PayPal is no pal of the Australian Tax Office. Like its sister company eBay, the electronic payments provider seems hell bent on making as little in the way of profit in this country as it possibly can.
After all, if you make a profit, you have to pay tax on it. So it is that an investigation by Fairfax Media and University of NSW accounting academic Jeff Knapp found PayPal rakes out 86 per cent of its revenue to an associate in Singapore, and countervailing its duties under the Corporations law, fails to disclose sufficient details of the arrangements.
Over the past nine years, the electronic payments firm has paid more than $1 billion of its $1.2 billion in revenues to its parent and associates in Singapore leaving very little to be taxed in Australia. PayPal claims that these payments, the bulk of which are made to PayPal Private Limited, its immediate parent company, are for “services provided in accordance with Service Provider Agreements for the processing of, and supporting the online payments business”.
These “service payments” made up $245 million of PayPal’s $291 million in total revenue last year. Back in 2006, they were $33 million of $36.5 million, so PayPal relentlessly jacks up the fee to its parent company every year. What dramatic increase in “service” warrants this $212 million rise in “service” fees, you can only wonder.
Under the Corporations Act, a company is required to abide by Australian Accounting Standards. But as Jeff Knapp points out, there is no disclosure of the terms and conditions of this mysterious “service provider agreement” which PayPal has with its Singapore associate.
“This is contrary to the standards on related party disclosures,” he says. Further, the amount of profit PayPal makes in each year is less than the interest income they generate for their cash on deposit.
“They claim they are making losses before interest and taxes. The key is this; in 2014, their profit margin is one per cent of sales. That’s their net profit margin.
“But in the US, they currently have a proposal to split eBay (PayPal’s ultimate parent company) and PayPal.
“In the offer documents, they show the income statement of PayPal Holdings for 2014. This shows a profit margin of 15 per cent.”
In other words, the cost of providing the same electronic payments service is 15 times more expensive in Australia than elsewhere. That is, if you believe these financial statements, if you believe that PayPal’s 86 per cent revenue rake to Singapore is a bona fide transaction, rather than a tax ruse.
These financial statements, signed off by PwC, have all the hallmarks of yet another multinational robbery perpetrated on the Australian taxpayer. Though Knapp puts it rather more delicately:
“The net profit margin of one per cent in Australia and New Zealand versus 15 per cent worldwide … it just indicates that the inter-company charges put in place for this company are not commercial, they are not market-based.”
It is somewhat poetic to be perusing PayPal’s suspicious Singapore arrangements in a week when Prime Minister Tony Abbott is in the island state, praising it as such an important trading partner for Australia.
Most of this so-called “trade” is not real trade – it is multinational companies striking deals with themselves to skive out of tax: lending themselves money, arranging “service agreements” with themselves, selling Australian resources on the cheap to their “marketing hubs” before jacking the price up and on-selling elsewhere. Singapore is playing Australians for mugs.
Tax Office documents revealed here under Freedom of Information last year showed that in 2012, Australia’s largest trading partner, China, accounted for 20 per cent of total trade but just a fraction of related party trade, whereas Singapore and Switzerland accounted for 40 per cent of related party trade.
There were 7834 International Dealing Schedules lodged by taxpayers that year in Australia covering IRPD (related party deals) totalling $272 billion. Singapore accounted for about 33 per cent of total IRPD expenditure, while Switzerland accounted for about 35 per cent.
Between 2006 and 2012, the IRPD dealings of these multinationals rose by 64 per cent, from $154 billion to $253 billion, and now account for about 7 per cent of their total income and expenses.
Talking about Switzerland: on Saturday, we revealed eBay Australia, which is also owned by eBay Inc, chose to represent to the corporate regulator that the $300 million plus which it makes in Australia is actually a Swiss business. So it books just $40 million in sales here, the bulk of it in Bern.
eBay is the leading player in ecommerce in Australia, dwarfing all others with a 20 per cent share of the market, but has forked out a measly $6.2 million in income tax over 12 years – just half a million dollars a year.
PayPal was approached for comment but nobody was available to answer questions by the time this story went into production. Like its tax-dodging peers, here is yet another multinational without even the integrity to answer a question about its own statutory documents.