Uber claims it is not avoiding tax as it is not profitable

Uber ANZ director of public policy appeared before the Senate inquiry into the tax avoidance of multinational companies on Wednesday, focusing on tax requirements of an individual driver, rather than the company.

A Senate inquiry into the tax avoidance of multinational companies continued in Sydney on Wednesday, when Uber appeared before the Senate Economics Committee to discuss the funnelling of revenue offshore to the Netherlands.

In his opening statement, Brad Kitschke, Uber director of public policy in Australia and New Zealand, said the company, which he still considers a startup, is not avoiding tax and believes this has been misrepresented in the media.

“We are unlike other, more mature US tech companies,” he said. “First, and simply, we are not yet a profitable company, and as you are aware, companies are taxed on profit, not revenue.”

“Second, the lion’s share of all revenue generated goes to the driver partner, and stays local. Of every dollar spent by a rider, at least 75 percent of the fare is kept by the partner — the vast majority of money stays local.”

Kitschke built his argument to the committee around the concept of Uber drivers paying tax, highlighting that as a global business, its business structure needs to reflect that fact.

Chairman of the inquiry, Labor Senator Sam Dastyari, confirmed with Kitschke that if he were to book a ride, the payment he makes at the end of the trip is processed in the Netherlands, to which Kitschke agreed was the correct process, as the platform that services 64 countries is hosted in the Netherlands.

The Senator then verified that despite the service being performed in an Australian car, all of it moves to the Netherlands, also completely bypassing Uber Australia.

Kitschke said the contribution to the Australian economy is the money that is paid to the driver; Dastyari however, brushed this off saying it is the tax avoidance of the parent company that is under questioning, not the individual driver.

In discussing the dispute Uber is currently having with the ATO in a federal capacity, it was confirmed that the issue is that the ATO has made a ruling, and Uber is challenging that ruling on the basis of the ATO’s interpretation of the law, and Uber believes an inappropriate consultation process has occurred.

“We believe that people who participate on our platform should be captured by the tax system, like anyone else. It’s been misreported that we advise people to dodge tax,” Kitschke said.

Kitschke said someone who participates in a rideshare is no different to someone who pays another to mow their lawns on the weekend,

“When you pay that person $50 you assume that person is collecting GST, if they reach the AU$75,000 threshold, they will remit, they will get an ABN, and they will do all the other things that are required,” he said. “We don’t think that it is appropriate that the tax office has essentially applied a 1999 law to what is a brand new business model, that didn’t envisage this type of activity; and treats those who participate in ridesharing differently to someone who wants to set up a lawn mowing business.”

Kitschke believes these decisions should be made by a regulator, not the ATO.

The ATO previously defined taxi travel as “travel that involves transporting passengers for fares”; Uber, however, disputed that the court should question whether UberX drivers fall under the same definition as taxi travel.

In May, the ATO issued a directive that advised those providing a ride-sharing service needed to have an Australian Business Number and be registered for GST; three days after the cut-off date for GST registration, the ride-sharing company filed documents with the Federal Court against the tax office’s GST directive.

Despite contesting the ATO ruling, Uber told its drivers to start paying GST, with Uber’s Australia and New Zealand general manager, David Rohrsheim, saying at the time he was disappointed the ATO made drivers comply with its interpretation of the law.

“A part-time activity [such as Uber] is very different to what we had in the nineties when the GST was introduced,” he said. “It deserves to be examined, and deserves to be reviewed, rather than the ATO making a policy on the fly.”

In August, Rohrsheim told ABC RN Breakfast that the company’s driver partners are “certainly not employees”, as they are independent operators who are free to come and go if they do not wish to drive at a certain time.

“Uber drivers are not providing taxi services, full stop,” he said. “They are providing a ride sharing opportunity, part time, no cash changing hands, fully electronic.”

Rohrsheim believes the ATO has singled out UberX partners for “special treatment”, adding that the ATO’s process involves a “whole bunch of red tape”, which he thinks will get in the way of the sharing economy.

Commissioner of Taxation Chris Jordan insisted it is “absolutely wrong” for Uber to say the ATO is in cahoots with the traditional taxi industry when it comes to new GST guidance for drivers.

“You’re a braver man than I am, I’ve sparred with Chris Jordan in the past — he’s very good,” Dastyari said on Wednesday.

Given the embryonic stages of the sharing and collaborative economies, Kitschke said the concept is challenging governments, traditional businesses, and regulators worldwide.

“Where possible, Uber wants to work with government, and cooperate with them, to develop an approach that meets the needs of the economy, and allows business to grow.

Kitschke said the best example of this is the approval given by the Australian Capital Territory to create “sensible” regulations for ridesharing.

From October 30, 2015, ride-sharing services such as UberX were allowed to operate legally under similar regulatory conditions that taxis and hire cars face in the nation’s capital.

Kitschke said he hopes this mentality can carry over to the federal government, saying he believes it is perfectly placed to play a unique role in the incubation of new business, and embrace technology, innovation, and change.

Sam McDonagh, Airbnb Country Manager Australia and New Zealand, also appeared before the committee on Wednesday, in which he argued in a similar capacity to Kitschke that the online accommodation startup was not avoiding paying tax, despite its headquarters being in Ireland, where the tax rate is considerably less than that of Australia.

McDonagh avoided answering what taxation rates the platform was paying overseas, but continued to remind the committee that Airbnb brings tourists to Australia.

This is not the first hearing the Senate has held in the inquiry into tax avoidance.

Earlier this year, the Senate inquiry found AU$31 billion was funnelled to Singapore within a year by 10 multinational companies, and in April, executives from Apple, Google, and Microsoft confirmed they were being investigated by the Australian Taxation Office (ATO) as part of the Senate’s tax avoidance inquiry.

Much of Google’s Australian revenue from advertising is actually taxed in Singapore, where the tax rate is much lower — a practice also employed by Microsoft, and Apple Australia, which similar to Airbnb, is entirely owned from Ireland.