Wait and see
They might talk the talk but still waiting for the walk bit.
I'm sure a donation or two would make this all go away.........
Australia's Economics References Committee, which has been conducting hearings into corporate tax avoidance, looks to have made a breakthrough by eliciting a new method for taxing multinationals from the nation's Taxation Office. Recent hearings have revealed how the likes of Apple, Google and Microsoft manage to pay such low …
IMO, the solution is simple and obvious. If you want the tax to be paid to you, rather than somebody with more competitive tax rates, introduce more competitive tax rates. Any other approach seems implicitly doomed to fail, and is thus obviously exposed as political posturing without any meaningful substance.
Essentially - yes. If you can't beat them join them.
Ultimately, short of banning all imports and engaging in economic isolationism, there is nothing else you can do.
Effectively what happens is something like this:
BigCorp Australia, a legal entity independent in every way from BigCorp Singapore, buys goods at market rate from BigCorp Singapore. Since they operate at cost, they generate no profit, and thus the only tax revenue they generate is what is applicable to their staff salaries.
Meanwhile, BigCorp Singapore is the one that makes the profit on the actual product.
You cannot meaningfully prevent this without banning all international trade.
So yes - the only way to not lose out tax revenue to tax havens is to become a tax haven.10% of something is infinitely better than 20% of nothing.
The problem is that the "market rate" is a polite fiction - BigCorp is a monopoly supplier of their products, so the "market rate" is set to whatever it needs to be to cost more than the profits generated. After all, every country is a different market right?
BigCorp Australia is a separate legal entity, which pays fees for the use of the name and rights to sell BigCorp products. So tax the fees when the money is remitted out of the country.
Say you then declare that the amount of tax owed is (wholesale price *15%) or whatever the tax rate is. This then instantly makes the BigCorp product 15% more expensive in your territory, as it is the customers who will pay. So some will parallel import BigCorp products if they are physical, paying import duties. Others will switch to MidCorp's almost as good but cheaper product. And BigCorp will either have less sales, or will reduce their charges to match MidCorp.
And your internal markets become properly competitive as all players are on the same base.
You don't have to ban international trade, you just have to change the laws to apply matching taxes on the flow of money as it leaves the country. And remove any taxes on the flows of money *entering* the country - you don't tax it twice.
It isn't like you're hurting the little guy here - anyone big enough to have legally independent subsidiaries in different tax territories is big enough to pay their fair dues, the trick is collecting it.
Despite what they say, they will not stop doing business in your country because of it - unless you happen to be tiny - because the money generated will outweigh the tax costs and the market *wants* them there.
"BigCorp Australia is a separate legal entity, which pays fees for the use of the name and rights to sell BigCorp products. So tax the fees when the money is remitted out of the country."
Err... You want to tax _outgoings_ rather than profits?
"Say you then declare that the amount of tax owed is (wholesale price *15%) or whatever the tax rate is. This then instantly makes the BigCorp product 15% more expensive in your territory, as it is the customers who will pay."
This is called VAT, and it is already charged almost everywhere in the world.
Err... You want to tax _outgoings_ rather than profits?
What I'm saying is that for almost all countries, the current tax system for businesses was designed in a time when all businesses were local, and some exported or imported overseas.
Today most countries are being exploited by multinationals, that take advantage of legal fictions and loopholes to avoid paying what they should in the countries that they operate in. Starbucks. Google. Amazon. Apple. it really doesn't matter who, BigCorp is a good enough name.
The key is that they and their subsidiaries really are the same company, in spite of the legal fiction that they aren't. In that there is one overall management team that controls pricing and what is happening at every subsidiary, and has shareholders that it reports to. The subsidiaries usually only have one shareholder - the parent company.
And as someone else pointed out, if you or I tried this, we'd be held liable for every scrap of tax owed, but BigCorp gets away with it, because they have the money to buy the right politicians. Financial transfers to related entities attract tax. So do royalty payments. But the "Licence Fees" are allocated as expenses, so can be used to offset profits.
So what I say is the "licencing fees" that BigCorp(AU) pays to BigCorp should be taxed at the same rate that profits or royalty payments should have been - because they really are.
Take the rate Starbucks pays for beans, or Amazon pays Luxembourg for the use of the name in the UK. They are fake costs done for accountancy purposes and everyone knows it.
Being able to make an iThing for x and sell it for 500x is fine. Its when the company "sells" it internally to a subsidiary for 500x-1 that things go wrong. If BigCorp really is two separate companies, then the supplier should be able to sell your iThing at 200x wholesale to a competitor. If they aren't willing to compete, then the two entities are related, and should be taxed accordingly.
If BigCorp Aus are forced to pay over the odds for a product or service that's anti-competitive / pseudo-monopolistic. If they are choosing to do so then the arguments about legitimately independent business go out of the window, putting the directors in the frame for corporate mismanagement and possibly fraud charges. So yes, you can ban it - IF you want to.
And the staff salaries genuinely are a legitimate business expense which do not incur corporation tax, BTW. Possibly the only one...
So you think it is proper for Australia to collect 80% of the price of an iPhone even if 80% of the cost is overseas? Sorry, that's an epic fail and probably violates at least a couple of international treaties. This whole concept of "we know what corporations should be paying so we'll just use fiat decrees from unelected committees to
fleece bounce it out of them just doesn't fly.
And all that just because the film studios were able to get support from both sides of politics for legislation that was very much to their liking.
By what can only be described as a remarkable coincidence, this breezed through parliament following the earlier placement of some massive political donations...
Thankfully we live in a secular society and thus there is no "moral" in our tax code. We don't have priests, or rabbis, or scientologists saying, "Well yes, you did pay the legal amount of tax but, from moral standpoint, you should have donated another x% to the church/synagogue/temple so you go to jail... directly to jail."
Mortality is not the sole domain of the religions but I believe that arguing that something should (not) be done because it is (im)moral is the domain of the irrational, of which the religious are a subset*. When I read, "X is (im)moral", it translates in my head as, "I can't provide a compelling, rational argument to support my posion on X but I want you to take it as gospel that my position is correct."
* I know religious people who I consider to be good people but that's not the same as saying they're rational. "We shouldn't steal things from others because it creates an environment where thieving is considered acceptable and I don't want my stuff stolen", is a rational argument. "We shouldn't steal because God/Allah/FSM said so", is not. Nor is, "We shouldn't steal because it's immoral."
You may be surprised, but modern democracy is built on strong ethical, moral grounds. The very idea of basic, immutable, inalienable rights is strongly moral. The only difference from religions, is that rights don't come from an external divine being, and are not controlled by self-appointed intermediaries called "priests" (or whatever a religion names them) but are "endowed" to you automatically just because you exist.
