The retailing behemoth Amazon is expected to open for business in Australia very soon, perhaps even in time for Christmas. But Amazon’s tax reputation is a challenge for the ATO, with the worrying factor being the mega-player’s track record on dodging its tax obligations in other countries across the globe where it has opened its doors.
Multinational firms having complicated structures in order to minimise tax is nothing new, and is a clear problem governments across the globe are wrestling with, but Amazon brings with it a reputation for particularly tangled inter-company contracts that in the eyes of some seem created purely to avoid paying tax.
In Britain, where Amazon has been operating for a few years now, the online retailer is run by a subsidiary that generates revenue solely from a fee paid to it by another subsidiary based in the US (with the very flexible “fee” resulting in controllable British taxable profits).
Actual sales are booked in Luxembourg, where Amazon continues to enjoy a 2003 arrangement with that nation’s authorities regarding establishments for intangible assets, and where corporate tax rates are low.
The British government then introduced a diverted profits tax. This targets the segregation of corporate activities to either avoid creating a permanent establishment or to allow payments to be made to an alternative (usually low-tax) entity.
Amazon’s response was to announce a restructure of its business in Britain in a way that would see it being able to continue to record revenue in its Luxembourg branch. The moves may indicate the likely strategy for the mega-retailer’s arrival in Australia.
Diverted profits tax So far, the company has initiated some infrastructure projects, such as looking for distribution warehouses through commercial real estate services company CBRE. This sort of move is to be expected, but the ATO will be keeping a closer eye on the formation of two corporate entities — Amazon Web Services Australia, and Amazon Corporate Services.
Diverting sales to other jurisdictions is a problem Australia has already seen with many US tech companies operating here, including Uber, Google and Airbnb. To deal with the drain on Australia’s tax revenue in the face of such operations, the ATO introduced it’s own version of a diverted profits tax (DPT), which at the time of its formation was widely dubbed the “Google tax”.
The DPT imposes a tax of 40%, and came into effect on 1 July 2017. Tax & Super Australia’s Senior Tax Specialist, David Ebdon, says: “It is set at a higher rate than the company tax rate of 30% to make it more attractive to businesses to pay tax in its resident country rather than be involved in profit shifting arrangements.”
Although the DPT applies after 1 July this year, the legislation states that it can also apply to schemes entered into before then. “The ATO anticipates that the DPT will complement the current Part IVA rules and encourage greater openness and compliance between multinational enterprises and the ATO,” Ebdon says.
The ATO states that: “Broadly, the new law applies if under the scheme, or in connection with the scheme:
a taxpayer (‘the relevant taxpayer’) has obtained a tax benefit in connection with the scheme in an income year;a foreign entity, that is an associate of the relevant taxpayer, entered into or carried out the scheme or is otherwise connected with the scheme;the principal purpose, or one of the principal purposes of the scheme, is to obtain an Australian tax benefit or to obtain both an Australian and foreign tax benefit; andnone of the following exceptions apply:the $25 million income testthe sufficient foreign tax testthe sufficient economic substance test.
The DPT only applies to “significant global entities”. These are, in an income year, those which:
have a global parent entity with an annual global income of A$1 billion or more; orare a member of a group of entities (consolidated for accounting purposes) where the global parent entity has an annual global income of $A1 billion or more.
For the purposes of the DPT, this definition includes both:
Australian-headquartered entities with foreign operationsthe local operations of foreign headquartered multinationals.
The DPT legislation became law on 4 April 2017, with Schedule 1 to the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Act 2017 implementing the DPT and the Diverted Profits Tax Act 2017 setting the 40% tax on profits.
Amazon’s tax reputation is a challenge for the ATO. Amazon’s tax reputation is a challenge for the ATO. Amazon’s tax reputation is a challenge for the ATO. Amazon’s tax reputation is a challenge for the ATO. Amazon’s tax reputation is a challenge for the ATO.
# [Airbnb], [amazon], [ATO], [google], [profit shifting], [tax], [tax avoidance], [Uber]
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