Google Australia says it is still battling the Australian Taxation Office (ATO) over a bill it was hit with two years ago, as it declares $4.3 billion – mostly in advertising revenue from its local customers – that is not being taxed in Australia.
Financial accounts filed with the corporate regulator showed the search engine giant and social media company Facebook continued to earn billions of dollars in advertising revenue combined, but that a chunk of these sales did not get taxed locally.
The low-tax nation of Singapore has long been in favour with the tech giants, and Google and Facebook have declared in their latest accounts filed with the Australian Securities and Investments Commission (ASIC) that it still is.
The federal government’s tougher anti-avoidance laws, aimed at recouping more tax from multinationals, saw both Google and Facebook previously restructure their tax affairs to pay more tax locally than in past years.
However, the tech giants’ sales have also soared, and the laws have not been able to stop the legal practice of hefty amounts of advertising revenue still getting channelled via low-tax countries like Singapore.
The companies’ financial accounts showed Australians paid Google $4.3 billion and Facebook more than half a billion dollars for services in 2018.
But for the year ending December 31, Google had a corporate tax expense of only $26.5 million in Australia, and Facebook paid just $11.8 million.
Google still fighting the ATO over its taxes
In 2017, Google revealed it was under ATO audit over its taxes, but has never disclosed the value of the tax bill.
Google said in its accounts that it had set aside “contingencies” relating to “ongoing reviews for open tax years by the Australian Taxation Office”.
It said the company had lodged objections to the amended assessments and, consistent with ATO practice, made a payment to Tax Commissioner Chris Jordan.
This is consistent with common practice where companies often pay half of what is owed until both parties come to a settlement.
BHP recently did this when it settled on a half-a-billion-dollar tax bill.
“The tax matters remain ongoing and the company and the Australian Taxation Office are still actively working to resolve all issues for open tax years,” it said.
“As the company cannot reliably measure what the potential outflow of economic benefits might be in the future, a provision has not been recorded.”
Google’s billions in sales goes offshore
Google’s accounts stated that much of its lucrative advertising revenue still gets booked offshore in Singapore, under Google Asia Pacific.
It said its local arm merely “facilitated” the sale of advertising between the advertiser and Google Asia Pacific.
The company recorded $4.2 billion worth of gross billings in 2018, of which $3.7 billion related to advertising and other reseller billings.
While Google recorded total revenue of $1.07 billion for the year to December 31, including $560.6 million of advertising and other reseller revenue, it reported a pre-tax profit of just $155.9 million.
The company had $49.1 million in tax payable, but a $681,000 adjustment for prior years and a $21.9 million deferment meant Google only paid $26.5 million.
A Google spokeswoman said the company invested almost $1 billion in its Australian operation over the year. The company now employs 1500 people in Australia.
Google has always argued that it operates at “arm’s length” from its subsidiaries, saying Google Australia has to pay a “fair price” to access products and receive compensation for the services it provides to the company globally.
It has argued that Google pays most tax where its core business development and decision making takes place – in the United States, where it is headquartered and the majority of its engineers are.
Facebook sends $455m abroad
Meanwhile, Facebook Australia collected $579.7 million from advertising in 2018. It also made almost $696,000 from what it called “revenue under service contracts”.
But in the end, the company paid $454.9 million in costs to an overseas subsidiary – $70 million more than the year before – to arrive at a net revenue figure of $125.5 million.
Facebook paid $11.8 million in tax, leaving it with a profit of $23.3 million.
Its tax bill was significantly down from the $42.4 million the company paid in 2017, but that figure was inflated because of a $31.3 million settlement related to an ATO audit of its records since 2009. The settlement with the ATO was reached in October 2017.
A spokesman for Facebook said the company complies with applicable tax laws.
Facebook and Google have also faced greater scrutiny over their affairs from the Australian Consumer and Competition Commission over their market dominance.
Tech giants’ global battles continue
Facebook is also facing a huge fight with the US Federal Trade Commission (FTC).
The FTC’s probe into Facebook came in the wake of the Cambridge Analytica scandal and other subsequent privacy breaches, such as one where a hacker was able to access data from 29 million accounts.
The company could now face what is the largest-ever fine from the FTC, for violations of between $US3 billion and $US5 billion.
Facebook is also under scrutiny from several other regulators in the US, Ireland, Belgium and Germany.
Meanwhile, Google this week was told it would not have to pay €1.1 billion ($1.75 billion) in back taxes demanded by French authorities.
French authorities had argued that Google had declared advertising revenue in Ireland that had actually been earned in France, thereby avoiding paying corporate tax and value-added tax between 2005 and 2010.
But the appeals court in Paris found Google Ireland did not have a “permanent establishment” or sufficient taxable presence in France to justify the tax bill.
Earlier this year the federal government announced it would not proceed with a tax on digital company sales, and would instead wait for the OECD to come up with a global solution to the issue of where tech giants should pay most taxes.