Apple's Australian arm charged with $28.5M in back taxes
The Australian Tax Office has hit Apple with a $28.5 million bill for back taxes, in what is viewed as a sign that the country may start cracking down on foreign tax havens.
Details on the $28.5 million bill are unknown, as it is illegal for the ATO to comment on individual cases. But the Brisbane Times reported on Friday that the ATO may be joining a tax push led by European governments targeting companies that shelter funds through intermediary companies in foreign countries.
Apple's Australian arm is owned by Apple Operations International, which is a subsidiary located in Cork, Ireland. Many companies have operations in Ireland to capitalize on the country's low corporate tax rate.
Last year, Apple earned $4.87 billion in revenue from Australia. Its total tax bill for its 2011 fiscal year was $94.7 million.
Apple's store in Sydney, Australia.
European governments have been looking to collect taxes from companies that rely on foreign tax havens. This week, the French government demanded $252 million in back taxes from Amazon, which relies on a tax haven in Luxembourg.
Apple sells devices to customers in Australia, but companies such as Google and eBay won't even admit to dealing with customers down under.
"Instead, according to its most recent report, Google Australia provides 'research and development services' to its U.S parent and 'sales and marketing services' to Google companies in Ireland and Singapore," the Brisbane Times reported. "For its part, eBay Australia and New Zealand's annual report discloses its principal activities as "the recommendation of market penetration strategies and advertising and promotion activities."
Apple also came under fire from regulators in Australia earlier this year, when the company was slapped with a $2.3 million fine for falsely advertising the 4G LTE capabilities of the third-generation iPad. The Australian Competition and Consumer Commission took issue with Apple's promotional materials which claimed the device offered 4G connectivity. But the ACCC felt the ads misled customers into thinking the device would work on Long-Term Evolution networks in Australia.
Details on the $28.5 million bill are unknown, as it is illegal for the ATO to comment on individual cases. But the Brisbane Times reported on Friday that the ATO may be joining a tax push led by European governments targeting companies that shelter funds through intermediary companies in foreign countries.
Apple's Australian arm is owned by Apple Operations International, which is a subsidiary located in Cork, Ireland. Many companies have operations in Ireland to capitalize on the country's low corporate tax rate.
Last year, Apple earned $4.87 billion in revenue from Australia. Its total tax bill for its 2011 fiscal year was $94.7 million.
Apple's store in Sydney, Australia.
European governments have been looking to collect taxes from companies that rely on foreign tax havens. This week, the French government demanded $252 million in back taxes from Amazon, which relies on a tax haven in Luxembourg.
Apple sells devices to customers in Australia, but companies such as Google and eBay won't even admit to dealing with customers down under.
"Instead, according to its most recent report, Google Australia provides 'research and development services' to its U.S parent and 'sales and marketing services' to Google companies in Ireland and Singapore," the Brisbane Times reported. "For its part, eBay Australia and New Zealand's annual report discloses its principal activities as "the recommendation of market penetration strategies and advertising and promotion activities."
Apple also came under fire from regulators in Australia earlier this year, when the company was slapped with a $2.3 million fine for falsely advertising the 4G LTE capabilities of the third-generation iPad. The Australian Competition and Consumer Commission took issue with Apple's promotional materials which claimed the device offered 4G connectivity. But the ACCC felt the ads misled customers into thinking the device would work on Long-Term Evolution networks in Australia.
Comments
And rightly so, they should pay a fair amount of tax. Having said that governments need to remove the loop holes that allow this type of legal tax dodging in the first place.
Originally Posted by ascii
If they purposely set themselves up so as to legally avoid taxes, how can these governments suddenly find a way to tax them?
I would imagine by removing the legality of the actions they undertook.
Originally Posted by saarek
And rightly so, they should pay a fair amount of tax.
And once again we start a thread where someone pretends that there is an objective "fair amount" of tax.
Having said that governments need to remove the loop holes that allow this type of legal tax dodging in the first place.
Ah, you mean the "loopholes" that are perfectly legal and of which every single person and entity in their right mind takes advantage. Got it.
