Why isn’t the ATO going after foreign multinationals?
“Question on Notice: Is advertising paid to social media companies domiciled in another country, for advertising in Australia, considered for Australian tax purposes to be income derived in Australia. Given the audience is Australian, the advertiser is Australian, and the content is Australian shouldn’t it be considered domestic income? i.e. shouldn’t the profit be attributable to Australia? For example, if an Australian customer looks for a plumber on google and that plumber is an Australian based entity that delivers the service in Australia, then how can it be justified that the bulk of the profit is earned offshore?
Why isn’t the arms-length principal being enforced? The raw data is Australian sourced is it not?
Answer: Australia’s corporate tax system relies on concepts of source and residency to determine whether profits are taxable in Australia. Broadly, a non-resident will only be taxable on profits in Australia if it has economic substance (ie labour, capital and assets) in Australia and only to the extent that income is attributable to those activities.
Where a non-resident company supplies advertising services from offshore and also bills Australian customers from offshore, income associated with these activities will not be taxable in Australia. This is because the non-resident has no economic substance and therefore no taxable presence in Australia.”
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I’m sorry but this reply (see Facebook comments) from the Tax Office isn’t good enough.
The idea that foreign digital companies can offer advertising (or any other) services in Australia and not have to declare it as assessable income in Australia is wrong.
Clearly they are engaging in business in Australia.
This is why we need higher withholding taxes on profits sent offshore.
To think the ATO hasn’t updated our tax treaty with Ireland since 1983 is a disgrace and another example of bureaucratic incompetence. It beggars belief that given Ireland’s notoriety re tax rates (there was a big case against Apple re Ireland’s tax) the Treasury has done nothing about renegotiating the tax treaty with Ireland.
Meta, Pfizer or whoever should not be shifting profits offshore without the ATO clipping the ticket.
The ATO are only too happy to go after small Australian businesses but do nothing about chasing down big foreign multinationals.
It’s just another example of how our government is working for everyone else except the Australian people.
That’s why I am asking you to vote for People First at the upcoming Federal Election as we are the only party who has the knowledge to reform our taxation system.
Senate on 18/11/2024
STATEMENTS BY SENATORS – Taxation
Senator RENNICK (Queensland) (13:42): I rise today to speak about a statement put to me by the Department of Treasury in the last set of estimates. I was told that the last time there was a double taxation agreement renegotiation with Ireland was in 1983. The reason I was shocked to hear that was because in 1983 Ireland had a tax rate of 40c; today, it has a tax rate of 12½c. A lot of things have happened in the last four decades, but one of the biggest things is that Ireland joined the EU and, as a result, got billions of dollars in subsidies, which enabled it to lower its company tax rate. As a result, multinational companies shifted en masse to Ireland to take advantage of this low tax rate of 12½ per cent.
I have raised a number of times in this Senate the issue of jurisdictions with a very low company tax rate. I’ve pointed out that, compared to Ireland, we have here in Australia a difference of 10c in our withholding tax rate, which means that many multinationals, when paying royalties to Ireland, get a 30c tax deduction, pay 10c on the way out and then pay a 12½c company tax rate. You don’t need to be Einstein to work out that 10c plus 12½c is 22½c, which is 7½c lower than 30c. So, when you are shifting a billion dollars offshore to Ireland—that’s what Pfizer shifted offshore in 2022—you are saving $75 million in tax just by posting a few journal entries.
But the sad thing is that it gets worse because, as the ATO told me, those multinationals actually get a withholding tax credit on the withholding tax paid to Ireland, so they are only paying 12½c. Multinationals that shift their profits to Ireland are now getting a 17½ per cent arbitrage on every dollar of profit they send off to Ireland. I suggest the ATO and Treasury get busy and start renegotiating their taxation arrangements.