Most modern tax systems are built on moral and ethical grounds too - that the whole community benefits if everybody contributes to the community expenses, and often those who were able to earn more can contribute a little more, especially since often to earn more they need to take advantage of those who earn less.
If there were no "moral" or "ethics" in actual laws, we would just see the "most powerful ones" impose their will (and, in some ways, it partially happens already) as it happened before "democracy" became the reference model in most developed countries.
I often reapeat that a true "liberal system" can only work in an environment driven by strong moral - call it "ethical", if you prefer - principles accepted (and observed) by all players - otherwise it soon degenerates in an oligarchy were a few powerful members can do whatever they like - and often unluckily, it happens already, even in those who call themeselves the best and great democracies...
I understand the wish for paying as less tax as possible, but there are even ethical boundaries. If companies trespass them because they are so shortsighted that short term gains will be paid later, well, a State - elected by citizens - has all the rights to modify the legislation to ensure the holes used to trespass the boundaries are plugged.
PS: in Italy you are forced to pay 8‰ of your taxes to a religion of your choice (among those that have a ratified agreement), or to the State itself for "charities" - and I believe it's not the only State requiring it, even in the Western world...
Since when does morality have to be religiously based? Morality and ethics are practically synonyms in this context, and paying your tax morally basically means paying it truthfully, fairly and following the intent of the law rather than to the letter of the law if you're able to find loopholes.
And of course you've never put in any legally allowed claims on your tax return, have you.....
Why do people consider it immoral for companies to engage accountants to legally minimize their tax obligations, but consider it fine for individuals to engage an accountant to maximise their tax refund at the end of the year or ensure they obtain every possible government benefit?
It's immoral when a working person effectively pays more tax than a corporation (per dollar earned).
The working person supports the greater society, the corporations skimp on their obligation to society and are therefore immoral.
> It's immoral when a working person effectively pays more tax than a corporation (per dollar earned).
Does anyone really believe that corporations or companies give a shit about how much tax they pay?
Corporations are just legal structures.
People ultimately pay tax, either through their income or the increase in their investments such as share dividends.
Taxing companies is just taxing people....again. All this bullshit about corporation tax is just words.
The real problem is that we are swallowing these political shenanigans. If they managed to "solve" this problem then they would come up with some other target for their tax gathering frenzy.
The fastest way to deal with tax dodging is to raise sales taxes (VAT), but that comes with its own sets of tax dodges.
Of course, if company tax rates are low then there's no incentive to ship profits out of the country....
If royalties are involved then taxing those payments might be one way around the issue, but there are always ways around that too.
Corporations NEVER pay taxes. At best they act as for profit tax collectors for the government. The ONLY people who ever pay taxes are citizens. Until you get this concept you can't create a tax system that works.
What does sometimes happen is a wealthy or well-placed citizen manages to arrange his affairs in such a way that he does not draw a salary and lives on the corporation dime. While this is truly improper, it cannot be addressed via tax law.
"And of course you've never put in any legally allowed claims on your tax return, have you....."
30 years ago (1985) the country that I lived in eliminated just about all of those and lowered tax rates slightly.
The end result was that my tax return went from 30 pages to 5 - and the amount of tax paid overall dropped slightly, whilst the govt pocketed more because it didn't need to spend so much money checking all the claims.
They are illegal and should be illegal. A financial transaction between "related" entities is subject to special tax oversight in most countries and cannot be used to claim expenses. Example - gramps "sells" me his house for 1p to avoid inheritance tax. Try getting that one past the taxman. Some other time. A derivative of this - try to use this type of arrangement if you are an LTD with a few hundred thousands of annual turnover. Same story - you will be shot down "before you leave the ground"
However, when you are Apple, Google or someone else with several billion turnover for some reason the same rules (which have existed for centuries) do not apply.
I never seen a company that doesn't factor next products R&D expenses into actual products price, especially if they sell well. Never seen one asking they're selling branches to pay for them... it would be silly, but, of course, for tax avoidance schemes.
A serious question. If Apple sell a phone in oz for 1000, and, say, 50% is 'profit', why should the oz govt get tax on the 500 profit?
Why shouldn't the profit be, mostly at least, repatriated to the parent co (ok they may choose to hold out for a tax holiday to bring it back home). The phones are probably are already subject to local sales tax/vat, maybe import duty too.
Surely Appple and the US (tax people) are entitled to the lions share of profit made in oz?
Because that money came from an Australian tax payer.
The problem is that Apple Australia buys the iGadgets from Apple Ireland and resells them at virtually no profit while Apple Ireland makes huge profits off the sale to Apple Australia. Apple Ireland buys the iGadgets from Apple China at virtually cost. At the end of the day virtually all the profits are being made in the area with the lowest tax and the item being sold has never been in the area that is profiting.
I should point out that "Home" isn't America or anywhere the corporate headquarters are. "Home" is the country with the lowest tax and best tax dodges they can find. "Home" will also move should a better tax dodge be found.
My continued serious question.
I presume oz already gets sales tax and presumably import duty already (but i don't know). So then the oz tax people want even more.
So, say, if Apple china charged oz 999 (and excluded the low tax middlemen) and Apple paid the tax on the profit in china that would be ok?
I'm just trying to establish what 'fair' should be. Who should get what share of the tax on the profit? Seeing as there alread likely been sales tax...
If I make something cost 500 in uk and sell it to oz for 1000... why should oz get tax on my uk profit? Why should it be any different if I manage to minimize tax to zero by shippling through a warehouse in Singapore?
Because it's the SAME company, in spite of the legal fiction that it's not. All are answerable to the same globe-spanning management.
If I sold my services or goods to Apple and made a profit that would be for me to deal with in the UK, but Apple UK, Apple Ireland and Apple Corp in the USA are not independent companies working in a free market. Otherwise Apple UK could sell Samsung phones because they are cheaper than iPhones...
The profit can't be attributed to any specific item, because the exact profit on a per device basis is not known. Each device may turn out to be profitable, or may turn out to cost Apple later on (warranties, etc). Different deals and prices on the devices generates different levels of profit. If later some devices have to be discounted, will the state then return the previously raked in profit taxes? And all this done individually for every single country a device is sold in? This is just stupid and makes no sense.
And all these objections are just practical ones. There is no legitimate reason anyway to demand a cut of the profit made on work done entirely outside of your country.
Who paid is irrelevant. What is relevant is who did the work. That really wasn't the sales guy in Oz. And to the extent he did any work, you're getting those tax dollars directly from HIS salary.
Stop trying to tax Americans and Chinese from Oz.
I'm not sure that they are saying that all the profit on manufacturing/selling the phone should be taxed in Australia. Rather what is not OK, is Apple Aus "buying" the phone for $999, selling it for $1000 and declaring $1 profit. Meanwhile Apple Ireland/Holland make $499 profit by buying the phone from the subcontract manufacturers for $500 and selling it to Apple Aus for $999
There is no "right" solution. There are solutions that work better and solutions that work worse. Most actual tax rules were devised where company where mostly "local", and creating "fake" companies and move money around the world more difficult. So, those rules moslty worked.
