Rising prices and rising power. Wotif Travel.com and Expedia paid tax?

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Mt Martha Villas on the Mornington Peninsula

“This is a huge market and no one knows how it all works except the mug operator who washes the linen, cleans the toilets and battles with being recognised by Google to compete with these guys … and pays income tax on every dollar earned”.

Duncan McIntyre is the owner of Mt Martha Villas, a B&B on Victoria’s Mornington Peninsula. Like thousands of hotel and short-stay operators across the nation, McIntyre is alarmed at the growing market power of online travel agents (OTAs).

When the OTA market began around 2000, online accommodation sites were efficient, they dealt with the overhang of inventory, spare rooms that is; and they matched the travelling public with B&B operators for a small charge. Now, says McIntyre, the market has consolidated and foreign, tax-avoiding multinationals are calling the shots, driving up prices.

Another beachside apartment operator on the South Coast of NSW – she didn’t want to be named for fear of reprisal – says the OTAs stop her from discounting.

“The fees can be up to 30 per cent (to get premium position on an OTA website) and they don’t allow you to compete (on price) with them.

“As a small business we are beholden to list with these sites as they obviously have power in Google rankings, and we would disappear without such listings.”

Both operators talked about tax. Online accomodation websites are booming yet their billions of dollars in income, income which used to flow to Australian companies and contribute to Australia’s tax base, now almost entirely bypasses these shores.

The two leaders in the accommodation space are Booking.com and Expedia with more than 18,000 in listings daily. An investigation of their financial statements shows the former books its sales directly to The Netherlands and the latter directly to the US; no GST and virtually no income tax.

Richard Munro, chief executive of Accommodation Association of Australia (AAA) says the gross value of the accommodation bookings market is $15 billion to $17 billion. The two top players command roughly one-third or $5 billion in gross spending (30 per cent market share of total bookings or 80 per cent of online bookings).

(See AAA’s submission to ACCC here.)

Assuming average commission rates to Booking.com and Expedia of 15 per cent of each sale, says Munro, these two players alone rack up annual sales in Australia of more than $750 million.

Here is the punchline though. This $750 million or so in sales is nowhere to be seen. Last year, Bookings.com disclosed revenue of just $16.2 million, according to its skimpy financial statements filed with the corporate regulator, while Expedia booked $93 million. Almost all revenue in both instances came from offshore parent companies in “service” arrangements.

Over the past three years, Booking.com has paid a mere $2.46 million in tax in Australia, despite its offshore associates raking in $1 billion or so in revenue.

Expedia’s financial statements are so lame they don’t disclose tax in the cash-flow statement, nor in the notes, nothing to see there. They have booked a tax expense but expense is an estimate not a payment.

All this is now convention, a well-trodden path of accounting and disclosure chicanery pioneered by Google, eBay and Facebook on the advice of the Big Four accounting firms.

Google, Facebook restructure; eBay gives taxman the bird

These are the hallmarks of the US digital giants:

* zero income made in Australia actually booked in Australia,
* ditto GST,
* pitiful amounts of tax paid, and then only in recent years,
* a skinny board, a triumvirate of directors: typically two offshore and one in Australia with a low profile,
* a small CBD head office in an accountancy firm
* market domination.

As much as tax is a challenge for regulators, there is also a critical antitrust consideration. The two big players in the space have been gobbling up smaller pretenders, consolidating the market, forcing prices up, forcing small hotels, motels and B&B’s to deal with them or be left with little opportunity to access eyeballs on the world’s greatest monopoly, Google.

http://www.hmaa.com.au/Portals/34/FINAL%20ACCC%20submissions-%20AAoA.pdf

The Australian Competition and Consumer Commission (ACCC) is believed to be still investigating competition issues. Expedia
has been pouncing on slew of rivals and now owns Travelocity, Orbitz, Hotels.com, Wotif, Lastminute, Hotwire, Trivago, CheapTickets and eBookers.

