Australia has proposed new tax laws on Thursday designed to stop multinational enterprises such as Google from paying less taxes, by offering their services through other countries such as Ireland, where
the tax rate is lower.
In a speech to accountants
in Sydney on Thursday, Australia's Assistant Treasurer David Bradbury said the tax laws were being revised to ensure that companies pay tax on profits made in the country, citing the case of Google Australia.
"Earlier this year it was reported that Google Australia's annual income tax bill may have been as little as $74,176. The same article reported that a spokesman for Google asserted that the correct figure was $781,471," Bradbury said. "Even if the higher figure is correct, I can understand why many in the community would be perplexed to learn that this figure is so low for a company whose annual advertising revenue from Australia has been estimated by media analysts to be over $1 billion per annum," he added.
Bradbury said that while the day-to-day dealings of Australian firms advertising on Google might be with Google Australia, under the print of contracts Australian firms sign with Google, they are actually buying their advertising from an Irish subsidiary of Google. It is then argued that the source of this income - and therefore the taxing rights under our tax treaty - would be with Ireland rather than Australia.
Ireland's company tax rate of is 12.5 per cent, while Australia's is 30 per cent.
"The next step is to route a royalty payment from the Irish operating subsidiary of Google to a Dutch subsidiary of Google, which is then paid back to a second Irish holding company subsidiary of Google that is controlled in Bermuda, which has no corporate tax," Bradbury added.
Regarding the tax treatment, Bradbury said:
"The first Irish subsidiary receives a tax deduction for the royalty payment to the Dutch subsidiary, substantially reducing the income subject to the 12.5 per cent Irish company tax rate. Under Dutch law, and because EU member countries do not charge withholding taxes on transfers within the EU, the transfers to and from the Netherlands are essentially tax free. And under Irish tax law, the second Irish resident subsidiary is not taxed on the royalty payment because it is controlled by managers elsewhere."
Google Australia said it complied with all local tax laws and that it made a significant contribution to Australia's economy by helping thousands of businesses grow online, providing free services to Australians and by employing 650 people in the country.
Bradbury also refered to other recent reports, which showed that companies including Apple have come under scrutiny for their approach to paying taxes.
Reports earlier this year indicated that Apple had around $100 billion in cash, with about two thirds of that sitting in offshore accounts.
Other reports state that Amazon paid no tax in the UK despite £3.3billion in sales by routing transactions through Luxembourg, where it faced an effective tax rate of 2.5 per cent.
The UK Public Accounts Committee was told that Starbucks had paid no taxes in the UK for three years, despite sales totalling £1.2 billion - in part due to royalty payments for the use of the brand.