Now, it became far too easier to implement schemes to shuffle money around, and pay little or nothing - the only drawback is that money can end in a tax haven, and then you have to lobby to bring them back with a laughable tax rate, not available to the other citizens...
The problem is that in such ways those large companies siphon off a large amount of money from one country and transfer them to others, returning very little in exchange (yes, some jobs... not enough to offset what they transfer abroad).
Still taxes have to pay for the State services (infrastructures, education, healtcare, police, etc...), and if the largest companies are able to avoid them, someone else have to pay for them... other smaller campanies unable to setup such schemes (stifling competition, lower margins, and increasing unemployment, which in turn, needs funds...), and the physical taxpayer, who sees his or her taxes increasing over and over... it looks actual rules no longer work well for most citizens.
If you're happy to see your taxes increase, or the service level decrease, be happy that Apple, Google, MS & C. are able to move the money you spend abroad and let you pay the taxes... or pay more for the same service than before.
"The problem is that in such ways those large companies siphon off a large amount of money from one country and transfer them to others"
What's the difference then if the phone costs 999 to make and sells for 1000 and there is no huge profit to be taxed? They get sales tax. But a pile of money goes offshore.
What does it mater to oz if the pile of money going offshore is pure cost or 50/50 profit/cost?
It would simply happen than unless it's something you can't do without, or produce locally, say, oil, you will find alternative products (or build it locally) because you won't stay in business otherwise: no profit, no business.
In fact oil siphoned off large amount of money from countries consuming it to those producing it... which may use it against you...
I see the problem here. The problem is that you regard someone else's money as your money. Until you fix YOUR problem with immorality, you'll never understand the correct way to collect taxes. By definition, when someone in Oz buys a iPhone at price X, they have gotten exactly what they exchanged.
My serious question got so many downvotes. I don't understand why.
Surely if oz wants more tax they can simply slap a 100% sales tax on stuff.
Clothes too have a huge markup on production costs. So why is Apple singled out?
Disclaimer: I have never owned any apple gear.
Downvotes you are getting for several reasons probably.
1) The Apple fanbois don't like to hear that Apples tactics and ethics are being questioned.
2) The Aussies don't want to hear that they shouldn't get a piece of the Apple pie and maybe (fat chance) have their personal taxes reduced.
3) And probably this is a biggie... it's sheer emotionalism and nationalism at work here.
My rather simplistic view is that any country that is managing to extract any tax from a corporation should be grateful. Otherwise, corporations will country shop and find a better tax deal somewhere else. Yes, there are taxes being paid by said corporation to a given country: income tax for the troops, levies for benefits (such as Social Security here in the States where they match the employees amount), property taxes, etc.
Let the downvotes flow... companies are only people legally. The people in the company and who invest (there's some right bastards) in the company are the real people and it's not the workerbees who make the policies or decide how to maximize the profit for the investors.
"My serious question got so many downvotes. I don't understand why."
Because in Australia the company tax rate is 30% which is 30% of the profits the company makes. If all the profits are moved overseas then local companies have to compete against multinational companies where the local company pays 30% and the multinational pays maybe 1% or 2%
Countries cost money to run and at the end of the day, every cent Apple, Google, BHP etc don't pay in tax, I (and all the other tax payers) have to pay.
Read an article a couple of weeks ago that described how 30 odd years ago companies paid something like 40% of the total revenue the government made. Today it is less than 15%.
Multinational companies are making billions from Australia and paying SFA here which means when the government needs more taxes, they tax the workers and small business owners instead of the rich.
The phones aren't made in Australia, are they?
Lets face it: States are greedy for taxes so they can expand their command and control apparatus. That's just the nature of the beast. State agencies love nothing more than getting their citizens exited about increasing taxes even further.
There is already VAT (sales tax), which is pretty massive in itself. 20% in the UK, for example. It's way higher than income tax used to be back in the days when a person's income was just that.
Furthermore, any Apple employees in Australia presumably pay income tax on their earnings. So if a lot of the development or manufacturing of Apple products were to be made in Australia, then all that income tax would be paid in Australia.
Nah, let's just be a bit more careful about asking for yet more taxation, lest we forget that in the end it's the workers and consumers who end up paying for it all so the state can continue growing and wasting large proportions of it.
Well, the US has a 19% max for overseas revenue not booked home.
Singapore / HK around 15%
Money into Ireland goes out without Ireland's tax take, due to other tax treaties.
And besides price transfer schemes and arms length transactions are illegal, to the extent that complicated shamming and diversion cannot be proven in a court of law.
The solution is a 15% withholding tax increasing 2% every year if not claimed, or import duty re-introduced at a level to discourage this.
This can be fixed with an age old strategy that every country has for individuals, called the "Alternative Minimum Tax". They should just make that apply to corporations. Basically, tax is calculated two ways, and you got to pay the worst one.
"Where the value is added" is just a "weasel" statement. It really doesn't mean nothing - you can give it any meaning you like, and use it at your own advantage.
I could say that *real* value is create only where and when a "customer" is willingly to pay for your goods and he or she actually does. Otherwise, you just have a bunch of materials put together noone wants, and thereby without value, even if there was a cost associated in putting them together. Otherwise unsold items should be taxed (there is added value anyway, right?)
Also, you can create very little value in moving goods around, because, unless you are able to sell them at the end of the chain, there is really no value created - especially if all the chain is under the wings of the same company, thereby there is no *real* customer in the chain.
But of course, it's easier to pretend "value" is created somewhere else...
If a company trades globally then surely its tax liability should be calculated on its total, global profits, and levied at the first point of sale (into the channel). That would close all tax loopholes and bring an end to tax havens once and for all.
Or is that too obvious?
Yes, it's too obvious. ANYWHERE you assess the tax the company will just hike it over to the country with the lowest rate. The tax haven will exist at the point of entry.
Furthermore, they can muddy the waters with multiple simultaneous entry points, confusing just what went where.
Except that's not actually fair either. Simple yes, but so is strong arm robbery and there's no real difference between it and what you propose. Because what it comes down to in the end is your guy with guns (and worse) is demanding money from somebody who isn't your guy. Tribalism at its worst.
Personally, I'd like a switch to taxing turnover rather than profit. Set it at, say, 1% - then it doesn't matter whether Apple Australia bought that $1000 handset for $500 or $990, they hand over $10 either way. Or, of course, accept that this is basically a duplicate of VAT (or GST, or your local equivalent) and just rely on that in the first place, scrapping the rest.
