ATO wrongly targets SMEs, while Apple minimises taxes

As a small to medium business in Australia, you are likely to find what is referred to as a tax “minimisation” strategy only takes you so far.

The Australian Taxation Office spends a lot of time using benchmarking and other measures to make sure SMEs pay their share of tax.

But the ATO’s strategies are not so successful when it comes to giant international companies like Apple.

Apple has just slashed its tax bill to $40 million even though its revenue has soared to $6 billion, up from $4.9 billion last year.

Apple claims its net profits fell to $58.5 million necessitating the lower tax bill, which contrasted markedly with Australian retailer Harvey Norman which earnt less in revenue ($1.4 billion) while paying more in taxes ($51 million) over the same period.

The federal government has set up a task force to investigate how companies minimise their tax and is focusing on international companies which transfer profits made in Australia to low-cost jurisdictions like Ireland and Luxembourg using complex tax arrangements.

The government’s task force follows the establishment of a parliamentary committee in the UK where the head of Google UK and top managers from Starbucks and Amazon appeared to explain the minimal tax the companies paid.

Starbucks admitted the Dutch government had granted a special tax deal on its European headquarters, which receives royalty payments from its UK business, while Amazon and Google confirmed they used the favourable European tax jurisdictions of Luxembourg and Ireland for their UK businesses.

Instead of spending its time wrongly targeting 6,000 small businesses for being non-compliant cash economy taxpayers, the ATO and the government need to develop a new approach to the tax liabilities of international corporates and co-ordinate this approach with governments and regulatory bodies around the world.

When big multinationals shirk their obligation to pay a fair share of tax in Australia it is SMEs and ordinary taxpayers that are left to foot the bill.