Apple's figures show tax-dodging needs a fix
An Australian expert has raised some ideas for the Federal Government, which may stop billions of dollars in company profits leaving the country untaxed.
It is a timely suggestion, coming in the same week as Apple’s latest figures.
The tech giant made more than $6 billion in local revenue last year, but managed to pay just $80.3 million in tax – an effective rate of just 1.3 per cent.
Deakin University senior lecturer Dr Adrian Raftery says Apple's local behaviour shows the depth of the issue that Australia has with the current transfer pricing rules.
“It is outrageous to think that so little tax could be paid by multi-nationals in Australia,” said Dr Raftery,
“It is time for the Government to stand up and do something about these transfer pricing rules – that is the core of the problem, not Apple or other multi-national companies.
“They [the multi-nationals] are only doing what they are legally entitled to within the current regulations.”
Dr Raftery said it was a common strategy for large multi-nationals to place their intellectual property, such as brand names, in a company domiciled in a tax advantaged country.
“That foreign company will then charge the local operation a fee for the use of that intellectual property plus other management services,” he said.
“In most instances, the fee transferred is tax-free and reduces the regional net profit, and as a consequence, the income tax that is paid locally.
Dr Raftery said any attempts to introduce a turnover tax to negate this practice may have undesirable consequences as it would adversely affect most Australians.
“Another tax on sales or turnover would simply be the GST in disguise.”
Instead Dr Raftery proposes a more workable solution would be to strengthen current double tax treaty agreements that Australia has around the world, particularly with countries that have generous tax systems, such as Ireland.
“We tax dividends paid to foreigners at 15 per cent and just 10 per cent for interest and royalties payments,” he said.
“So why don't we also have a catch-all provision that ensures non-resident withholding tax is charged on all payments, including management and service fees paid, to foreign related parties?
“One thing I am certain of is these multinational companies would be paying a lot more locally if the tax rate overseas was 50 per cent.”
Dr Raftery was bemused by budget funding cuts to the Australian Taxation Office (ATO) in light of these practices by foreign-owned companies.
“All of the experience and expertise has been ripped out of the ATO when we should be investing more resources to address this serious [transfer pricing] issue,” he said.
“If we forgo an extra one billion in tax revenue, it is quite simple... the Government can't spend one billion on services such as roads, hospitals and education.”