As individuals, we don't pay tax on some portion of our income deemed to be "profit": we pay income tax on the whole lot, give or take some special cases like child tax credits.
In terms of the "where value is added" criterion, of course virtually nothing important happens in Australia - either a few dollars worth of postage, or a trivial share of the costs of a retail outlet. It seems quite plausible that Apple Australia really is only doing $10 or $20 worth of the $1000 you pay for an iThing, so why should the government grab a bigger share than that, on top of already demanding sales tax?
"on top of already demanding sales tax"
Because the sale tax is usually paid by the buyer, not the seller? And you're paying it with money which were already taxed, increasing the total amount of tax *you* pay?
I would advocate for a huge reduction of sale taxes in exchange for "properly" taxing *real* profits, not taxing *expenses*.
But most government like the low hanging fruit, taxing taxpayers *expenses" adding a VAT or sales tax to it is far easier than trying to make large companies, from which also some funds for politician comes, to pay taxes on profits....
All taxes are paid by the buyer...am I the only person who understands this?
And the shareholders no? I mean, how much you can pass on to the buyer depends on the competitiveness of the market in which you operate. If it is highly competitive then more "cost" is born by the shareholders.
Except you can't. First off, you can't provide a legal definition of "*real* profits" that also works in the world of reality. Next up, business don't pay taxes anyway. They may collect them (and probably need to make a profit from collecting them), but they certainly don't pay them in the way a real person does. Finally, sales taxes are the only actual moral taxes out there. They tax consumption, not production. All this crap about taxing income progressively because some people make too much money or taxing greedy corporations is nothing but your own greed and avarice masquerading as a moral good. Even a highway man is more honest about what he's doing than people making the arguments you are.
"All this crap about taxing income progressively because some people make too much money or taxing greedy corporations is nothing but your own greed and avarice masquerading as a moral good. Even a highway man is more honest about what he's doing than people making the arguments you are."
Until you realize that most rich people tend to spend less of their money as a percentage of their income than the poor do (who frequently have to spend every dime and then some just to survive). Money that doesn't get spent tends to stagnate and fall out of the economy which means no flow which means fewer people benefit. Thus the general phenomenon of wealth having gravity: great wealth tends to beget more wealth just by sitting there. So consumption taxing doesn't work well because it predominantly hits the poor. Besides, consumption taxing is much easier to subvert with under-the-table selling. That's why the US went with income taxing rather than consumption taxing a century ago. At least income taxing is harder to run under the table without someone noticing.
Turnover cannot work as it'll just fuck over low margin businesses. It always seems like a good quick fix but it just doesn't work. You need to tax profits. It's just that, at the present time, we have a rather large problem with their definition.
My issue is that for all this transfer pricing to be legal it has to be arms-length does it not? It sure doesn't seem arms length but a major planned and smoothly run operation to me.
'As individuals, we don't pay tax on some portion of our income deemed to be "profit": we pay income tax on the whole lot, give or take some special cases like child tax credits.'
Actually, we do. It's just that, by default, all our income is determined to be profit, unless we prove otherwise. This is what deductions are. If your deductions outweigh your income, you make a loss, then put an "L" in the appropriate box on your tax form, and get most (or all) of your PAYE refunded.
Sure we do, we've just changed the words. You've got your standard deduction, the child care credits you are so eager to exclude, mortgages, health expenses, IRA/retirement fund contributions, non-profit contributions, solar/wind energy tax credits, capital loss offsets and probably more that I can't think of because I mostly file the short form. Many of these are justified on what is effectively the same basis as excluding business costs from what they are taxed on. And your example provides the proof of the folly: the $10 tax on the $990 item means that business made no profit at all. You've got no way of knowing what the "real cost" of the goods being sold is. You're picking on Apple because given their financial disclosures, you THINK you know what their real cost is. If it's something like gems or precious metals, you have the same disparate impact on business.
Some posters above claim that the tax should apply in the jurisdiction where the value was added. Let's try that idea out then, shall we?
In the case of Apple, it costs $499 to produce an iThing in China, the branch office in Taxhavenstein buys it for $500, and sells it to the branch office in Australia for $998. The consumer buys it for $999, and Apple makes $500 but only pays tax on $1. Neat trick if you can work it.
But if the value-add is not in Taxhavenstein, where is it? This is Apple, remember. Most of it takes place in the mind of the consumer, who willingly pays $999 for a product functionally near-identical to other (non-i) Things selling for $499 retail, or sometimes as much as $599. The value-add, in other words, is located in Australia, and that's where the tax should be paid. (Or the UK, or New Zealand, or whichever other country is getting iShafted today.)
Not really. the value added is likely to be spread over many jurisdictions -
- where is R&D for the hardware?
- Where was the software developed?
- Where is support?
- Where is warranty repair?
and so on.
The real villains of the piece are the Singapores, Irelands and Luxemburgs who are taking tax revenue from other countries.
- where is R&D for the hardware? Where the biggest R&D tax breaks are (Somewhere like the US)
- Where was the software developed? Where the cheapest programmers are (Somewhere like India)
- Where is support? Where the cheapest workers are (India or Malaysia)
- Where is warranty repair? What repair? It's a throw away item.
The final question highlights the problem. Where is the profits sent and tax paid? None of the above usually Ireland, Caymans, Luxembourg etc
Those places aren't taking taxes from anybody. That's EXACTLY why businesses locate their headquarters there: they are taxing less than elsewhere. Switch to sane tax policies and the problem will go away. The tighter you grasp productive people in your greed to get tax dollars, the more you kill the golden goose.
No, because even sane tax policies can't stand up to predatory tax policies. Five percent may be all well and fair but it loses to a predatory two percent. And since these predatory countries are predominantly small and therefore with little governmental overhead, you're pretty much in a no-win scenario.
You can't compare a small country like Singapore with a larger one like Australia, and even larger one, territory and population-wise. There are very different needs to address - just think about infrastructures, transportation, education, etc.
A larger country, even without an inefficient government, will *always* cost more - even per capita - and will need to ask more taxes - it's inevitable. It's not a question of efficiency, it's just a question of size and people's rights.
Sure, if Australia could force all its inhabitants to move in a small area of the country, it could obtain significant savings - 23 millions? It's about four times Singapore, thee-four cities will be enough... just you won't be free to live wherever you like, of course.
Two points to make here:
(1) Australia's corporate tax rate is frequently claimed to be higher than that of other similar countries, and quite wrongly so. Australia has a single corporate income tax set currently at 30%, where many other countries have a lower headline rate but don't count various other charges which, together, add up to about the same amount - especially when you count in the extraordinarily generous diiscounts and subsidies and assorted perks. ("Investment allowances", fuel subsidies, and a host of others.)
