Google says give R&D tax breaks to small techies, not big guys
Tax breaks for research and development should be targeted to smaller technology start-ups, rather than big companies that will most likely make the investments regardless of incentives, Google Australia will tell the senate inquiry into corporate tax avoidance.
Google Australia’s managing director, Maile Carnegie, will be appearing before the inquiry in Sydney on Wednesday, and will be joined by executives from other tech companies including Microsoft and Apple.
The tech giants will face a grilling on why they pay little tax in Australia and use hubs in low-tax nations such as Singapore to channel their profits.
Fairfax Media understands that Ms Carnegie will, in her opening statement, say that companies like Google do not need R&D tax breaks – they would make the investment regardless – and that the incentive needs to be geared to smaller tech start-ups.
Last year, Google spent $9.8 billion on R&D. It has not filed its 2014 accounts yet, but the company claimed $4.5 million in R&D tax breaks in the 2013 financial year.
Google reported its 2013 Australian tax as 15 per cent of profits – or $7 million on a $46 million profit. But this does not include an estimated $2 billion worth of income it earns through advertising locally on its lucrative search engine.
Ms Carnegie will say the R&D tax break is not the main reason the company invests in R&D locally, and that the Senate might consider how the tax refund could be targeted at additional research or employees hired for that research in any one year.
She is also expected to argue that the payment be made quarterly rather than annually, so that small businesses can have the required cashflow. Such changes would mean smaller tech start-ups run by young entrepreneurs will have a better chance of building the next Google.
The Abbott government last month negotiated some budget changes to R&D tax breaks, but failed to pass others.
Ms Carnegie will also go further into defending the fact that multinationals pay the bulk of company tax in the country where their headquarters are based and where the intellectual property is created – in Google’s case in the United States.
Both Google and Apple have said in their submissions to the federal inquiry into corporate tax avoidance that they support international changes to global tax rules to stop profit shifting, but have warned of the risk of Australia acting alone, saying it would cost heavily in local jobs and innovation.
Microsoft meanwhile has defended its use of hubs in Ireland, Singapore and Puerto Rico, which helps reduce its tax rate.
Greens leader Christine Milne, who initiated the Senate inquiry, said they would be grilling the technology companies on their use of hubs and subsidiaries in low-tax or no-tax nations. It was not good enough for the Australian Taxation Office to negotiate with multinationals to try to recoup tax.
“Australia’s tax laws are no where near up to the mark when it comes to examining these global arrangements,” Senator Milne said. “We need to change the laws here”.
The use of subsidiaries is not limited to technology companies or companies operating in Australia. Breakfast cereal giant Kellogg’s, for instance, routes a large amount of its global revenues through Ireland.
The Irish Times said the company paid corporation tax in Ireland of only about €7 million ($9.94 million) because its parent KET is often “loss-making” due to large interest bills on loans it receives from a Luxembourg-registered cog of the Kellogg empire.
Also appearing before Wednesday’s hearing will be Tax Commissioner Chris Jordan. He is expected to outline the Australian Taxation’s Office’s record on chasing multinationals.
Mr Jordan told Fairfax Media in an interview last week that the ATO was on track to recoup more than $1.1 billion in liabilities from multinationals by 2017, and that the bulk of this would come from audits of technology companies that he said were “more aggressive” in their use of complex structures aimed at reducing their tax rate.
He said that it was up to government whether they wanted to pass a so called British-style Google tax – which has been proposed by Treasurer Joe Hockey and would tax profits in Australia at a higher rate. But the Parliamentary Budget Office has found such a tax risks breaking Australia’s international tax treaties.
They all say they comply with the law
Google Australia’s most recent accounts show that, in 2013, its revenues were $358 million with before-tax profits of $46.5 million and it paid $7.1 million in Australian corporation tax for 2013. Appears Wednesday.
Apple
Apple paid only $80 million in tax on $6 billion in revenue last year, double what it paid the year before. The Age found it shifted $8.9 billion in untaxed Australian profits to its Ireland operation. Apple submits it complies with the law – and its effective tax rate is above 30 per cent. Appears Wednesday.
NEWS CORP
Fairfax found Rupert Murdoch’s News Corp siphoned $4.5 billion in untaxed profits and shares to its offshore parent company, paying 10 per cent tax not 30. News Corp says it complies with the law. Appears Wednesday.
MICROSOFT
The US Congress has investigated Microsoft for tax minimisation strategies. Was found to have reduced its US taxes in 2011 by $2.43 billion by international profit shifting. Says it complies with the law and that its effective tax rate has been above 30 per cent in Australia for the last three years. Appears Wednesday.
GLENCORE
In the three years to 2014, paid $400 million in corporate income tax on $15 billion in revenue. Says it complies with the law. Appears Friday.
BHP BILLITON
One of Australia’s largest taxpayers, the mining company has been pursued by the Australian Taxation Office for shaving hundreds of millions of dollars off its tax obligations by channelling iron ore profits through Singapore. Appears Friday.
RIO TINTO
Also one of Australia’s biggest taxpayers, Rio Tinto was named in the same reports as BHP for avoiding tax obligations on its iron ore profits. Rio denies the claims. Appears Friday.
FORTESCUE METALS GROUP
Claims to have paid around 30 per cent for the past three years. Appears Friday.
