Tech companies exploit loopholes in offshore havens to avoid paying billions in taxes, but the tide is turning against this practice, with the Australian government and governments across the world taking a much keener interest in their business dealings.
$US74 billion is how much the company avoided paying in taxes globally between 2010 and 2013. Apple’s total assets currently come to over $US200 billion.
Under Steve Jobs, Apple was famously high on the list of the least philanthropic companies in the world.
In the Sydney Morning Herald, Michael West took a hard look at Google’s Australian tax avoidance, questioning its legality and finding that the company paid only $295,727 in tax in the last financial year on a $AU46 million profit. Moreover, Google’s byzantine financial structuring in the Asia Pacific means that revenues generated here are actually funnelled through Singapore.
The Google that receives money from Australian advertisers – estimated at $2 billion a year – is in fact Google Singapore. This business is done through third-party resellers in Australia.
How is all this possible? How can these companies justify reaping enormous profits without reinvesting what is owed in the countries that facilitate their business with generous research and development incentives that are supposed to result in economic stimulus? They do it via what is euphemistically referred to as “tax efficiency”: using the ostensibly legal structuring of assets in offshore tax havens to minimise – or avoid paying altogether – the amount of tax owing on revenues generated from those assets.
It’s also commonly known as a Double Irish, or Dutch sandwich. And while they sound delicious, they’re complicated avoidance strategies that are, at this stage, legitimate.
This might all be about to change.
In Europe, the EU is currently planning to formally investigate Apple’s tax arrangements in Ireland. Google and Apple both exploit a loophole in the Irish tax system that allows for intellectual properties created in the country to be licensed for use in other territories where no taxes will be paid on revenues generated from those properties.
Apple registers several of its corporate entities in Cork, Ireland, licensing products created there to Britain and France – without having to pay tax in either of those countries. Carl Levin, chairman of a US subcommittee investigation into Apple’s US tax arrangements in that country has called this system “the Holy Grail of tax avoidance.”
The EU crackdown on these practises coincides with a rising movement in global economic theory piqued by Thomas Picketty’s unlikely best-seller, Capital in the 21st Century; an excoriation of wealth inequality which charts the failure of trickle-down economics, by showing how inherited wealth traps the majority of the world’s assets with the top one per cent of the world’s wealthiest people.
The new hyper-wealthy elite of course includes the CEOs of the world’s most powerful tech companies.
Gabriel Zucman, another French economist, has proven that tax avoidance is responsible for what appears to be a global debt cycle, despite enormous revenues being generated across industries.
A major driver of the wealth inequality that Picketty writes about can be traced directly to corporate tax avoidance, he argues, which wildly skews international balance sheets and therefore interferes with effective economic legislation. Almost eight per cent of the entire planet’s personal wealth is held in offshore tax havens. Zucman, who was mentored by Picketty, cautions that “only an international approach has a chance of stopping tax evasion”.
With our government looking to enact some of the world’s most extreme austerity measures by cutting funding to welfare, education, the arts, technology and science, they could do much, much more to ensure an international approach to eliminating corporate tax evasion in Australia; billions of dollars of lost taxation is going begging in our own backyard.
Elmo Keep is a writer, journalist and advocate for the creative industries.