(2) Singapore is a special case. Like all tax havens, Singapore doesn't try to tax its own companies at anything like a sensible rate. Instead, it sets absurdly low corporate tax rates and encourages foreign companies to pretend to be doing business in Singapore so that they can avoid large amounts of tax they should be paying in Australia or the UK or the USA or France in exchange for paying a very small amount in Singapore. The Singapore tax economy, in other words, is parasitic on the economies of other countries.
1) I'm pretty sure Apple et al have far more clever accountants than you. If the effective tax rate in Oz is as low as you claim it is, they'd be headquartered there, not elsewhere.
2) Unless Singapore has some secret ninja army controlling other governments and sending tax money to them, they're not parasites to anyone. They're just more efficient. That might be because they are more geographically compact, but if their tax rates support their governments only your own greed and avarice causes you to accuse them of your own sin.
You are assuming that Singapore levies the same tax rate on all companies.
Apple/Google/et al simply go shopping for a low tax rate. The offer is simple - we will pay you some peppercorn amount of money - not really related to our turnover, or we will go somewhere else. You choose: some money, or none. So there are a range of countries who are quite happy to accept a pittance to provide the legal framework that allows the big international to claim to pay tax there.
It isn't just the high-tech companies. BHP Billiton paid about $100,000 tax on over $2billion income declared in Singapore. It isn't clear what relationship Singapore has to do with mining, or what government services or infrastructure the Singapore government provides to help with mining, but that is where the tax is paid. If you are the government of a country where the miners are crying poor and asking for all sorts of concessions, this sort of thing makes serious government support with things like infrastructure ring hollow.
The question to ask is however close. Why are we taxing companies at all? Should we not be taxing the shareholders when they get a dividend - as the low taxes get turned into greater value to the shareholder eventually. They are the ultimate beneficiary. Which gets you to the next big problem. The US has a tax structure that punishes shareholders of companies that pay dividends, and makes it significantly advantageous to simply increase company value (ie Apples' hundreds of billions in cash) and thus make the shares themselves more valuable.
In Oz we have the notion of franked dividends - dividends upon which the tax has been paid, and which the shareholder does not pay further tax. But the US has almost exactly the opposite notion. Don't forget - the beneficiary of all these tax tricks isn't the company - but the shareholders. Many of which may include mere mortals such as ourselves - via the various mutuals and superannuation funds. These issues make the entire world of tax and national boundaries unclear.
But whilst the tax treaties allow it, and there are countries who are willing to prostitute themselves by accepting only notional tax rates from companies that they have essentially no relation to, and are no burden on that countries government, whilst our countries provide the infrastructure and social support allowing these companies to operate, you will have a problem.
"You are assuming that Singapore levies the same tax rate on all companies."
No. I just left that aspect aside in order to avoid too much detail not directly relevant to my main points. No objection to you raising it though: the Singapore-BHP scam recently exposed by the Senate enquiry was indeed gobsmackingly unethical, and we have no reason to believe that it was particularly unusual.
I see huge difficulties with your "no company tax" notion though. To make it work, you'd need to deal with two big problems:
(1) It's very hard to tax unrealised gains, which is what the value of a company is unless you close it down or sell it. How does one even assess them? And if one does - maybe by some formula involving market capitalisation - then that leads directly to horrible complications such as a company having to sell part of itself to pay tax just because its share price went up at an inconvenient time. And if you don't use market cap, what do you use instead?
(2) This would mean that foreign-owned companies could operate in your country without paying a red cent towards the cost of all the benefits that country goves them (such as roads, police, rule of law, educated workers, willing customers, natural resources, hospitals for its staff, and so on). Only the locally-owned companies would pay any tax. That's insane.
So you want every country in world to play "I'm the cheapest whore pick me."? It seems like the corporations would just play it continuously until they found the one that gave them the tax amount they want to pay, zero. I wouldn't put it past them to purchase one themselves (some corporations make more than some country's GDPs).
If they use a country's infrastructure to make money (roads, bridges, shipping ports, law enforcement), then they can pay their share of the upkeep of that infrastructure in the form of taxes.
"If they use a country's infrastructure to make money (roads, bridges, shipping ports, law enforcement), then they can pay their share of the upkeep of that infrastructure in the form of taxes."
And companies that ship around a country usually DO pay their way the way everyone else does. Roads are typically paid with taxes associated with vehicles (which are either owned—owner pays—or rented—renter passes the costs along) or fuel. Bridges are the same way, especially if tolled, and remember that commercial vehicles pay their share with higher toll rates. Ports typically charge fees and taxes on use, so there's no shaking the taxman there. As for law enforcement, that's usually done courtesy of property taxes: both on the company's local campus and for any employee houses and so on.
Why are we focusing on probably 1% of the tax companies pay?
In most companies the largest bill, after cost of goods, is wages. Those come with a massive tax take.
Second is property. Rent, rates and upkeep all come with pretty large tax takes too.
Third is often pensions. You got it - taxed!
And there is VAT - 20% on everything they sell in the UK.
Most corporations - like most individuals - pay a third to a half of their income in tax.
But governments have got greedy. They want a windfall tax on profits as well.
That's taxing twice, because that remaining income is what's left after paying tax.
And some people have decided it is convenient to their agenda of painting business as bad to pretend the other taxes don't exist and companies are evading the only one they have to pay.
The frightening thing is that people seem gullible enough to believe it. Allowing politicians to paint themselves as doing good, when they are protecting their own inefficiencies and greed.
And all it is doing is forcing more offshoring.
Just as unions forced manufacturing abroad, this lie is forcing retailing abroad.
Why work in high tax, bullying economies when a host of low-tax ones are opening up?
In most companies the largest bill, after cost of goods, is wages. Those come with a massive tax take.
Third is often pensions. You got it - taxed!
Apple does most of the manufacturing in China as stated in the article. Often under contract. These people may or may not be paid well compared to other companies but by Western standards it will be fuck all. That is what makes the margin so large. Employing countless knowledgeless meat-sacks poncing around stores asking if they can help you then knowing jack-shit about the product line is not likely to produce a massive tax take. Going by what I have seen plenty will be students and hence pay little or no tax based on income and thresholds. There will be some payroll taxes but nothing compared to what gets avoided.
Most corporations - like most individuals - pay a third to a half of their income in tax.
Companies like Apple and Google make huge profits compared with their staffing levels and have averaged/harmonised corporation tax rates below 15%. I sincerely doubt that payroll tax is going to take them up to 33% let alone 50%. That statement is simply nonsense. Small businesses and those unable to profit shift certainly do pay higher rates and get properly screwed.
"These people may or may not be paid well compared to other companies but by Western standards it will be fuck all"
It's getting higher all the time - some jobs are heading back to the USA at the moment because it's become cheaper there (partly because decades of mercantilism has depressed USA wages).
