Analysis: Apple and the Australian taxman

Apple stumbled from its position as the world’s most valuable company last week, but that will do little to placate critics asking why the technology giant doesn’t pay more tax.

Over the weekend Britain’s The Times compared Apple’s corporate filings in the UK with those filed in the US, and argued Apple is legally sending about $1 billion a week to tax havens, helping it to avoid paying billions of dollars in tax in Britain and the US.

But is the situation any different in Australia? Late last week Apple filed data on its Australian financial performance with ASIC, for the year ended September 29, 2012.

During the year Apple netted a staggering $5.99 billion in revenue, up 22.9 percent on the previous year.

Despite the revenue jump, Apple declared a before-tax profit for the year of just $98.6 million, and on this it declared it had paid $40.1 million in tax.

That’s less than half of what it paid in tax the year before, when it was reported to have been hit with a $28.5 billion bill for back taxes, bringing its total local tax bill to $94.7 million.

With numbers like that, it’s little wonder Australian politicians are stamping their feet, looking for an explanation.

Last year the government gave the Australian Taxation Office $390 million in new money to pursue tax avoidance and transfer pricing – the scheme that enables multinationals to manipulate pricing to shift profits from Australia to jurisdictions with a lower tax rate.

The government is hoping this extra investment will help it raise an additional $2.5 billion in tax – that’s a six to one rate of return.

Fans of increased investment in targeting tax avoidance, like the Tax Justice Network, argue the government should put more effort into tightening up Australian law to address the issue.

This now seems likely, with an FOI request from Fairfax last week finding the ATO’s hands were largely tied on transfer pricing, despite the extra dollars from the government.

In a paper prepared for a Senate Estimates committee, the ATO said it had “risk reviewed” several of these structures over the years and found the tax outcomes in these entities to be “commercially realistic” in light of the current law and policy settings.

It specifically pointed to global companies set up to ensure sales in Australia cannot be taxed as they are derived over the internet, unconnected to a local outpost.

For Apple, iTunes is the obvious product that fits the bill for transfer pricing. For Google the product is AdWords, with revenue from that very lucrative part of its business being routed via Ireland due to its 12.5 percent tax rate.

Google pushes some big expenses through Australia to keep its local profits down, with documents lodged with ASIC last year revealing it had an expected tax bill of just $74,000 in 2011, despite real local revenue estimated by analysts to be around $1 billion.

Assistant Treasurer David Bradbury last year named Google as one of the companies being targeted with revised tax laws.

So why didn’t Bradbury name Apple alongside Google?

The difference is, Apple has very real outlets in Australia, and as it notes in its report to ASIC, part of its momentum in Australia can be put down to its local retail expansion.

While Google says it employs around 650 staff in Australia, Apple has grown employee numbers from 322 in 2006 to 2418 in 2012, largely as a result of its growing Australian retail presence.

And that’s a hard statistic for any politician to argue against.