The Google tax and the tax office ‘auditing’ mutlinationals
Posted by John, December 9th, 2014 - under Tax, Tax avoidance, Tax Office.
Tags: ATO, Australian Tax Office, Google
My letter today to the Australian Financial Review
John
Without seeing the detail of the so-called ‘Google tax’, as a former Assistant Commissioner of Taxation in the international area of the ATO it appears to me there is one possibly insurmountable problem, Australia’s double tax agreement with Singapore. (Phillip Coorey and Fleur Anderson, ‘Treasurer poised to impose “Google tax”‘ AFR Tuesday 9 December page 1.)
Under that treay (and all Australia’s tax treaties) Singapore has taxing rights over the income of its resident companies. As a company incorporated there Google Singapore is subject to income tax in Singapore and not Australia, including on profits which are sourced from Australia. The exception is when Google Singapore has a permanent establishment (PE) in Australia, for example a branch physically located here. Australia then has taxing rights over the income attributable to that PE.
I understand when an Australian contracts with Google Singapore (by for example placing an advertisement on Google) they do so through a server not located in Australia rather than by dealing directly with its branch here. This means that our treaties, and indeed all our and other country tax treaties, based as they are on 19th century concepts of physical presence, make collecting tax from Google Singapore almost impossible to do because Singapore, not Australia, has the taxing rights over Google Singapore profits arising in Australia. (I am assuming the Australian PE of Google Singapore has little role in earning the income here.) Without a change to our Singapore, and indeed all the other tax treaties, any income tax imposed on Google by Australia will in all likelihood be invalid under the treaty.
My suggestion is to impose an operating fee on Google and other taxpayers carrying on business in Australia but paying little tax here. Twenty percent of estimated turnover might be a starting point.
And while I have your attention on tax matters, Joe Hockey’s announcement that ten multinationals have ATO auditors embedded in them is a joke. Only ten? Are the other hundreds of multinationals all squeaky clean?
Further, that doesn’t address the fact that for the last decade the International area of the ATO has been destroyed and its expertise wrecked, lost or dispersed. With 2200 staff cuts so far in the last twelve months (and an extra 2500 planned for the end of 2017), more of that international and audit experience has been or will be lost. The beneficiaries of the massive job cuts in the ATO by the former KPMG partner and current Commissioner are the rich and powerful.
Putting a few auditors into ten multinationals isn’t going to change that. It is a smokescreen to cover the destruction of international expertise and capacity in the ATO and institutional changes within the organisation which favour tax avoiding big business at the expense of the rest of us.