My suggestion is a "Deeming Rate" on money sent overseas. Just like with retirees, whose money is "deemed" to earn income at a certain rate, and benefits are calculated on that deemed rate - even if they deliberately kept it in a low-income account to avoid this.
So, subsidiary of multi-national company x, that send $y billion to Ireland/Singapore/etc which pays at a minimal tax rate, will be deemed to owe tax at the $A rate. Any shortfall will be owed to the Australian tax collectors.
Just my humble suggestion.
"a "Deeming Rate" on money sent overseas."
This works for straight royalty payments.
It's a lot harder to work out when what's being paid for is overinflated hardware prices.
Of course all taxes are eventually paid by the consumer and if the govt isn't making enough money there's a strong argument for raising GST/VAT.
Mind you, GST/VAT regiemes are generally bolloxed anyway. The only efficient way to operate is to run a flat rate on _everything_ and collect at every step along the chain (this means that if someone skips out you only lose the tax on their markup)
New Zealand adopted this model a long time ago and it simplfied the collection/customs structure so much they were able to lay off over 1/3 of the tax department. Subsequent changes have made it more complex and resulted in more people needing to be hired.
What counts for governments is not the tax rate but the _net_ tax collected - ie what's left after paying the administrative costs of the tax department. Simplifying taxation structures should be high on the agenda of any govt as it generally reduces gross taxation whilst increasing _net_.
At some point it may be possible to simply have a flat income tax rate or none at all, however this requires watching private imports carefully to ensure GST/VAT is paid on them.
Company A Sells product in your country
Therefore it should Pay ALL tax on Sales in your Country IN your Country not transfer profit to another shill/shell company in another jurisdiction.
Only when ONE Country Starts to legislate to make this happen to stop Tax avoidance the rest of the World will follow hence the The TAX Domino Theory
If Company A does not want to pay fair tax in country X then they should not TRADE IN COUNTRY X
But if it's a company like Apple who produces products your citizens crave (nay, DEMAND), then you're in a bind. If you don't let them in, they'll probably start engaging in economic tourism to get it outside your borders (and your tax rolls).
So as the saying goes, what do you take: 10% of something or 100% of nothing?
Governments CAN BRICK GREY IMPORT PHONES if they chose so Electronically
That would Kill the gray Market
As long as they tell there Buying public /citizens why they are bricking grey Phone imports Problem solved
If that Phone Device company wants a share of the Market PAY THE TAX'es REQUIRED
You CAN BE SURE IF GREY IMPORTS EAT INTO THE OFFICIAL MARKET THAT Phone Device company WILL LOBBY FOR GREY IMPORT BANS
As Part of the Government legislation Manufacture has to make the IME Number of Legal imported Phones available to Government for it not to Be Bricked
Non Registered IME Numbers Government orders the Telco's to Block / brick as non legal
economic tourism to get Phones outside your borders will stop if they cannot use them at home because the government / teleco's Brick non legally imported phones by IME Number.
If the Phone Manufacture wants to trade in Country X Pay fair tax inc Corporate Tax in country X
Re: The TAX Domino Theory
What about roamers that buy a local SIM ?
The SIM is not linked to the IME Number
Simple they link this new data base to Passport control
Phone then valid for time of visit (+ Government can track those Aliens by Phone)
overstay your visit
Phone Blocked / Bricked
Slipping into country as an illegal immigrant with phone
Database says no Valid IME phone Blocked / Bricked
Governments love linked Database's it gives them extra snoop capability
"As Part of the Government legislation Manufacture has to make the IME Number of Legal imported Phones available to Government for it not to Be Bricked"
1) Phone manufacturers balk at the Big Brother tactic and tell them to either drop it or have NO legit phones at all. People craving the phones can start pressuring the government to ease up before they vote in a government who will.
2) Hackers start messing up the registry, making it impossible to know which phones are legit or not. Or they start bricking the registered phones so that it's gray phone or NO phone. See #1.
3) Cleverdicks bring in gray phones that can piggyback on legitimate IMEs, possibly hopscotch between them to keep the plods guessing.
Put it this way. Short of a totalitarian regime, there's ALWAYS a way around a control. And since unrestricted phones are in demand, there WILL be a supplier to fulfill it (see Prohibition).
"If you don't let them in, they'll probably start engaging in economic tourism to get it outside your borders"
Historically it was cheaper for apple customers to fly to San Francisco and buy equipment there, declaring and paying tax on everything they brought back, over buying it locally (including hotel costs and in the case of high end apple kit, you could fly business/first class and still save money overall)
If the phones are subject to GST/VAT as they come in, then it doesn't matter that the price is inflated, the govt gets its slice. Trying to make sole-vendor unfair markups ("the australia tax") a taxation matter is difficult-to-impossible when the real solution is to outlaw exclusive distribution agreements and let competition drive the end-consumer price down.
At that point anti-cartel laws can be used if companies refuse to allow multiple suppliers (and the worst cartels which need dealing with are the ones that TPP is trying to enshrine in international treaties)
I've yet to come to solid conclusions on -- how to wrangle *sanity* in to *corporate taxation* -
Odd to note that Tim's only jumped in here once.
I am starting to feel that we need to leave the (business entities) that actually produce products, move products, sell products, (where product = real goods) alone and start looking at the (produce money, move money, fake money) entities. -- and tax the living shit out of those. But Tim will be all over my ass since these are the entities that "increase the value of the economy".
This would certainly thin out the patent trolls, venture capitalists, vampire squid types to those that a) know what the hell they are doing, and b) those that could do the job well enough to *really add value*.
"Apple Australia, for what it is worth, has argued that it pays overs because doing so means it is contributing to R&D costs, among other expenses borne by Apple headquarters."
Surely by that logic, Apple Singapore should also be paying those same "overs" to Apple US since that's where the R&D costs and other HQ expenses are borne? Australia might not get the tax on the profits but that logic dictates that the US ought to. Except the "overs" seem to be swallowed up by the hugely expensive office space, the desk, chair and phone and the guy who gets paid to sit there in Singapore.
For items like an iPhone that are produced by third parties, deem the maximum price that can be transferred out of the country as twice the cost paid to the third parties (to allow for R&D and other overheads).
For an iPhone 5s the BOM cost is estimated to be $199, Foxconn probably gets about $20 per phone in profit giving a price (from the third party) of $219. Doubling this gives a maximum allowable price of $438. The retail price before taxes less that $438 is taken as the profit (and is taxable at the local rate).
If a company refuses to reveal the price it pays to third parties then it is taken as ZERO resulting in profit tax on the whole price of the item. (Payments to related companies e.g. from Apple Australia to Apple Ireland are completely ignored.)
That you have never worked in the accounting department of even a small manufacturer is obvious from your stick figure drawing of how manufacturing pricing for retail works. And, in order to get the level of detail you'd need to implement your plan in the real world, you'd necessarily have to reveal company trade secrets. You're doomed to failure before you even get out of bed.
