This author is on Twitter: @Patrickavenell


A travelling salesman that inexplicably transforms into a cockroach, a bank manager arrested and tried for a crime that is never revealed and an inquiry into major technology companies avoiding tax to the Australian government. These are the narratives for which the adjective Kafkaesque was divined.

The lead characters in this bizarre play worthy of the great exponents of absurdism — Beckett, Heller, Pynchon and Fey — were Apple ANZ managing director Tony King, Google ANZ MD Maile Carnegie and, best of all, straight off a 16-flight from his Redmond, Washington State campus, Microsoft’s corporate vice president for worldwide tax William (Bill) Sample.

The supporting cast was a ragtag bunch of Australian senators: Labor’s Sam Dastyari and Chris Ketter, the Lib Nats’ Matthew Canavan, the Libs’ Sean Edwards, the Greens’ Christine Milne and the Nick Xenophon Team’s Nick Xenophon. These parliamentary crusaders for greater tax invoices attempted to grill the aforementioned tech leaders, the audience kept on the edge of their seat by the repeatedly mentioned race against time for Xenophon to make his flight.

From around 2pm this afternoon until 3:20 — longer than boarding and taxiing on many international flights — the senators attempted to squeeze the teensiest insight out of King, Carnegie and Sample, a process that soon descended into one more closely resembling a frustrated father trying to coerce his 2-year-old rogue daughter into revealing the location of the car keys. It was exhaustive, repetitive, at times frustrating and highly amusing. It was certainly never boring. At one point, Dastyari marvelled at how Microsoft had a bespoke employee for appearing at parliamentary enquiries (‘When did you arrive here?’ / ‘Sunday’ / ‘Oh, so you’ve had some time then?’ / ‘It’s a beautiful city’).

The key matter of the inquiry rests on how these three enormous companies, each generating significant revenues — Apple’s mind boggling $8 billion dwarfing Microsoft’s mere $2 billion (Carnegie point blank refused to stump up the figure, citing some vague US financial announcements protocol, much to the senators’ collective chagrin) — can manage to pay so little tax.

Okay, so the amount of tax they do pay is prima facie significant: Apple paid $80 million tax last year on roughly $250 million of net profit: that’s in line with Australia’s 30 per cent company tax rate. $80 million is more than you or I pay on tax but then we don’t bank $6 billion per year. Apple’s trick is to somehow only make $250 million — a paltry 4.1 per cent profit margin — off its revenues. Is the King of Apple Australia a knave with accounting? How could this be?

“We are ostensibly a hardware or product company,” King said, noting that services made up a very small amount of Apple revenue. “We book all of our sales in the books of Apple Australia: very clear, very transparent. We purchase our products on an arm’s length basis from affiliates, we book all of those costs in our books at Apple Australia. We declare all of our income in accordance with Australian tax law and we pay all of our taxes.”

King is quite the genius of the absurd, describing Apple’s sales structure as simple as in inhales and then revealing that Apple Australia is a subsidiary of Apple Ireland as he exhales. The iTrick is all in Apple’s so-called ‘arm’s-length’ product procurement, and a similar method is also used by Google and Microsoft, according to their victims of this tepid inquisition. If Apple Australia pays $500 for an iPhone it then retails for $1,000, it makes $500 profit, for which it then pays 30 per cent company tax: $150. But if Apple pays $900 for that selfsame iPhone, it only makes $100 profit at retail and only pays $30 in tax. Apple Australia can only buy iPhones from one source, there is no open market susceptible to the famed corrective forces of The Market.

The companies defend this practice by saying that intangible costs such as marketing, branding and goodwill must be built into the Company-to-Subsidiary wholesale price. Because Apple and Microsoft don’t conduct any research and development in Australia, this must also be factored in, raising that wholesale price. Australia is known for its high technology prices, the populist press have eponymous dubbed it the ‘Australia Tax’, so it is a very attractive international market for overseas firms. The commensurate tax rate, however, is distinctly unattractive. King disclosed that Apple’s worldwide tax rate is between 26 and 27 per cent. Those few percentage points make a huge amount of difference when applied to global revenues of just under $183 billion.

“Are you inflating your transfer price of all your goods to the point where you’re lowering your gross profit to a point where your minimising your tax paid here?” Senator Ketter asked King.

“Not at all!” King replied.

“Are you saying you don’t have strategies to reduce your tax in Australia?”

“We pay our tax in accordance with Australian tax law.”

“Do you have strategies to reduce the amount of tax you paid?”

“No we don’t.”

It’s hard to believe but, then again, it’s also hard to blame Apple for pricing this wholesale transaction to suit itself. What is ridiculous, however, is the childlike evasion of straightforward questions, the constant taking of prickly but reasonable questions on notice and the professed obliviousness to Apple, Microsoft and Google’s circuitous routes of untaxed cash transits. It used to be that all roads lead to Rome but now they all lead to Bermuda via two stops in Ireland sandwiching a weekend in the Netherlands.

Forgetfulness was catching at the makeshift Senate Chamber housed in The Portside Centre on Kent Street. At the start of the hearing, Carnegie rattled off company tax rates like she were a savant: The United Kingdom – 20 per cent, Ireland — 12.5 per cent, South Korea – 24 per cent, Singapore — 17 per cent, Bermuda — 0 per cent. Later on, however, she claimed not to know the Bermuda tax rate, even though it is a memorably low number.

