Government shouldn’t work with tax-avoiding tech companies, says Macquarie Telecom

Government agencies should be forced to justify themselves to federal ministers every time they buy services from global technology giants such as Google and Amazon Web Services that pay less in local taxes, according to telecommunications provider Macquarie Telecom.

In a letter to the Senate Economics Reference Committee investigating the taxes paid by multinational firms, the company said it believed government departments were signing contracts with tech giants and being “artificially shifted offshore for tax avoidance purposes”.

Its proposal to force all levels of government to justify their purchases to the responsible minister could add months to the procurement process and would have a freezing effect on public servants attempting to buy cloud-computing and other technology services from global technology giants.

The federal government is trying to work out how to claw back billions of dollars from technology giants who reap Australian revenues and provide local services while paying little to no taxes because profits are routed through low-tax territories such as Singapore or Ireland.

“An Australian business transacting in Australia and paying the appropriate level of taxation on that transaction must increasingly compete with international businesses paying no local tax,” Macquarie said.

“We face a perverse situation where the government, while increasingly concerned on behalf of taxpayers at the avoidance of tax by international technology giants, is in fact providing taxpayers’ money to these same companies under these same questionable arrangements.”

Macquarie Telecom called on government departments and other customers to use their buying power to change the behaviour of technology providers.

It recommended all departments and agencies choosing to buy from companies based overseas for tax purposes should be forced to issue a series of reports all the way up to the responsible minister explaining why they chose that supplier.

“The government would be setting an example for the private sector, which might choose to similarly use its buying dollars as leverage to discourage the avoidance of domestic tax,” it said.

Macquarie Telecom sells services to businesses and government agencies and would greatly benefit from any move to discourage the purchase of services from overseas players.

Ovum government lead analyst Kevin Noonan strongly advised against introducing measures that would hamper the availability of products from overseas giants because they were often the only providers of key technologies.

“Governments have tried the solution in the past of using its buying power to shape behaviour in the market,” he said. “But what they end up doing is skewing the market because quite often the solutions you want to buy to make government more efficient might not be the solution that works out best from a tax perspective.”

He agreed the government had to level the playing field to prevent Macquarie Telecom from being disadvantaged by overseas players paying far less tax but warned taxation policy should not be allowed to affect procurement decisions.

“The solution to that problem is not about skewing the procurement market but fixing the tax problem,” he said.