Assume I'm a UK company developing some product (let's say software, but could be anything) and exporting it to Australia (or Russia, or South Africa, or Mexico, or France, or wherever). I sell for £100 (plus whatever VAT or sales tax Australia charges), and of that £100, £50 is my development and manufacturing costs and cost of sale (reseller's margin, advertisting, etc.) and £50 is pure profit. All the profit is returned to the UK (assuming that's where I'm based) and corporation tax is paid there in the UK (plus income tax on any dividends that are paid, PAYE & NI on the salary of employees developing the product, etc. etc.). I don't pay any Australian corporation tax... should I be?
Precisely. And if you happen to employ a good accountant who gets your uk tax down to zero by holding money offshore or something, then oz still only gets sales tax... but everyone here bleats about it not being fair. It might not be fair to the uk, but its not unfair to oz.
My serious question got so many down votes.
If you do not have any business presence in Australia (IE all done through mail order or a web site), then no.
You don't even have to pay GST on products under A$1000 in value. (About GBP500) (For products over the limit, the GST is usually paid by the importer, so you don't even pay it then.)
If, however, you manufacture your goods in the UK, then ship it to an Australian company who then retails it, the Australian company is liable for corporate tax. This applies whether the Australian company is a subsidiary of your UK company, or a totally separate entity.
To put it simply, corporate tax applies to companies doing business in the country. Apple Australia is a subsidiary of Apple Inc, which does business in Australia, therefore it is liable to Australian corporate tax laws.
Absolutely, if an Australian company retails the goods then they pay corporate tax on the profit they make, which may only be a small part of the overall profit (they might be 3rd party reseller and the bulk of the profit goes to the manufacturer, or they might be a subsidiary and the bulk of the profit is transferred to the parent company). In each case the parent company/manufacturer will be subject to taxation in its home country.
In the case of someone like Apple selling to Australia through a low tax country like Singapore (or to the UK through Ireland) then the crucial question is precisely *whose* tax do we think they're avoiding? The assumption everyone seems to be making is that it's to avoid tax in the the final destination country Australia (or the UK) but surely that's bollocks as each country charges its VAT or GST on the actual amount sold. It's actually to avoid taxes in the *USA*!
If Apple Australia or Apple UK actually bought their products directly from Apple USA, and paid the USA for them, then there'd be no argument about transfer pricing and Australia or the UK wouldn't get a penny more in taxes, but the USA (and/or the State of California) would. In common with most other US multinationals, Apple have virtually no choice but to keep their international earnings off shore rather than repatriating them to the USA. This is because the USA currently has punitive tax rates in place for companies that do repatriate these earnings and there's talk of reforming the US corporate tax laws to bring them into account with norms in other developed countries. Until then, companies like Apple, Google, etc. would be insane (and get sued by shareholders!) if they didn't keep their spare cash in offshore tax havens.
Apple just happen to be moving goods around. A common dodge is to pay IP royalties to an offshore (typically Cayman Islands) subsidiary -- you pay for the use of trademarks, patents and so on.
Its all part of the 'find the lady' ethic of modern multinationals. They learned years ago from the movie industry that you never turn a public profit, you just make a whole lot of money, and you do this using the magic of financial engineering. Bilking tax is important because the tax burden gets shifted disproportionately onto those that can pay (us, that is) while the vast war chests accumulated by the corporations allow them to buy enough influence to keep things this way.
From the Senate Inquiry....
Senator EDWARDS: Let me try and help—because this is getting painful. Are you inflating the transfer price of all your goods to a point where you are lowering your gross profit to a point where you are minimising your income tax paid here? Is your transfer pricing being artificially inflated—
CHAIR: That is an allegation.
Senator EDWARDS: to gather profits in another jurisdiction?
Mr King : Not at all.
Senator EDWARDS: Okay, unpack that.
Mr King : Our product cost is determined on an arms-length basis. What is important to refer to in this discussion is the advance pricing agreement that we have had with the ATO for many, many years. Our APA experience with the tax office goes back to the early nineties. The APA process is a very rigorous and thorough process that is a framework to ensure the product cost in the transfer pricing concepts is fairly stated on products being brought into Australia by a multinational. That is a very, very rigorous process and it is reviewed annually. We have worked with the ATO since 1991 in establishing the costs of our products that we bring into Australia.
Senator KETTER: Are you saying you do not have strategies to reduce your tax in Australia?
Mr King : We pay our tax in accordance with the Australian tax law.
to the USA cost. Let us say Apple Inc charges Apple Australia $400 for an iPad and then adds $200 as "overs" = $600 cost. Then is sells it for $650 = $50 profit out of which it pays it's rent and wages for a net profit of $3 on which it pays taxes.
In Canada we caught pharma companies increase ingredient costs from Switzerland - buy Swiss salt for $1000 per gram. The Swiss ship common salt at $50 cents per pound, for each pound = $450,000 exported tax free.
So all these schemes need to be extinguished.
True, but that requires the cooperation of other sovereign nations. And if the tax haven has sovereign power as well and doesn't want to play? Short of complete isolation (unlikely due to natural competing interests between nations), companies WILL find a way to funnel through the tax haven.
The logical way to tax global businesses is to identify the value added in each tax jurisdiction (country) that participates in the production of the service or item and then tax that value added. This is essentially the objective of the last couple of decades' worth of plans and "guidance".
The outcome of this would be that, say, Apple products - conceived and designed in one jurisdiction (US) and managed in another (China or Taiwan) - are taxed in Australia only on the value added by the Australian operation. Which, in the scheme of things, is f*** all.
So I doubt Australia is losing much in this particular example.
Obviously the logical way to avoid this tax is to pretend that value was added in a low tax jurisdiction (e.g. Eire or Singapore) . Apple's profitability suggests a lot of value is being added somewhere and even Lara Bingle's Rocket Zot could tell you it's not being added in Eire or Singapore.
End of the day, just like 100 years ago, we're fighting somebody else's war. In this case.
I wonder if one way to attack the problem is to take all of a given conglomerate's financial reports into account as follows:
* US Parent Company reports total gross profit of $30B for a financial year (pre EBITDA)
* US Parent Company reports "$Country operations were fantastic" in producing 10% of turnover (probably hard to enforce/deduce - you'd need SEC etc to require this - but that doesn't sound impossible to get happening)
* Resulting deemed profit for taxation purposes is $3B for $Country at $Country tax rate, less only purely in-$Country costs (i.e. no overseas transactions - this is hard to enforce too)
I know there are wrinkles and problems there, and it wouldn't be easy to police (I'm sure the first thing $corp would do is set up several dozen "arms-length" suppliers to whom it pays $X, and who buy "stock" from $corp at 99.99% * $X). It would permit a company making that $3B of profit to still deduct its local expenses before paying tax on the final "local profits". It lets local businesses (who employ other people who spend money, generating the economy!) compete on a more level playing field.