Do you really want 70% tax on everything?
Quote:
Originally Posted by Tallest Skil
I would imagine by removing the legality of the actions they undertook.
But you can't retroactively change the law, surely?
Quote:
Originally Posted by Tallest Skil
Ah, you mean the "loopholes" that are perfectly legal and of which only people capable of paying an expensive account can afford and entity in their right mind takes advantage. Got it.
Only entities with a large accounting department have the ability to take advantage of most of these tax loopholes. Starbucks can route its profits through a tax haven. Your local independent coffee shop cannot. It's not a level playing field.
Fair as in level playing field. Company A who sells the same type of product at a similar turnover as Company B should not be hit with 25% tax vs 0.1% tax (numbers purely pulled out of the air).
Apple, Starbucks and everyone else should pay the same levels of tax as the other companies within each country.
Lets face it, Apple is hardly a struggling little company that can't afford to pay tax.
Quote:
Originally Posted by Tallest Skil
I would imagine by removing the legality of the actions they undertook.
And once again we start a thread where someone pretends that there is an objective "fair amount" of tax.
Ah, you mean the "loopholes" that are perfectly legal and of which every single person and entity in their right mind takes advantage. Got it.
Do you really want 70% tax on everything?
Not 70%, but, doesnt' less than two percent seems a bit low to you? I pay about 30% in income tax.. and then, I pay 15% sales and service tax on everything I purchase. I wish I had made 4 billion dollars only to pay 2%
I dont believe in strangling companies. They need initiative to develop, grow, create employment. But I believe there is a civic duty for corporations.
Quote:
Originally Posted by ascii
If they purposely set themselves up so as to legally avoid taxes, how can these governments suddenly find a way to tax them?
There are often different ways to interpret legislation. A taxpayer will try to interpret to their favor, while the Govt will interpret in their favor. I don't know about Australia but court determined interpretations are not uncommon. Back taxes would then be paid or refunded based on the judgement. Unless there was fraud involved there shouldn't be any penalty. I was personally involved in one where we won to the tune of $13M. We are less than 5% the size of Apple so a $28M assessment is pretty small.
Ex post facto laws are prohibited by the Constitution in the USA, but I think I remember that some parliamentary governments allow them.
Originally Posted by ascii
But you can't retroactively change the law, surely?
Oh, no; but they can repeal whatever allowed Apple to do this and then go after Apple if they continue to use those methods.
Or maybe they can retroactively change the law. The UK did it.
Originally Posted by RichL
Only entities with a large accounting department have the ability to take advantage of most of these tax loopholes.
Funny how I as an individual am capable of taking advantage of tax loopholes every single year.
Starbucks can route its profits through a tax haven. Your local independent coffee shop cannot.
I question that, but we'll move on from it: But they can take advantage of tax loopholes.
Originally Posted by saarek
Fair as in level playing field. Company A who sells the same type of product at a similar turnover as Company B should not be hit with 25% tax vs 0.1% tax (numbers purely pulled out of the air).
The bigger you are, the more resources you have. That's sort of how it works. Should Lesotho have military bases in the US? No. First, they can't afford it, just as the independent coffee shop in the example above cannot necessarily afford an international tax haven. Second, they don't need it.
Lets face it, Apple is hardly a struggling little company that can't afford to pay tax.
"All money deemed 'extra' should be given to the state" doesn't seem to work very well.
See, Apple IS paying taxes. There's no such thing as not being able to afford to pay taxes. It's a contradiction in terms.
International issues are even more complex. The concept of transfer pricing becomes critical. What is the true "cost" of a product when determining gross profit? Say the IP for the iPad resides in Ireland. Then the commercial value of those patents are added to the cost of the product sold in Australia creating more revenue for licensing In Ireland but a higher cost and lower profit in Australia.
In aggregate, it makes no difference on a pretax basis but to the extent IP is held in a low tax country it allows for a reduction in aggregate income taxes. Foreign currency hedging, mark to market measurement also create timing differences in terms of when income or expense should be recognized. If a taxing authority makes different assumptions, or believes IP value is overstated, they can argue for a change in cost basis of a product and adjust taxable income.
