Wednesday, March 13, 2024

Michael Pascoe on companies that are multinational in Australia from 2000 to 2024

Before I was eager to head to the sunny Queensland to join the value added levies I prepared the last paragraph for the NSW Public Accounts Committee intel assessment and it was attributed to inquisitive Michael Pascoe:

Michael Pascoe: Facebook & Co, the great tax avoiders

It is frankly hilarious to witness the Prime Minister, lesser ministers and media titans howling over the miserly $70 million Mark Zuckerberg is declining to (mainly) pay our biggest media companies when his Meta outfit also is declining to pay the Commonwealth a vast multiple of that.

Pick a number (any number given the multinational’s accounts) but $1 billion sounds a nice round figure for tax Meta/Facebook has preferred not to pay the ATO over the past several years.

The ATO would be better to focus on ending multinationals’ tax avoidance, Michael Pascoe writes.

The ATO would be better to focus on ending multinationals’ tax avoidance, Michael Pascoe writes.

Pick a number (any number given the multinational’s accounts) …

And Meta is only one of the multinational giants that treat the ATO as a joke. Round up the usual top four tech suspects and it’s a fair guess we’re being dudded by well north of $1 billion every year.

But, hey! Look over there! Murdoch, Nine and Seven want their $70 million! (With some change left over for a few other entities, including The New Daily.)

Mock indignation

It suits the government from Anthony Albanese down to rail against Facebook pulling out of 2019’s dubious media subsidy deal because every government likes to be on the right side of a media campaign.

Cue the outraged PM: “We will always stand up for Australian media interests and media diversity. It is absolutely critical that media is able to function and be properly funded. The idea that research and work done by others can be taken for free is simply untenable.”

The first sentence doesn’t mean much, the second is a noble sentiment that again doesn’t mean much, and the third is irrelevant – it’s not what the Morrison government’s News Media Bargaining Code was actually about.

That “code” effectively blackmailed Facebook and Google into subsidising some Australian media companies on the spurious grounds that the tech giants were “stealing” the journalism media companies created.

Oh please. The Murdoch and Nine newspapers are paywalled anyway.

Monopolies at work

What Google and Meta have really done is steal and monopolise the online advertising market – something past and present Australian governments have allowed to happen and are not challenging because, you know, this is Australia and everything ends up monopolised.

As the Australian Financial Reviewreported last year, Google and Facebook make 60 cents from every ad dollar spent online.

And what they don’t collect for themselves, they largely control through their platforms and algorithms that decide what goes where.

(All that power, all that fabulous wealth, but they still can’t stop posting defamatory fake ads.)

If the government was serious about supporting media – or consumers in general – it would begin the difficult process of defanging the really powerful monopolies, duopolies and oligopolies, as the Australian Competition and Consumer Commission has suggested, rather than grandstand over the unfit-for-purpose media code.

More immediately, going nuclear on the industrial-scale tax avoidance employed by the tech giants would provide the government with plenty of spare cash to make good Meta’s $70 million and vastly more.

Follow the money

Using the AFR’s figures for 2022, Google and Facebook admitted selling a combined total of $8.3 billion worth of digital advertising in Australia, but $7.26 billion of that was attributed to their parent companies as “reseller revenue”.

What that means is that the cash was dispatched offshore to a tax haven without the ATO touching it.

In Facebook’s case, it admitted making $1.26 billion from advertising here but, oh gosh, it had to pay Facebook Ireland most of that for running its platform, leaving only $224.6 million in local revenue on which it made a net profit of just $34.7 million.

On its declared figures, Meta’s Australian operation is a hopelessly incompetent fringe outfit that is not worth keeping open. The $34.7 million on $1.26 billion represents a minuscule net profit margin of 2.7 per cent – not worth the cost of capital.

The Australian performance compares with parent Meta Platforms Inc’s December-quarter report showing a net profit margin of 35 per cent on $US40.1 billion in revenue.

It’s much the same story across the multinationals. The AFR’s Neil Chenoweth last May estimated the true total that Apple, Google, Facebook and Microsoft extracted from Australia in 2022 was more than $25 billion, on which they collectively paid $317 million tax – a profit margin of 1.3 per cent.

There is, of course, nothing new about this. As Leonard Cohen sang, everybody knows. And it’s not just the tech giants.

An old favourite

A favourite story of mine is the Great IKEA PR Swindle. It’s a favourite because, like killer toys at Christmas, it’s been good for a run every year since I first did a version of it in 2010.

IKEA was at it again last week, getting an armchair ride in the newspapers called “this masthead” for being a wholesome retailer of cheap furniture. The masthead regurgitated the IKEA media release of increasing sales by 5 per cent last year and making a modest $53.3 million profit, if you exclude the cost of settling a loan to its parent company.

IKEA Australia declared it paid $28.8 million in tax. What it did not spell out was that its Australian sales last year totalled $1.78 billion, meaning a profit margin of 3 per cent.

Just 3 per cent return on all the capital invested in Australia by the Dutch giant? Of course not – nobody believes that.

IKEA’s main trick is to pay its parent most of its real profit as a “franchise fee”. No kidding – IKEA pays IKEA to use the name “IKEA”. And the ATO swallows that.

(Yes, the company is Dutch, not Swedish – it has been headquartered in the Netherlands tax haven since 1986.)

I used IKEA and Netflix in June as examples of how Australia is easily distracted by smaller scandals and misses the biggest ones.

Taxing times

At the time, a key part of the ATO’s defence of its PwC leaks bungling was that it really didn’t matter much as our tax sleuths had been quick to shut down the schemes trying to dodge Joe Hockey’s so-called “Google Tax” initiative – except that most multinationals were barely touched anyway.

Similarly, the long-pending OECD plan to institute a global minimum 15 per cent tax rate will achieve about as little, probably even less. That’s if it ever happens – odds are the US will scuttle it because that’s what the US multinationals want. (The US is not very reliable in the “international rules-based order” business unless the orders suit the US.)

But forget the real money, look at the Facebook media pennies instead.

As previously explained here, the basis of the media code is not even specious.I’ve posed absurd examples that carry as much merit e.g. Rupert Murdoch wanting the government to force Facebook to compensate him for the $710 million he blew on MySpace, or Telstra seeking compensation from eBay for the $630 million it lost on Trading Post.

Crikey’s Bernard Keane spared no prisoners in his attack last week on the shakedown of Facebook and Google.

“The logic of the news media bargaining code isn’t that of ending a rip-off perpetrated by foreign tech giants,” he wrote. “Instead, it’s similar to Coles and Woolworths successfully demanding, on the basis of all the great work they’ve done for the community, that the government forcibly transfer profit from an international competitor that had successfully disrupted their business model.”

Nothing like a sideshow to distract from the main event.