Taxpayers Australia tackle ‘tiny’ Facebook
In a recent Senate Estimates hearing, Greens Senator Christine Milne probed ASIC representatives to explain why they consider Facebook Australia a ‘small’ company, especially considering the parent organisation is worth a staggering $US33.3 billion.
Facebook Australia is a ‘small’ company by its own determination and it is registered as such at ASIC, and its obligations to the government are set by this determination. This means it is knowingly precluding itself from issuing financial statements with ASIC. Facebook Australia must be aware of the $25,000 fine it faces for incorrect self-determination. However this amounts to a drop in the bucket. Its status as a ‘small’ company is questionable and points to issues on a multinational level.
Examining Facebook Australia in this regard highlights a regulation misstep. It is unclear that such self-determination is checked by ASIC, with the obvious implication that tax evasion for multinationals becomes easier where subsidiaries can so easily, and so inappropriately, avoid providing critical financial information.
It is clear that the current reporting framework with regard to these subsidiaries is failing to capture critical information from multinational corporations to verify they are acting within the law and in accordance with community standards, and action needs to be taken.
Alarmingly, the Senate Estimates hearing showcased an apparent lack of awareness from the government when assessing the impact of required financial reporting as such a key risk (see the video of the relevant section of the hearing here and judge for yourself).
This tax revenue leakage is a problem, irrespective of whether a multinational has paid tax in compliance with the current laws of Australia. This problem is about whether the regulations operating here adequately meet expectations, and whether taxes are paid or not. It has become obvious that even before we get to that stage, obtaining relevant financial information is already holding Australia back.
Issues such as base erosion and profit shifting therefore extend beyond the threshold problem of obtaining relevant information. Financial and tax professionals must be allowed to determine what amount of tax is being paid in relation to a given amount of profits. The community’s trust in large multinationals will only come with frank and honest disclosures by these bodies.
Mark Chapman, Head of Tax with Taxpayers Australia, said: ‘It’s really not rocket science. Facebook isn’t a small company. ASIC either couldn’t or wouldn’t deal with that and take the appropriate action.’
‘Following on from that, the ATO would be handicapped in assessing the tax compliance of the company. The government tells us they will be taking a big stick to corporate tax avoidance, but then we discover government agencies are actively facilitating it. This really has to stop.’
Taxpayers Australia advises that reform to the ‘small’ company exemption be undertaken on two fronts. First, by enforcing compliance with this rule with clear and transparent audit arrangements put in place and advertised to multinationals, as well as more appropriate penalties that acknowledge the size of parent entities and the risks of base erosion and profit shifting. Secondly, that the reporting framework be revisited at the international and Australian level to ensure that companies such as Facebook, at a minimum, provide financial statements for all its subsidiaries to corporate regulators.
