 40% rate has a built-in penalty, 10% higher than the standard 30% company tax rate. The tax is triggered if a company moves revenue initially booked in Australia to a country with a tax rate lower than 24%.

Debating the bill in Parliament, Morrison said the higher penalty rate was aimed at “encouraging greater cooperation between uncooperative multinationals and the ATO. As a result this will greatly reduce the length of disputes between the ATO and multinationals, and lead to timelier dispute resolution.”

The DPT does not apply to managed investment trusts or similar foreign entities, sovereign wealth funds and foreign pension funds.

“The Turnbull government is determined to ensure multinationals do the right thing and pay their fair share of tax here in Australia so that Australian citizens get the money that is owed to them to fund vital infrastructure and services,” Morrison said.

In last year’s budget, the treasurer allocated $679 million over four years to fund a 1,300-member ATO taskforce focussed on multinationals, private companies and wealthy individuals. The measure is expected to raise $3.7 billion up to 2020.

Earlier this year, Apple Australia revealed its net profit for the financial year to September 24, 2016, fell by 97%, following a tax “adjustment”.

The small profit came from a revenue base of $7.57 billion, a $296 million drop from the previous year’s $7.86 billion.

Apple’s tax bill for its 2015-16 financial year amounted to $128.2 million, up 51% on the previous year’s $84.9 million.

In 2014, details of how Apple shifted an estimated $8.9 billion of Australian income to Ireland, where between 2002 to 2013.

Senior executives from Google, Apple and Microsoft fronted a Senate inquiry in 2015 to explain and defend their tax arrangements, with one such scheme described as a “double Irish sandwich with Dutch affiliations”.


This story originally appeared on Business Insider.


Comments

    It's a marketing masterpiece by Apple for this to be consistently called the Google Tax despite Apple being a far worse offender, still not sure how they did it, must have been using unpaid tax money for bribes!

      Google Tax is a far better name for it anyway. With Apple, they have a physical product that needs to be manufactured, while Google doesnt,.

      Apple still needs to pay for their products to be made, still needs to pay for them to be shipped, and still needs to pay for them to be stored. Google doesnt.

      Without breaking it down, on an $800 product, Apple would only be siphoning off around $100 or so. The rest gets caught in one tax system or another, whether thats in China where its made, or the Australian legs of its retail journey.

      Google doesnt have manufacturing or distribution to justify any part of their siphoning. Its an intangible asset, so their moving of profits offshore is far more a tax avoidance system than anyone like Apple.

      The big problem with all this is that the stories misrepresent the problem. They try to use gross revenue as if the whole lot gets taxed, without recognising that it costs money to run these businesses. For what its worth, Woolies pays a pretty similar proportion of their turnover as tax as well, its not uncommon.

      Theres also the problem that the 24% tax rate part of this doesnt solve the problem. To pick just once country, New Zealand has a 28% company tax rate, but also allows foreign companies to offload their profits to other countries (through trusts from memory). The loophole wont be closed, it just introduces an extra step.

      A third problem with this is that it also catches a lot of Australian companies. Like BHP. Bigger ones responsible for quite a lot of jobs. What sort of extra pressure does this put onto the mining sector, who almost by default are going to be multinationals with over $1b in revenue?

        Have you ever heard of the Google Nexus line of phones and tablets? Whilst Google doesn't have bricks and mortar stores it definitely does have physical products. Besides, it could be argued that Apple who does have a physical presence in Australia is all the more guilty for profit shifting.

          Of course I have. But Google makes around 90% of their revenue from advertising last year - $80b out of $90b total revenue. Meanwhile, there were 215m ios smartphones sold. Shouldnt be hard to do the math. Apple had global revenue of around $220b last year, and while they do make some money from iTunes and the like, clearly the bulk of which was from devices.

          You dont seem to understand what I'm saying though. I'm not saying Apple is perfect, I'm saying that because the bulk of their profits comes from a physical product, its harder to stop.

          What Google are doing is moving profit purely through paper processes. For the bulk of their revenue, there is no physical item to absorb costs, they've just deemed that their algorithm is owned in Ireland, and they can charge whatever they want to themselves to use it. Thats a far easier tax minimisation process to shut down than a manufacturing/distribution/retail process.

        From what I've read in the past, conservatively for every $1 Google evades, apple evades $100.

        Google has a much lower revenue than apple but pays a higher percentage in tax.

          Its going to depend on how you present the numbers. Sheer volume might mean Apple diverts more, but its not 100:1.

          A quick search shows Apples global turnover is roughly 3x that of Google up until 2015, roughly 250% in 2016. The difference between the two is that Apple (all segments) automatically gets taxed on about 3/4's of the retail value, either here or China, plus GST, while Google manages to get taxed on about 1/10th.

          I'm not saying Apple is perfect, what I'm saying is that when they start actually taxing these monies (and assuming they can make it stick for what MSM says is the issue), Apples dodging about $50 tax on an $800 product while Googles dodging $300 tax out of $1000.

          To re-emphasise. Most of that $7b in Apple's turnover goes through our tax system or China's. Most of Google's $1b revenue missings any practical tax system.

          Googles loophole is also easier to shutdown, it might simply be a redefinition of transfer pricing.

            Yeah they're different issues, I think we need an "Apple Tax" to combat the issue of companies using loopholes to claim they are less profitable than they are.

            Based on the figures in this article Apple pays 1.69% tax on revenue. Considering a $1000 phone only costs $300 to make (Based on previous Gizmodo articles), say another $200 in marketing etc, you would imagine $500 profit per device, meaning about $150 tax per $1000 revenue. They pay $16.90 tax per $1000.

            Last edited 30/03/17 9:34 am

              Theres not going to be $500 profit, thats what people are getting wrong. Or, to be clearer, theres not going to be $500 profit in Australia. This is all broken down into segments. Manufacturing, distribution, and Australia.

              AT least $600-$700 is going offshore before Apple Aus ever gets involved through either manufacturing or distribution. THATS the problem, and what kills the whole $500 profit scenario - most of the final profit is taken by a legally different company at that distribution stage. If you try to change that, they just an an extra leg to the process to get it out of your jurisdiction.

        It's not going to catch mining companies unless they are siphoning money offshore also and trying to avoid tax.

    Will the government also be introducing stirct supply chain and cost monitoring to ensure that any end consumer price adjustments reflect changes in costs and are not to compensate for loss of profits arising from this new tax legislation? Or are they happy to let consumers pay this tax?

      Any price increase will have a detrimental impact on demand.

    Gonna be a good time to be a country with a 24% tax rate!

    The DPT only applies to multinationals with a global income of more than $1 billion and an Australian income of more than $25 million...I'm sure these companies won't find any way to circumvent either of those criteria.

      Theres one about 5 hours flight east of Melbourne. NZ has loopholes that allows foreign owned companies to legally divert profits without being taxed. They arent the only countries that do that as well.

      Their company tax rate is 28%, so a pretty straightforward loophole to get around our laws. Make all income go to NZ, have the NZ company 100% owned by a foreign trust, who moves money offshore and ultimately to Ireland. Shelf company costing $10 a year to run, it breaks the chain of responsibility in NZ. Any accountant worth their pay could set that up in 10 minutes.

    Should catch some of the mining companies that have been using this loophole to not pay tax on things dug up here too.

    So instead of the money staying in my pocket, I'm going to be paying more for [insert product here] and more tax going to the government to pay for their helicopter holidays?

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