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Google admits the ATO is chasing it for money

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Google Australia has confirmed for the first time that it has been hit with an amended tax bill by the Australian Taxation Office following audits of its affairs, and said it “will lodge an objection”.

The company does not say how much the tax bill is worth in its accounts lodged on Friday, but states that it will, in accordance with usual practice, make a payment to the Tax Commissioner Chris Jordan.

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This doesn’t change the company’s stance and it “will continue to hold its positions against any and all such claims”, the company stressed in its accounts.

The financial accounts for the year ending December 31, 2016, show the technology giant still hasn’t included all of its advertising revenue in its local numbers, with more than half of it still being counted in Singapore.

Google reported advertising revenue of $882 million for last year, but this stopped short of an estimated $2.5 billion worth of advertising revenue that instead got booked offshore in the low-tax nation of Singapore.  

For now, Google Australia’s financial accounts, lodged with the Australian Securities and Investment Commission, show total revenue of $1.14 billion, up from $498.4 million the year before.

The revenue figure consists of $882 million advertising revenue, $220 million in R&D services revenue, and $39.6 million from other sources such as Google’s hardware business.

​The company’s profit before tax was $122 million, up from $50 million the year before.

Google Australia's tax bill has risen but it's still not counting $2.5 billion in advertising revenue. Google Australia’s tax bill has risen but it’s still not counting $2.5 billion in advertising revenue. Photo: AP

Google’s cashflow statement said income taxes paid in the 2016 period were $32.9 million, up from $16 million the year before.

But after an adjustment for prior year tax and deferred tax, its total income tax expense was $16.6 million. 

Facebook's founder Mark Zuckerberg. The company is now counting Australian advertising revenue locally rather than in ... Facebook’s founder Mark Zuckerberg. The company is now counting Australian advertising revenue locally rather than in low-tax Ireland. Photo: AP

The full economic impact of Google’s advertising revenue in Australia should become clear in next year’s account because multinational anti-avoidance law (MAAL) changes only took hold in January 2016. Google began restructuring its operations at the beginning of that year.

A spokesman for Google Australia told Fairfax Media: “In the 2016 calendar year Google Australia made a pre-tax profit of $121 million and paid $33 million in corporate income taxes.” 

Treasurer Scott Morrison says they are making multinationals pay their "fair share". Treasurer Scott Morrison says they are making multinationals pay their “fair share”. Photo: Louise Kennerley

“We invested more than $400 million in our Australian operations, and our workforce grew to around 1,300 people.”

Google and Facebook are among a number of multinationals that have restructured their businesses in response to the federal government’s tougher anti-avoidance measures including MAAL and the Diverted Profits Tax.

Labor's Andrew Leigh says "the elephant in the room remains the government's refusal to close debt deduction loopholes". Labor’s Andrew Leigh says “the elephant in the room remains the government’s refusal to close debt deduction loopholes”.  Photo: Alex Ellinghausen

During the 2015 Senate inquiry into corporate tax avoidance it was revealed Google was among a number of multinationals under audit by the Australian Taxation Office (ATO).

Tax Commissioner Chris Jordan has so far issued tax assessments worth $2.9 billion against seven multinational companies including Google. All up he is looking to hit multinationals with tax bills worth $4 billion.

Facebook’s Australian sales

On Friday, Facebook Australia also lodged its financial accounts for the year ending December 31, 2016, and for the first time ever reported $327 million in local advertising revenue.

Facebook’s income tax expense increased to $3.3 million, up from just $814,000 the year before.  It reported profit of $3.1 million for the year ending 2016. The year before it recorded a $970,000 loss.

Facebook in its accounts noted that the change was a result of the MAAL laws passed on January 1, 2016.

“Under the new arrangement the company was converted into a local reseller of advertising inventory and concludes all sales contracts with customers managed by the sales team in Australia,” the company said.

“These customers will no longer have a contractual relationship with Facebook Ireland. The new structure is transparent and easier to understand.”

Investment bank Morgan Stanley had previously estimated Facebook earns between $500 million and $600 million from advertising in the Australian market. 

Following the ATO’s court win against oil giant Chevron last week, Treasurer Scott Morrison said Australia has some of the toughest rules in the world dealing with cross-border transactions.

He said in addition to MAAL laws, the new 1000-strong Tax Avoidance Taskforce announced in last year’s federal budget, together with the recently-implemented Diverted Profits Tax that is expected to raise $100 million in revenue a year from 2018-19, “sends a clear message to multinationals” that they need to pay their “fair share” of tax.

Shadow assistant treasurer Andrew Leigh said “it is welcome that we are seeing some response to the government’s approach to multinational tax avoidance, but the elephant in the room remains the government’s refusal to close debt deduction loopholes that would leave the budget billions – not just millions – of dollars better off.”

Companies including Apple, Google and Microsoft have been under fire for shifting profits to low-tax or no-tax nations such as Singapore and Bermuda. 

While Singapore’s corporate tax rate is 17 per cent, during the 2015 Senate inquiry into multinational tax avoidance there were estimates Google’s tax rate in Singapore is as low as 10 per cent.

Follow Nassim Khadem on Facebook and Twitter.

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