Microsoft Australia will make its Australian tax activities more open to public scrutiny, after it reportedly became the first local branch of an international tech company to officially get on board the government’s Voluntary Tax Transparency Code.
Outgoing Business Council of Australia president, Catherine Livingstone, revealed on 17 November that Microsoft was the first multinational technology company operating in Australia to agree to the Code, according to Fairfax Media.
"We welcome Microsoft's intention to sign up to the Tax Transparency Code as a great sign of leadership on this important initiative," said BCA chief executive Jennifer Westacott, Fairfax Media reported.
The Code, which comes off the back of a report released in May by the Australian Government Board of Taxation, is a voluntary initiative that calls for the increased public disclosure of tax information by businesses, particularly large multinationals.
The development of the Code follows a series of parliamentary hearings by the Senate Committee inquiry into tax avoidance and “aggressive minimisation” by corporations registered in Australia and multinational corporations operating in Australia.
“The actions of a few businesses, particularly large multinationals engaging in aggressive tax avoidance, have tarnished the reputations of many businesses that are doing the right thing,” the Board of Taxation said in a statement.
“Some large businesses have responded by releasing detailed information about their tax affairs. The Government would like more large businesses to publicly disclose their tax affairs to highlight those that are paying their fair share and to encourage all businesses not to engage in aggressive tax avoidance,” it said.
While Australia already has laws that mandate public disclosure by large companies for their turnover, taxable income and tax paid, it is thoughts that a voluntary code for greater disclosure will help to build confidence in the majority of Australian businesses that do the “right thing”.
Over the course of the parliamentary inquiry into corporate tax avoidance by multinationals in Australia, a number of large technology companies were scrutinised over their tax practices, most notably, Google, Apple, and Microsoft, all of which have come under the watchful gaze of the Australian Taxation Office.
During the course of the inquiry, for example, it emerged that Google Australia’s search business had been billed in Singapore, which has a corporate income tax rate of 17 per cent. By contrast, Australia’s corporate rate for large enterprises is 30 per cent.
Now, with Microsoft’s decision to sign up to the new Voluntary Tax Transparency Code, a precedent has been set that could pave the way for other global tech companies with local operations to come be more open about their tax practices.
At the same time, the government’s inquiry into tax avoidance, along with new laws aimed at cracking down on corporate tax avoidance, has seen many large multinational tech companies slowly bring their corporate tax rate further in line with the Australian norm.
Additionally, changes to Australia’s budgetary and taxation landscape have seen the government introduce a new Diverted Profits Tax, with the new legislation, enacted in December 2015.
The Diverted Profits Tax imposes a 40 per cent penalty rate of tax on large multinationals that attempt to shift their Australian profits offshore to avoid paying tax.
It is these legislative changes, along with changes to Australia’s Goods and Services Tax (GST) laws that have, in part, prompted Google to restructure its local operations, moving its location from where it books a large number of its locally-sold products and services from Singapore to Australia.
As a result, the internet giant announced in October that, from 1 November, it would start charging GST on most of its products sold locally.
“Google Australia Pty Ltd is required by law to charge 10 per cent GST (Goods and Services Tax) on its services so you will see this appear as a new line item on your monthly statement from 1 November 2016,” the company told its local AdWords customers.
According to e-BAS Accounts’ Luise McLoughlin, this GST addition will soon become the norm for many other large overseas enterprises, such as Amazon, Dropbox and Canva,to name a few.
Adobe is on track to be the next major overseas software supplier to start charging GST on its products in Australia, with the company announcing in early November that it would include the 10 per cent fee on top of subscriptions from 1 December.
The new tax regulations are set to come into effect from 1 July next year.