It takes all the actual real costs to the business into account and taxes only (approximately) the profit created by a given country. Faked ... er, I mean, totally legitimate real reasonable expenses for "IP Rights", "Redistribution Rights", "Marketing", "Support", "Brand Awareness" etc are all taken into account before taxation occurs (in each country). And on the surface it seems like the tax burden in a given country would be ... if not perfectly aligned, at least close to the level of profit. Which ensures that the corp is paying the taxes that, for example, build roads and provide public transport which allow people to get to their stores and buy their stuff.
I'd be interested to hear all the holes that no doubt exist in this approach too :)
The age old fight between those who want to take money and those who want to keep the money. Governments without resistance would ramp up the tax rate until the economy collapsed. Private entities without resistance (its all just people) would keep all of their money for themselves. However an attack on one is an attack on all and various governments of the world are grouping together to clamp down on the private entities. It is a shame that the private entities are fragmenting and some people are suffering the delusion that the governments money is their own.
I wonder how many people around the world are employed thanks to various companies fighting to legally retain their earned money?
Just as normal people pay tax on all their income, then corporations could be treated the same way.
Only paying tax on 'profits' is the giant loophole that is out of the reach of ordinary employees.
Hat tip to Steve Wozniak for suggesting this radical simplification of the tax code - getting rid of corporate deductibles would get rid of huge amounts of tax rules, and create a more level playing field for all taxpayers. Not so good for accountants and auditors though...
Company A (say Apple) develops their own products and software and let's say 50% of its revenue goes on R&D and manufacturing costs and 50% is profit.
Company B (say Amazon) buys books and DVDs from publishers, pays for warehouses and delivery vans, and 99.5% of its revenue goes on costs and less than 0.5% is profit.
Are you seriously suggesting you can tax both the same based on their total turnover...?
Then it doesn't enter the country. Take a hardline and watch the number of obstructions drop to zero shortly thereafter. It's not like Apple is bringing them in due to the kindness in their hearts, they want to make money of the country's citizens.
As far as the manufacturing cost differing due to location, well it seems like this would solve the problem of "outsourcing" as well. Pay a lower cost to make something, then pay higher import taxes, pay a higher cost to make, then you pay lower import taxes. Looks like it would level the playing field and make locally made goods a more viable choice over slave-labor.
"Then it doesn't enter the country."
Does the word "bootlegger" mean anything to you? If someone wants something badly enough, they'll get it in spite of God, Queen, and the Government. Economic tourism would boom for any nearby country willing to sell the phones, and even if Customs stops their entry, they'll just get smuggled in.
Not possible. Aside from the obvious options of both legal and illegal bribes to assessors the process is far more complex than you can possibly imagine.
For twelve years I was employed by a closely held corporation that was becoming 100% Employee-Owned. Our calendar year finished in December. We were a relatively small company (under 300 people) located almost entirely in the US. At the end of the year the accountants closed the books. Then came the auditors who certified the books met GAAP guidelines. Once that was certified our numbers went to an independent agency who assessed the value of our company, compared us to other businesses in our industry, and issued a valuation that was used to set our stock price for the previous year. We got that number and our dispersements in August. We were almost exclusively a government contracting operation, so the bulk of our income was pure labor rate billing, no manufacturing, no international trading. In other words, we were a simple case with FULL access to the company financials and it still took 6-8 months. It simply isn't possible in the international manufacturing context.
Let's stick to nice round numbers and say Apple make something with a list price/RRP/MRP of $100, plus 20% or whatever local VAT/GST or sales tax is, and it costs them $55 to develop and manufacture it. Further, assume that Apple will sell it wholesale to distributors for around $80 or $85.
Apple USA make it for $55, sell it to Apple Australia for $80, who then sell it through shops or direct to customers for $100+tax (ie. customer pays $120). Apple Australia's $20 go on advertising, localisation, tech support, warranty replacements, channel training, retail outlets' slice, etc. US government charges Apple Inc a high rate of corporation tax on $25 profit.
Apple USA sell it to Apple Singapore for $60. Apple Singapore sell it to Apple Australia $80 and costs are as above. US government charges Apple Inc corporation tax on $5 profit. Singapore government charges Apple Singapore neglible tax on $20 profit. Apple keeps cash reserves stashed away in Singapore for a rainy day in case it needs them. If and when it brings the cash back to its shareholders in the USA it will pay corporation tax on the profits then.
How is scenario 2 defrauding Australian government of tax compared to scenario 1, and how is either scenario particularly immoral? Who is being cheated out of what?
Let's hear it for the little guy, who faces unfair competition from multi-nationals paying no tax anywhere. There is an argument for ensuring these companies pay tax, since government is unfortunately a necessary evil and has to be paid for.
One can look at their global profits (a number they have reasons for declaring and maximising) and tax them on a percentage thereof, the percentage of global sales in your country. Seems to me a treaty along such lines would give each government a fair share and the multinational pays taxes like everyone else. The actual rate - and permissible write offs for R & D etc. - on its home share would be a matter for each government, while the company can of course simply stop business in a state which sets a stupid rate.
Or they'll make their accounting even more opaque, that's why accountants and lawyers are hired: to minimize tax burden as part of fiduciary duty. I doubt there's a way to make the taxes completely unavoidable, plus lawyers could find ways to challenge the laws in the courts. The tax havens could also provide sufficient proof of the numbers, but their sovereign laws could make the whole practice moot with no recourse (if the profits are there but they don't tax the profits, what now?). Also, Australia has a major handicap: it's not a terribly big player in the global financial market. If fiduciary duty dictates to stop doing business in Australia, they can do that, too, and leave Australia with 100% of nothing.
When you have a multinational designed and engineered consumer product manufactured in a few factories and then shipped and sold around the entire planet, which every country involved wanting a share of the profit (which only exists if there is an end buyer for the product) I think having a clear, fair and globally accepted solution impossible.
The best tax strategy for countries is to remove the incentive for complex legal structures. Write legislation that allows countries to "see through" or to treat such arrangements as though they are all one company, in the country where the tax is being assessed. This creates a powerful disincentive for companies to structure themselves this way, as they would then be double taxed by both countries.
Imagine a situation where Singapore pays a manufacturer X per unit and then ships them to Australia for where a legally related company sold them for X+200 to a shop (also legally owned by related owners) . and that shop then sells the same product for X+800 to the end user.
Faced with the whole 800 profit being taxed in Australia twice, and Singapore once, you can bet that a these companies will become truly independent, so they can be taxed independently and will only exist as viable independent businesses, where the market works out where the value (and hence profit) exists.
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