Bermuda came up often during the enquiry: its self-evidently desirable company tax rate makes it a magnet for these profit-driven technology leviathans. Ireland is also popular, as is the Netherlands, though none as destinations. At one point, Senator Canavan took muddled delight and exasperation in inducing disclosures that King had never travelled to Ireland on business, even though that’s where his parent company is, and Carnegie had never enjoyed a Mai Tai and sung along to Kokamo in Bermuda, even though that’s where a sizable chunk of Google ANZ’s taxable income eventually washes up. It was funny but it was also highly unedifying.

“You have an international tax avoidance structure,” this was Senator Milne addressing Tony King, “and it’s a Double Irish Sandwich with Dutch Associations. Let me ask you, what is a Double Irish Sandwich Dutch Affiliations?” (Milne said ‘associations’ then ‘affiliations’ — that isn’t a misprint.)

“Senator, I have no idea what you’re talking about,” King straight-batted; presumably he’s never looked it up on Wikipedia.

“Oh, come on” — Milne, her voice syrupy with derision, and then, with anger — “Oh, come one, you haven’t come here today to say that?!”

Milne quoted sources saying that when Apple’s Australian subsidiary sells an iPad for $600 to a customer, about $550, or 90 per cent, is shifted to Ireland. From Ireland it goes to the Netherlands, then back to Ireland, before finally being repatriated to Apple Inc in the United States. Of the $550 shifted overseas, $220 is never be taxed anywhere in the world. She put this scenario to King.

“I am not an international tax expert,” was his response.

(Do managing directors normally know the wholesale price of their most popular products? King claimed not to know how much it costs for Apple Australia to buy iPads from its overseas affiliates, nor any other product. Senators Dastyari and Milne were openly incredulous at this and other knowledge gaps from the three respondents, wondering aloud towards the end how they could not think that these and other details would be important or raised.)

Milne and King went back and forth in this manner, the Senator in various ways accusing the MD of nefarious practices, inherent vice and knowledge before, during and after the fact. He was resolute and consistent in his denials. Senator Edwards spoke for all, except maybe the largely ignored Carnegie and Sample, when he interrupted to comment on how “painful” the questioning had become.

(One of the more interesting inquiries was the revelation that all three companies, Apple, Google and Microsoft, were currently being audited by the Australian Tax Office (ATO). Just reading this will give Sony Australia nightmares, considering its audit resulted in a $53 million fine.)

When attention finally turned to Carnegie, the Google ANZ chief revealed that the local office provides sales and marketing services to Google Asia Pacific, which is a subsidiary of Google Inc, and research and development directly for Google Inc. Google receives tax credits for this research and development. Senator Milne argued Google was running a similar scheme to Apple, inflating the wholesale price so that taxable profits would be minimised in Australia and realised overseas or not at all.

Carnegie rejected this assertion, saying that Google retains external agencies to annually “do an audit and say ‘what would another company be paid for those services, both in terms of revenue and profit?’” and that is how the Google mothership works out what the Google satellites are paid. When asked who this external agent was, Carnegie replied, “I actually don’t know the answer to that”. Remarkable stuff.

Carnegie said that taxes on Google sales, marketing and R&D services are “absolutely paid in Australia” but that tax on Google’s advertising revenue is paid in Singapore. Carnegie didn’t elaborate on how much money each division makes in Australia or the percentage split. According to its most recent annual results, advertising services account for 89 per cent of all of Google’s revenues.

Microsoft is also running much of its sales through Singapore. Bill Sample, who is returning home from his whirlwind trip tomorrow (Wednesday 9 April 2015), disclosed that, for example, if you buy a software licence online in Australia, tax will paid on that in Singapore. If you walk into JB Hi-Fi and purchase one, then tax will be paid in Australia. The split was $2 billion booked in Singapore and around $100 million booked in Australia. “And it just so happens that Singapore is a low tax jurisdiction by comparison,” was how Senator Milne summed it up.

“Well it doesn’t just so happen,” Sample replied, refuting Milne’s claim that it was a happy coincidence. “Our management in the early 1990s decided to regionalise our product, production, distribution and sales activity and for the Asia Pacific region we decided that the location of our regional operating system would be in Singapore.”

And so it went: Senators calling out the three representatives on obvious avoidance techniques and receiving resolute rejections or finely tuned ignorance in response. It ended with the Inquiry’s chair Senator Dastyari thanking King, Carnegie and Sample for their attendance and reaffirming the Inquiry’s commitment to the cause, while also echoing what many Australian consumers must think and feel:

“I think there are some very, very legitimate community concerns about how your companies are structured, about how your companies have engaged in what appears to be…tax minimisation, and I’m not accusing or saying that it has been illegal.

“But when we break down your companies, when we look at places like Bermuda and Singapore and Ireland, and it came out none of you had actually visited [those places], but yet all are recipients of where Australian sales are going to — it does nothing but raise those concerns.

“I also have to say that it’s pretty alarming that some of you would come to an Inquiry like this without basic information about where revenue is going and where the Australian sales are going and what proportion of Australian sales are going.

“There are still questions that need to be answered and they will be continued to be pursued.

“The respect we have for your companies — I’m sitting here with an Apple iPhone and an Apple iPad, searching on Google, getting notes on Microsoft Word — the respect that we have for your companies and for your products and for your contribution, unfortunately, doesn’t extend to the concerns we have about how these companies have been arranged, especially at an international level for tax minimisation.”