David Bradbury was already hot under the collar over the issue of multinationals exploiting the differences in international taxation regimes to minimise their tax liabilities in Australia. The assistant treasurer would be even more irate if he is following the findings of a bipartisan US congressional committee.
The committee released its findings of an investigation into Apple’s tax structuring on Monday, ahead of a public hearing that will be fronted by Apple chief executive Tim Cook overnight. They were revealing to the point of being shocking and highlight how far global companies will go, and how complex the structures they use, to minimise their tax.
Bradbury has been railing about Google’s minuscule tax bill in Australia, despite revenues of more than $200 million. He’s also criticised Apple for paying only $40 million of tax last year despite Australian revenue of $6 billion last year. Other jurisdictions have made similar complaints about companies like Amazon, Microsoft and Starbucks.
The congressional investigation underscores how difficult it would be to counter quite legal tax avoidance by multinationals, particularly those operating in the new economy, without strong global co-operation by taxation authorities.
The committee’s findings – summarised here – revealed that Apple’s international operations sit below a holding company incorporated in Ireland, where Apple negotiated a tax rate of only 2 per cent, but which keeps its banks accounts and records, and holds its board meetings, in the US. The entity has no employees or physical presence.
The US bases residency for tax purposes on the place of incorporation while Ireland’s test is where they are managed and controlled – the entity hasn’t, the committee said, filed a tax return in the past five years despite reporting income of $US30 billion between 2009 and 2012.
Another Irish subsidiary which the committee said also claimed not to be a tax resident anywhere had revenues of $US74 billion over that same period. The committee said the effective tax rate on that income was five-hundredths of 1 per cent.
There’s a deal more of those examples that tend to illustrate the issue.
Apple, not surprisingly, took exception to the findings, arguing that it generates a lot of cash offshore because the majority of its business is offshore, that it is the biggest taxpayer in the US and that it doesn’t use tax "gimmicks" to avoid tax.
It is telling, however, that when Apple announced it would return $US100 billion to shareholders over the next three years through share buy-backs and dividends it said it would borrow $US17 billion to help fund the program – despite having $US145 billion of cash reserves.
If it repatriated those funds – which presumably have been sheltered from foreign taxes by its structuring – to the US they would attract the US corporate tax rate of 35 per cent.
In its statement to the committee Apple said the US corporate tax system had not kept pace with the advent of the digital age and the rapidly changing global economy. The US isn’t the only jurisdiction that hasn’t kept up with the complex tax structures of multinationals in the digital age, which is why so many of them pay so relatively modest amounts of tax.