There was outrage last year as the ACCC was slammed by hotel operators for striking a “secret” deal with the duopoly which stopped hoteliers from offering cheaper prices online.

While the industry brawl over pricing parity rages on, there are some simple things authorities could do to enhance accountability by these conniving tax avoiders. For one, the Tax Office could force – as it has done with Google and Facebook – the OTAs to bring their revenue onshore to be taxed instead of letting them pretend their Australian businesses are really Dutch or American.

These multinationals, like the others, command puppet regimes across the globe. Their real directors, the “shadow directors” are offshore, so their companies should be treated as such, as undisclosed agencies, and taxed accordingly.

Multinational sham: how Australia was hoodwinked

As usual, the accountancy profession is miserably failing to uphold standards, and their multinational clients compelled to file proper General Purpose financial reports rather than the feeble Special Purpose reports designed to conceal.

Booking.com – auditor Deloitte – lists an address in Martin Place, Sydney. In 2016, it disclosed $7.1 million in dividends to its Dutch shareholder Booking.com NV. The ultimate shareholder is US giant, Priceline Inc.

Besides its one Australian director, Eve Crestani, Booking.com’s directors are a Jupiter Tsui, resident of Singapore, and Johannes Wilhelmus Pieter Maria Trass, resident of Holland.

It’s a similar deal for Expedia, registered address Bird & Bird Martin Place, Sydney. Two US directors, one Australian.

The only mention of tax in the notes to the latest accounts is a small increase in “foreign tax payable” of $976,000.

In the case of both companies, it seems the costs were bulked up to minimise profit and therefore tax paid. Expedia shows a $34 million marketing and advertising budget and a jump in “other” expenses from $2.7 million to $8.8 million last year.

It was a mistake for the ACCC to have permitted Expedia to have swallowed Australian business Wotif three years ago.

Australian authorities have allowed predatory, secretive overseas businesses to plunder their tax base while penalising thousands of Australian accommodation operators thanks to onerous commissions and diminishing competition from a duopoly.

This column, co-published by michaelwest.com.au with The Conversation, is part of the Democracy Futures series, a joint global initiative between The Conversation and the Sydney Democracy Network. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.

This month GetUp and the Tax Justice Network have sponsored michaelwest.com.au to undertake a series of investigations into multinational tax avoidance.

You can follow Michael on Twitter @MichaelWestBiz.

  • John Saint-Smith

    I await news that these companies are going to be forced to declare their real earning in Australia and pay their appropriate tax. Thus far, I thought I had only inadvertently contributed to tax avoidance by a crew of Fijian tree loppers who insisted in being paid cash to trim some trees in my yard. Now I can see that I have been helping these multi-national businesses avoid funding schools and hospitals in Australia, I will deal directly with the service provider.
    What is needed is international cooperation and prosecution including imprisonment.

  • bellevue_ite

    I’ve noticed pricing creeping upward, and also being rather standardised across many sites, in the past couple years. Prior to that, there was more variation across sites, and thus more opportunity for me as a price-driven consumer, to find a good value.

    I’ve recently been doing my own bit against tax evasion and the big multinationals in general by using their sites to search out properties (thanks for keeping the database of reviews, guys!) and pricing, and then calling the properties direct to book in.

    • ezduzit

      Maybe a subtle campaign called ‘Contact Direct’ aimed at the accommodation industry. Something along the lines – ‘Call your accommodation direct and get a 5% discount on quoted booking engine prices. The accommodation provider is still 10% in front and it may help to break up this cozy little coterie.

  • Felicity Davalos

    Nothing is transparent with these companies. Unfortunately I work with them here in Peru in a hotel. When travellers see rankings, they could be lead to believe that they are warranted and voted in by the consumers. But NO! Rankings can be paid for by the companies themselves. Trip Advisor, Booking.com, Expedia and many others are constantly asking ask for money to ´improve our rankings´. If the average consumer knew about these dirty practices including the ones you discuss I surely hope they wouldn´t use them. Thank you for getting this message out. We need to support the small people directly.