How Australian media put Pravda in the shade

Hook, line and sinker. Mainstream media has swallowed the government’s latest PR stunt on tax as if it were the most unimpeachable of peer-reviewed scientific formulae. When it comes to rewriting political press releases, they’ve put Pravda in the shade.

The scourge of multinational tax avoidance has apparently been fixed, you see. Sorted, problem solved, nothing to see here. Small people are now the scapegoats. Small people don’t tend to make party donations.

So it is that a credulous press has been running the government’s conveniently manufactured “tax gap” figures.  The corporate “tax gap” is apparently just $2.5 billion while individuals are responsible for a “tax gap” of  $8.7 billion; three times the size. This “tax gap” is an estimate of how much tax is missing; how much, that is, the Tax Office reckons it is owed by tax avoiders.

Tax dodging is of course rife across all demographics, and the tax gap figure for individuals, small-time tax dodgers – this $8.7 billion – may be close to the mark. Not the $2.5 billion though ascribed to large companies, not by any stretch of the imagination.

It is more likely that multinationals are responsible for three times the tax gap of individuals, not the other way around as the government would have us believe. How do we know these figures are rubbish? We know this because a handful of people, including the author of this story, have spent many years poring over the accounts of multinational companies operating in Australia.

Just to prove the point today, we have purchased from the Australian Securities & Investments Commission (ASIC), for the extortionate price of $156, four sets of company accounts, just four sets, four of our favourites – eBay, American Express, Booking.com and IBM – four companies whose 2017 financials are yet to see the light of day.

Incidentally, as far as we are aware, ASIC is the most expensive provider “public” information about corporations in the world. So even checking what multinationals get up to is prohibitively expensive at $39 a pop for one year’s accounts.

To be fair to the Tax Office, which is complicit in spreading this allegation that multinational tax avoidance is cured, it has successfully ramped up its enforcement. Billions of dollars extra are now coming in the door. The ATO has forced some of the internet giants such as Google and Facebook, to “onshore” their revenue. And they are now hitting the oil majors for their egregious debt-loading.

Senate: less debt-loading, much more disclosure and tighten that PRRT!

By and large, the ATO has done a good job, in the wake of community outrage, the Senate Inquiry and subsequent reform to tax law.

This tax gap ploy is pure political sophistry however, as this website’s Top 40 Tax Dodgers chart attests, and as will now be demonstrated with a quick run through a few of our old favourites.

Last time we looked, American Express had paid no net tax in nine years despite revenues of $10 billion. Looking at its most recent financials we can now call this Amex’s decade of tax dodging. It actually paid its record amount of income tax in 2017, $2.4 million, and has now paid a princely $1.5 million in tax on $10.9 billion in revenues over ten years.

Pocket fluff. Just to clarify how they could pay $2.4 million in one year but just $1.5 million over ten years; the latter is a net figure, that is, the refunds they got are offset against the little bits of tax they did actually pay in some years.

Booking.com, Australia’s dominant online travel agency, is no better now than it has been in past years, declaring only related party “service” revenue and whisking all its cashflow made in Australia straight offshore. Same deal for eBay, profits straight to Switzerland. As for IBM, nada. They even got an $11 million refund.

How Amex paid no tax in nine years on $10 billion

Anybody with the time – and deep enough pockets to afford ASIC searches – could find this was the same story for another 100 companies. More. So, while the headline performers, Google, Apple and Facebook, have been forced to tidy their acts (to a point), and that is a good thing, the essential challenge of corporate tax avoidance remains and if there is a lapse in vigilance, things will rapidly turn for the worse.

Drilling down

To drill down a little further, American Express Australia Limited used to pay tax in this country but thanks to a “restructure” in 2004 billions in profits have since been siphoned out to an associate in the tax haven of Jersey. Auditor is PwC.

The notes to the 2005 financial statements show that, in September 2004, the company entered into an agreement to transfer billed card-member receivables to American Express Capital Australia (AECA).

AECA is in turn a general partnership established by American Express International Inc and CredCo, an entity domiciled in the Channel Islands tax shelter.

Despite its annual billion-dollar revenues, the record amount of tax paid by Amex in 10 years used to be $2.2 million but now, last year, $2.4 million was paid. It should be said that the credit card giant did book a tax expense in the current year of $36 million but that is a forward-looking number and if it comes to fruition we will personally shout chief executive Rachel Stocks a coffee. No, make that a pina colada with a little umbrella and a maraschino cherry.

Rachel, you have my word.

Over at Booking.com and eBay, the hurdle for successfully earning a pina colada from the michaelwest.com.au marketing and entertainment budget is higher. These two tax dodgers would actually be required to stop pretending they have the interests of their Australian body corporate at heart.

Instead, they would be required to book the revenue they make in Australia by selling goods and services to Australian customers to the Australian company – rather than to Holland and Switzerland.

These are now mature businesses, yet businesses which are producing double-digit growth and giving almost nothing back in taxes to the country in which they operate.

Likewise at eBay, where the hundreds of millions in income are booked directly to Zurich, perhaps to the parent company eBay International AG. As for eBay’s affiliate, Gumtree, it might more accurately named Sycamore-tree to reflect its Dutch ownership, whither the profits go and where its real interests lie.

Joo Man Park is eBay managing director and the invitation is open to Joo to earn a pina colada too. All he has to do is, with the rest of his tiny board of directors, recognise that the hundreds of millions in income a year derived by taking a ten per cent cut on billions in good traded by Australians in Australia … is actually Australian.

Moving along then to the financial statements of eBay Australia and New Zealand – which you will find at the ASIC database – price of admission $39 a pop, though supposedly open to the public. It is here that you will see that eBay, the biggest player in ecommerce in Australia, dwarfing all others with a 20 per cent share of the market, has forked out $6.2 million in income tax over 12 years – just half a million dollars a year.

They and their auditors from PwC are still running their tired old line about what they do, “recommendation of market penetration”:

“The principal activities of the Company during the year were the recommendation of market penetration strategies and advertising and promotion activities”. The reality is they run an Australian online auction house their penetration strategy is a taxman penetration strategy.

eBay’s no teddy bear when it comes to tax

Concluding the festival of pina coladas, or not, as is far more likely, we undertake to produce a speech extolling the contributions which eBay, Booking.com and American Express have made during the year to Australia’s education, health and infrastructure.

We don’t envisage this speech will ever be made but we undertake to do it either way by way of video, if readers would care to issue a reminder this time next year.

Lest we forget, IBM A/NZ Holdings. The Big Blue notched up revenues of $3 billion last year. It wiped out every cent in costs, including $114 million in finance charges amid its morass of related party transactions with associates overseas – a ruse which is not available to the small tax dodger.

Then it had the temerity to claim a tax refund of $10.9 million, having “offshored” and bungled the Census. Has IBM been claiming tax deductions for large licks of “legitimate expenses” in Australia, for work it has sent offshore? We don’t know because, having put the question to the company, they ducked for cover.

What we do know is they have sacked thousands of Australians, reap billions in taxpayer funded government contracts and pay very little in tax year after year.

Multinational expenses: it’s all show