All perfectly legal and very complex. These issues exist between our states when calculating state income taxes. State tax compliance is extremely complex
Quote:
Originally Posted by Tallest Skil
I would imagine by removing the legality of the actions they undertook.
It's more likely that they presented it in a way that suggested legality, yet it was never legal, and the Australian government decided to allocate the resources necessary to target big companies. Such audits would take a huge number of man hours, so it's not like they would do so unless they expected a sizable net gain over their expenses. This is still obviously conjecture, but your theory there is far less likely.
Quote:
Originally Posted by ascii
If they purposely set themselves up so as to legally avoid taxes, how can these governments suddenly find a way to tax them?
Go do some reading on tax law. For a given country, you could sink hundreds of hours into learning about it. You don't know what method they used to push cash or assets onto subsidiaries. You don't know how it was claimed. It's fully possible that they were just called out on something. While the article here only mentions Apple, if you click through, Google is another target. It's not letting me paste the quote for some reason. Anyway we'll find out soon enough if this is just a fishing trip.
I agree with this completely. No exemptions or deductions for anyone or any corp. I like the word fair in the same sentence as tax also.
Quote:
Originally Posted by Tallest Skil
Oh, no; but they can repeal whatever allowed Apple to do this and then go after Apple if they continue to use those methods.
Or maybe they can retroactively change the law. The UK did it.
Funny how I as an individual am capable of taking advantage of tax loopholes every single year.
I question that, but we'll move on from it: But they can take advantage of tax loopholes.
The bigger you are, the more resources you have. That's sort of how it works. Should Lesotho have military bases in the US? No. First, they can't afford it, just as the independent coffee shop in the example above cannot necessarily afford an international tax haven. Second, they don't need it.
"All money deemed 'extra' should be given to the state" doesn't seem to work very well.
See, Apple IS paying taxes. There's no such thing as not being able to afford to pay taxes. It's a contradiction in terms.
I think you are missing the point everyone can not employ 50 people to review tax laws by country to ensure that tax loops can be coordinated to ensure money is moved from one to country to another to lessen the company's tax burden.
Also the entity/subsidiary relationship is very complex and no small business company, can develop such companies and link them to save tax. I used to work with GSK and their company entity/subsidiary relationship had roughly 154 companies linked to the GSK holding company.
You maybe taking advantage of tax loops, but I can bet you are not maximise the potential benefits available because it takes time and a lot of effort. In addition, to spent 20-30 hrs try save $10 (argument sake) is waste of time, but same % compared to Tax burden of a company is highly feasible solution.
Quote:
Originally Posted by ascii
If they purposely set themselves up so as to legally avoid taxes, how can these governments suddenly find a way to tax them?
Well in the case of Australia, they have a long history of retrospective tax legislation. If they feel companies have been exploiting loopholes in artificially contrived ways to 'legitimately' evade tax, they have been known to to close the loophole and charge tax retrospectively. I don't agree with the practice, but you did ask.
Quote:
Originally Posted by saarek
And rightly so, they should pay a fair amount of tax. Having said that governments need to remove the loop holes that allow this type of legal tax dodging in the first place.
Wrong.
You want to pay more taxes than legally necessary, or what you believe is to be "fair", go right ahead if you feel the need to get all gung-ho about it. No one will stop you.
If you don't do everything, and anything you can do to minimize your tax liability in a legal, government-authorized way then the only person you can blame is ignorance, whom will then point the finger right back at you.
Now the details of this article is lacking, but in general terms Apple (or any other corporation) did nothing wrong or illegal. Blame the governments. They approve and make laws.
You can certainly take advantage of some loophes but I doubt that you earn enough to hire such a creative account as Starbuck's accountant. How much tax did you pay last year? Was it more or less than 2%? The less tax Starbucks pays, the more tax you pay.
Enough to pay off our national debt, credit card debt and stunt loan debt. That of course is wishful thinking.