25 January 2016
by Joanna Mather

Google could owe Australia millions, Nick Xenophon says

Google could owe Australia hundreds of millions in unpaid tax, independent senator Nick Xenophon said, seizing on revelations that the search engine giant has agreed to pay AU$185 million in the UK.

Google is one of the global companies criticised for using complex tax minimisation schemes such as the "double Irish" and "Dutch sandwich".

"We have agreed with HMRC a new approach for our UK taxes and will pay 130 million pounds, covering taxes since 2005," Google's parent Alphabet Inc said in a statement to Bloomberg.

"We will now pay tax based on revenue from UK-based advertisers, which reflects the size and scope of our UK business."

The Chancellor of the Exchequer George Osborne declared the deal a "victory" for his diverted profits tax, a version of which has been adopted in Australia.

"We now expect to see other firms pay their share," Mr Osborne wrote on Twitter.

Senator Xenophon, who sits on the Senate's multinational tax avoidance inquiry, questioned whether Google has been adopting the same "ploy" in Australia.

"If Google hasn't been paying their fair share of taxes in the UK ... it's fair to assume there could well be problems here in Australia," he told reporters in Adelaide on Saturday.

"How much does Google owe Australian taxpayers? It could be in the hundreds of millions - we need to know," he said.

Google paid $16 million in UK corporation tax from 2006 to 2011 on $18 billion of revenue. Tax is paid on profit, not revenue.

Yet politicians have responded to voter alarm over such massive turnover and comparatively small tax bills.

Here, ad revenue flowing from Australian firms taking out Google ads is taxed in Singapore, which has a lower rate than Australia.

Australian Tax Office figures show Google Australia had total income of $3.5 billion in 2014, taxable income of $90.8 million and $9.2 in tax payable. That equals a tax rate of 25.4 per cent. Australia's headline rate is 30 per cent.

'Balance needs to be struck'
The UK development has divided politicians.

"Good to see #Google paying more tax on past profits," Mr Osborne wrote on Twitter. "I introduced diverted profits tax. We now expect to see other firms pay their share."

But Shadow Chancellor John McDonnell told the BBC that the bill was "derisory" and looked like a "sweetheart deal," and that he would call for it to be investigated by the public sector watchdog.

Chartered Accountants Australia and New Zealand tax leader Michael Croker said the tax transparency debate was shifting to settlements.

But that raised the risk of tax authorities "squabbling over the same piece of tax pie".

"Multinational companies need to pay tax to many nations around the world, and extra tax paid in Country A can often impact on the amount of tax paid in Country B due to features in the tax law such as foreign tax credits," he told The Australian Financial Review.

"A balance needs to be struck between paying a 'fair share' and tax authorities squabbling over the same piece of the tax pie."

Separately, Apple Inc is facing a European tax investigation that could force the iPhone maker to pay more than $8 billion in back taxes.

Senator Xenophon plans to question incoming ABC managing director Michelle Guthrie, a Singapore-based Google executive, about the issue when she takes up the gig at the broadcaster in May.

He said it was clear that receipts of Google's advertising revenue, their biggest source of revenue, are often sent offshore.

"She (Ms Guthrie) might be able to help us," he said.

Representatives of Google, Apple and Microsoft appeared before Australia's tax avoidance inquiry last year. They revealed they were among 12 technology companies being audited by the ATO.

The UK's diverted profits tax applies to large multinational enterprises that contrive to avoid setting up a "permanent establishment" onshore, bypassing the local tax system.

Britain's corporate tax rate is 20 per cent, but companies will have to pay a higher rate of 25 per cent on any profits they are found to have diverted.

When it was introduced the country was criticised for leaping ahead of the global process for tackling base erosion and profit-shifting being led by the OECD and G20. Critics warned Australia not to do the same.

Nevertheless Joe Hockey unveiled legislation as one of his last acts as treasurer and new laws came into effect on January 1.