Tech Giants Face Tax Questions From Australian Lawmakers

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By Siri Bulusu

Australia’s tax agency has concluded audits of Apple Inc. and Microsoft Corp., while its audits of Facebook Inc., IBM and Google remain ongoing, company leaders told a parliamentary committee Aug. 22.

The state of the tax audits was revealed during testimony before the parliamentary Economics References Committee at an ongoing inquiry, by tax chiefs at the five multinationals and the head of the Australian Taxation Office. The inquiry was launched in 2014 to examine corporate tax avoidance by domestic and foreign companies operating in Australia.

The committee asked each company to provide information on revenue, tax payable, and any tax adjustments made between 2011 to 2017 for an “apple-to-apple” comparison to assess the magnitude of the revenue lost through transfer pricing tactics.

The latest hearing came days after a major win for the ATO in a transfer pricing dispute in which Chevron Australia Holding Pty. withdrew its application to appeal an April 2017 Federal Court ruling upholding an A$340 million ($269 million) tax demand from the ATO—an outcome that ATO Commissioner Chris Jordan called “the most important decision in corporate tax in Australia ever.”

Jordan disclosed that the ATO anticipates the multilateral anti-avoidance law will bring in more than A$7 billion in returned sales each year, and that arrangements have been “locked in” to account for future growth in returned sales.

“The sales will now be booked in Australia and the appropriate profits from those activities…will be taxed in Australia for the first time,” Jordan said.

The ATO commissioner stated in his opening remarks that the recent outcome with the oil and gas exploration giant would have direct implications for a number of cases the ATO is currently pursuing regarding related party loans, as well as indirect implications on other transfer pricing cases across the economic spectrum.

“This decision will bring in A$10 billion of additional revenue over the next 10 years in relation to transfer pricing of related party financing alone,” Jordan told the senate panel.

Microsoft, Apple Update

The ATO told the panel it has 61 open audits covering 53 multinational corporations excluding the pharmaceutical industry, as well as hundreds of other reviews. The efforts aim to ensure companies comply with general tax laws and multinational anti-avoidance laws, Jordan said, as the ATO continues to cover new structures for aggressive tax planning means.

Microsoft Australia revealed during a line of questioning that its audit by the ATO had concluded.

Daniel Goff, corporate vice president for Microsoft Group, told the parliamentary committee the audit resulted in Microsoft Australia entering into a transfer pricing agreement with the ATO on the margin that the company should earn, but declined to give further details of the settlement in public.

The agreement isn’t an advance pricing agreement, but will remain valid through 2022 as long as Australian tax law remains consistent and the functions and risks of the company don’t “materially change,” Goff said.

Goff also said that the company declined to sign on to the Board of Taxation’s voluntary tax transparency code, despite stating intent to do so in November 2016, due to “confusion in terms of what we agreed to.”

Apple Australia concluded a five-year audit for financial years 2012-16 without having a penalty imposed, and is currently in the process of renewing a lapsed advance pricing agreement with the ATO.

Tony King, managing director for Apple Australia, said the company paid A$630 million in income taxes over the five-year period of the audit, adding that he had received confirmation from the ATO that all corporate taxes were up to date.

Google, IBM, Facebook Still Face Scrutiny

Google’s director of international tax, Damon Richardson, confirmed to the senate panel that the internet company received an amended 2016 assessment from the ATO, but declined to disclose publicly the amount. Alphabet Inc.'s Google is currently undergoing an audit by the ATO over its filing position and transfer pricing matters.

IBM Australia Ltd. confirmed that the ATO initiated an audit this month to evaluate its corporate structuring and transfer pricing position following the lapse of the company’s advance pricing agreement in 2015.

The Senate panel questioned why IBM Australia saw a total income of A$3.6 billion for 2014-15, while no tax was paid on the taxable profits of A$49 million.

“We have research tax offsets that enable us to mitigate the taxable income, and as I understand that’s the key driver for the years you mentioned,” Kerry Purcell, managing director for IBM Australia and New Zealand, answered to the panel.

Facebook confirmed that the ATO is auditing the company for “most of the time we’ve been in business,” but didn’t confirm the exact years under scrutiny.

Ted Price, Facebook’s vice president of tax and treasury, confirmed the Internal Revenue Service is examining Facebook’s transfer pricing in the U.S. and disagreed with the panel’s characterization that the simultaneous audit “casts doubt” on the company’s transfer pricing positions.

“We try to be as transparent as possible,” Price said, adding that before applying Australian tax law to Facebook, the ATO should be educated about Facebook’s business and “then we can talk about application of law to that business.”

To contact the reporter on this story: Siri Bulusu in New Delhi at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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