Tax & ATO News Australia

Searching for tag: Crown Insurance Services

Corporate tax avoidance – what does Apple’s tax bill have to do with us?

On the face of it, the clever, multi-jurisdictional structures of companies like Apple and Google seem a clear case of corporate tax avoidance, and the Federal Govt in Australia appears justified in trying to stamp it out. Many reports and newspaper articles loudly proclaim that companies like Apple are only paying in the order of $193m tax in Australia on $27b revenue.

But like all things in tax, politics and computer design, nothing is ever as simple as it seems.

Firstly, there are a lot of moving parts in Apple’s international structure, which it must be stressed is completely legal.

Apple and other multinationals have simply done exactly what countries like Ireland and Singapore wants it to do: that is, bring its business to those countries in exchange for low corporate tax rates. It seems more than a little sanctimonious to criticise Apple for doing precisely what a sovereign country has encouraged it to do.

Or should we criticise Ireland for offering lower tax rates to attract the business? That would be odd, seeing as Australia (and most other countries) do a version of the same thing.

If Australia were striving to develop a healthy economy and thriving/robust society after years of internal turmoil and struggle, wouldn’t we as Australians want to try and find ways to attract investment and innovation to our shores?

Secondly, the law of unintended consequences is definitely something to watch. The Government’s own Parliamentary Budget Office has warned that unilateral diverted profits tax (a so called “Google Tax”) could lead to other countries imposing higher taxes on Australian businesses abroad in retribution.

Commentators and politicians tend to constantly overlook a fundamental feature of international taxation – profits are taxed at the source of the good or service, not where it is consumed. To be fair, commentators are not alone in overlooking this – the ATO has forgotten this on occasion as well, as the High Court case of Crown Insurance Limited, which I ran, shows.

The Managing Director of Google Australia, Maile Carnegie, clearly explained the issue by reversing the argument at the Senate Hearings this week:

“If you look at someone like Rio Tinto, they have 35 per cent of their customer base in China, but less than 1 per cent of their tax in China ... Google has a similar structure.”

Thirdly, as the Commissioner of Taxation has recently commented, major multinationals like Google and Apple are in continual dialogue with the ATO about specific items of income and deductions and are almost continually audited. These are frequently questions on which reasonable minds can differ, but the big companies have ample resources to properly argue their case with appropriate evidence, obtained in real time. In the words of Apple’s Tony King, "All our costs of doing business are reported in our books, and we buy products from affiliate companies outside of Australia. Apple has been operating in Australia for more than 30 years, and we now employ over 2,000 people here."

Transfer pricing is a well established mechanism by which multi-national companies are correctly taxed on the profit sources in specific countries. While Australia’s transfer pricing taxation regime is far from perfect, it is at least a well know, internationally accepted model that works.

As any business owner will tell you, one of the main objectives in how they run their business is how to remain competitive in a rapidly changing world, specifically, how to maintain profitability. Is it fair to expect any less from organisations like Google and Apple just because of their sheer size?

Google’s rep Maile Carnegie puts it this way, "I guess my answer to that one is that fundamentally, Google does not structure itself based on tax, it structures itself based on being competitive. We are not opposed to paying tax. What we're opposed to is being uncompetitive. And just like Australia needs to compete with Singapore or Ireland or the US or the UK for various things, we need to compete with the people sitting at this table as well as Tencent in China, as well as Ali Baba, who is now incorporated in the US. So we structure ourself to be competitive.”

Would you expect business owners or managers to respond in any other way?

Let’s take a moment here to consider the possible consequences.

My great concern is that taxes cannot be targeted at specific entities. Taxes that are introduced with the justification of a specific set of circumstances, quite frequently end up targeting taxpayers with completely different profiles.

So if the Treasurer introduces new legislation as a populist measure to counter the tax structuring of Apple and Google, we should all be very concerned to ensure that it does not end up catching ordinary Australian SME companies trading overseas. As we have seen, the consequences of poorly designed and administered tax can be incredibly damaging for individual taxpayers. These consequences should not be risked simply to grab a good headline that will have no other positive effect.

Putting it a little plainly.

Bad laws make bad results for the wrong people. The simple truth is that the more technical and complicated laws that are created, the more lawyers and accountants get paid to find loopholes (which we will, because greater complexity always results in greater loopholes) and you end up with an expensive cumbersome unworkable system that big companies with expansive legal budgets will always successfully exploit. Which of course greatly increases the chances of accidentally catching a little fish – the SME taxpayer – who cannot afford Apple’s lawyers and never thought for one second that the Google Tax would apply to them.


And don’t get me started on the possibility of retaliatory trade practices, identified by the parliamentary budget office, that’s for another article. 

Posted in: Tax & ATO News Australia at 10 April 15

Crown Insurance Services Limited wins in High Court against ATO

A long running fight between one of my clients and the ATO has had its final battle in the High Court on 6 June 2013.

 

Crown Insurance Services Limited, an offshore insurance company, succeeded in the High Court on 6 June 2013 in an application brought by the ATO to appeal against a Full Federal Court decision regarding the source of Crown Insurance's income. The ATO had lost in the Full Federal Court following an appeal from its loss in the Administrative Appeals Tribunal. A significant amount of tax was at stake in a case which could have had major ramifications for overseas companies which have dealings with Australian companies.
 
The ATO's case was that because Crown Insurance dealt with related Australian companies, which made their income from Australia, Crown Insurance's income was indirectly derived from Australian sources.
 
In running their appeals, the ATO ignored several High Court and other authorities over many years.
 
The ATO also argued that there should be a change of law on the determination of appeals from lower courts and tribunals.  Appeals from the AAT must be on a question of law and the ATO argued for a significant extension in the jurisdiction of the Federal Court to hear appeals.  The ATO was attempting to overturn long standing decisions including Pozzolanic Enterprises Pty Ltd v Collector of Customs and Collector of Customs v Agfa Gevaert. The effect of such a change of law would be to complicate appeals from the AAT and potentially turn all such appeals into a virtual re-hearing of the original decision.  This would add greatly to the already considerable cost of litigation in Australia.
 
Our client is immensely relieved at the win, but frustrated that the ATO has taken such a long time and wasted so much money fighting appeals that seemed doomed to failure from the outset.
 

Posted in: Tax & ATO News Australia at 07 June 13

Share


Tax & ATO News Australia

Author: David Hughes

Last 12 months

Tags