To be cool, we are supposed to use Apple, Facebook, Uber, Airbnb , Amazon, eBay, Google, IKEA, bookings.com, wotif, expedia and many other online-centred organisations.  But there’s just one small problem.  These, and no doubt many other similar tech-based organisations don’t pay any tax in Australia.  What should we do?

Consumer or Country?  Me or Us?

As a consumer, we find all of these organisations very attractive.  They offer great services, great products, quick service and are generally much cheaper than alternatives or competitors.  It’s a no-brainer to use them, once you are an online-centric person.

But from a country or society perspective, these companies are tax avoiders.  In general, they take revenue earned in Australia and transfer it to another low tax or no tax country (who’d have thought the Netherlands and Ireland would be two of the culprits here), reporting little or no taxable profit in Australia and so paying little or no tax.  Usually it is no tax, as they have very good advice about how to avoid all tax.

Now, there are lots of ways in the Australian tax system to pay less than the nominal rate of tax.  The nominal rate is, after all, the maximum tax rate a company should be paying as any deduction will reduce its taxable income, resulting in a lower effective tax rate.  But paying no tax??  Consistently, year after year??  On millions and billions of dollars of sales??  And if rich profitable companies don’t pay tax, why should you or I??

Is it a co-incidence that all these companies except IKEA are US companies?  Or is it just that large US companies are just used to paying low or no tax, after years of doing so on their US tax returns, so that this is just an adjunct to their main game in the US?

What to do?

So, what should be done about this apparent major inequity?  It’s complex.  As a citizen, I rail against these firms which are not contributing to our taxation base as any good business is expected to do.  As a consumer, I’m thrilled with their products and services and prices.  As an employee, I’m very pleased (generally)  with their salaries and benefits.  As an investor, I’m frustrated because it’s difficult to invest in their shares, as they aren’t listed on the local stock exchange.

I always try to look at these issues from a balanced stakeholder perspective – what is ‘fair’ to all stakeholders?  Any profitable company paying no taxes over an extended period is not ‘fair’, any more than such a company paying slave wages to employees or sub-contractors is ‘fair’.  I doubt though that these companies can be shamed into paying tax, despite all their lovely sets of corporate ‘values’.  Money talks.  If you had a choice of paying millions of dollars of tax, what would you do?

So the options seem to be:

–          Don’t buy their products and services.  This is similar to a ‘buy Australia’ attitude.  I might do this sometimes, but I really like their products, I like the competition they have engendered, I like the innovation, I like the service.  Why should I be the one to miss out while everyone else gets the goodies?  Individual action is unlikely to be effective.

–          Publicise this inequity to the Federal government and expect them to find a way to tax these companies.  Technically correct, but profitable private companies have millions of reasons to find ways around tax legislation.  The more profits the grater the motivation.  Governments generally get outwitted (look at the resources rent tax) because Government can’t buy the lawyers and tax specialists it needs to compete against the money paid by commercial companies to construct legal fictions to avoid tax.

–          Publicise this inequity generally, so that citizens eventually rise up against these companies, or the companies are indeed shamed into changing their behaviour.  There’s some evidence to suggest that this approach works in other areas, even though the financial and legal power still resides with the powerful organisations, not the people.

–          Do nothing.  Individuals do this because they feel it’s too hard to achieve any result.  There are many battles to fight.  I don’t have the time.  I’m not even sure of the facts.  I don’t want to know.  This is the easiest and most likely approach, for most citizens.  No one likes paying tax.  I may try to minimise the amount I pay, so why should I object to others who are following the same strategy, the same aims?

Since transfer pricing requires cooperation across countries, it’s difficult and time consuming for tax authorities and governments in one country to effectively take action that requires aligned responses from several other countries.  And it is a win-lose game.  If they avoid tax here, they may pay less tax and employ some people elsewhere which they wouldn’t do if they did pay tax here…(and the game is often about jobs, not tax, from a government perspective).

Innovator, heal thy self

Each time I find out another major innovator whose technology I admire is found not to be paying taxes, my respect for the whole business world falls.  I’ve been a great supporter and promoter of organisations with good practices (see Hubbard et al, ‘The First XI:  Winning Organisations in Australia’ and all my strategy textbooks).  It’s sad to see the new generation of companies so obsessed with tax avoidance that they are bringing business into wholesale disrepute.  Let’s hope they can be shamed into paying some reasonable tax or forced into it by governments.  Our society can’t afford the inequities which these companies are forcing on citizens…but we need their products…