Google and Apple show that tech companies' blase attitude to tax cannot continue
Technology firms, like bankers, are starting to earn a bad name for themselves. The practice of funneling profits from different branches of a company through countries that have favorable rates of tax is nothing new -- far from it -- but it's becoming far more prevalent. Apple was recently asked to pay back $14.5 billion in unpaid tax in Europe, and this is not an isolated incident.
Small businesses understandably feel that they are getting a raw deal when the big players have the clout and resources to play the system to their advantage. But it doesn't always work out. In addition to the $14.5 billion in Ireland, Apple has just paid back $118 million in Japan for 'under-reporting income' and Google is also facing investigation in Indonesia over possible unpaid taxes.
In Apple's case, it was its iTunes arm that fell foul of local authorities in Japan. The company was found to have failed to report money earned there through iTunes before it was transferred to Ireland -- to benefit from the country's insanely low corporate tax rate. Specifically, says broadcaster NHK, the Tokyo Regional Taxation Bureau found that Apple failed to pay a withholding tax on earnings generated from Japanese subscriber fees which were transferred to Ireland to pay software licensing fees.
It's an example of precisely the kind of convoluted financial sleight of hand we have become used to. Money is shifted around between branches, transferred between countries, ferried back and forth in a manner akin to money laundering, making it incredibly hard for authorities to work out exactly what's going on. This is why the problem goes undetected for so long, and it is also why smaller companies -- who do not have the benefit of multiple international branches, shell companies, conveniently-located headquarters, and so on -- are so resentful.
Of course, there are plenty of examples of very careful money 'manipulation' that are entirely legal. Morally questionable, perhaps, but entirely legal nonetheless. This is not really the issue -- although a greater degree of transparency would be appreciated by the public, rival companies, and the authorities. It's interesting to see that companies who are so desperate to publish transparency reports that present themselves in a good light (tackling the diversity problem and so on) and others in a bad light (the number of requests for user data governments make, for example) are quite happy for their financial arrangements to remain rather more opaque.
The latest news for Google is that it due to be investigated by tax authorities in Indonesia for allegedly failing to pay tax on advertising worth billions of dollars. the Indonesian tax office wrote to Google back in April requesting access to the company's tax reports -- suspicions were aroused when the company failed to respond. It now faces a full financial probe, the details of which are almost certain to remain as labyrinthine as the financial arrangements we are already aware of.