Google taxes? Search me

THIS week Treasurer Joe Hockey has pulled on his boxing gloves and labelled the multinationals “cheats” and “thieves” for not paying their fair share of tax.

If you Google tax havens you’ll see how easy it is for anyone to hide cash.

IMAGINE you just got married and the first morning of your honeymoon, there’s a knock on the door: it’s your mother-in-law.

She’s come to stay with you for a month, after which she will write a report on how good a partner you are to her precious daughter.

Well, that’s kind of what Google is dealing with right now. Treasurer Joe Hockey has instructed the Australian Taxation Office to embed their staff into the search giant to “work out how their business models work”. Can you imagine how popular the ATO cardigans would be at the Google office Christmas party?

This week Joe has pulled on his boxing gloves and labelled the multinationals “cheats” and “thieves” for not paying their fair share of tax.

And he’s dead right. Reported estimates are that last year Google made about $500 million in Australia and paid about 1 per cent in Australian tax.

That’s offensive to every Australian taxpayer, and worthy of a thumping.

And along with dishing up a few verbal jabs at the tax dodgers, this week Hockey also threw a hook-punch when he raised the idea of implementing a so-called “Google Tax” that attempts to claw back some of the tax revenue that Google and other multinationals have funnelled away into tax havens.

It’s based on a similar proposed law that’s being bandied about in the UK.

Yet Jovial Joe must know that he hasn’t got a hope in hell of laying a glove on them. That’s because, in many ways, multinationals have more power than individual countries: they have a bevy of lawyers and accountants who can create complex strategies that siphon money away to tax havens.

Take Google, which employs a strategy that’s called the “Double Irish Dutch Sandwich” where they shuffle billions of dollars in profits through Ireland, the Netherlands, and finally on to the sunny ultra-low tax shores of Bermuda.

This strategy meant that in 2013, they ultimately paid only 0.16 per cent in tax on €17 billion — that’s $24.4 billion in today’s dollars.

The head of the ATO, Chris Jordan, this week said that technology companies are among the most aggressive at dodging tax.

Which makes sense: when a company operates online, it’s easy to hide the sandwich, especially when it’s a virtual sanger.

Case in point: Uber is the world’s biggest taxi company yet owns no vehicles, Facebook is the world’s biggest media business, but creates no content, Airbnb is the world’s biggest accommodation provider but owns no real estate, and Alibaba is the world’s biggest retailer but holds no inventory.

To get some perspective on this, I had a chat to my favourite professor, Jason Sharman of Griffith University.

He’s a man after my own heart — instead of specialising in the mating habits of Ethiopian tree frogs, Sharman chose to focus on something much more exotic: foreign tax havens.

“It’s an admission of defeat on the Government’s behalf,” says Prof Sharman.

He’s got a point. It’s not just Google that’s doing this: in fact if you Google tax havens you’ll see how easy it is for anyone to hide cash from prying eyes.

First, you set up a shelf company in the tax haven of Seychelles — let’s call it Consultants R’US.

Second, you have Consultants R’US open a bank account in another tax haven, say the Cayman Islands.

And finally, you have Consultants R’US issue you with a $100,000 bill for “consulting services”, payable to the company’s offshore bank account.

Abracadabra! You can now access the money, and the various tax treaties will make it almost impossible to prove that you own the company.

As far-fetched as it sounds, apparently 100,000 Aussies have offshore bank accounts (though that’s really a guess because, by their very nature, they don’t have corporate boxes at the footy).

However let me make it very clear — I’m not suggesting for a moment you should do this. While the ATO will embed their workers at Google, they’ll have no trouble embedding you in a cell with a man who makes you call him “Shirley” if you get caught.

Besides, who wants to be labelled a tax cheat? Well, apart from some of the biggest, most admired tech companies in the world? My approach to tax is this: earn the money, pay the tax, and enjoy living in the best country on earth.

Tread Your Own Path!

barefootinvestor.com

Originally published as Google taxes? Search me