Thursday 9th of February 2023

shifting the soup flavouring with slug spit.....

How do multinationals like Microsoft get away with paying so little tax? They deliberately wipe out their profits in high-tax countries such as Australia. Callum Foote reports on the global tax avoidance structure of the tech giant.

A new report has revealed how the tech giant Microsoft avoids paying tax on more than $5 billion of income in Australia alone; albeit while raking in billions in revenue from contracts with Australian governments.

The report was compiled by the Centre for International Corporate Tax Accountability and Research (CICTAR), an alliance of unions and civil society organisations aiming to provide better information about the tax arrangements of multinationals.

CICTAR examined how Microsoft has deliberately and systematically reduces profit margins, and therefore the tax it pays, in high-tax jurisdictions such as Australia. A comparison of how profitable – or “unprofitable” Microsoft is in Australia – is that in 2021 its profit margin in this country was around 4.5%, whereas the global profit margin was 42.3%.

How do they do it? Principally, by shifting profits to low tax jurisdictions, by doing “related party transactions” with other Microsoft entities around the world.

Near the top of the Microsoft corporate structure is Microsoft Global Finance, which had over $100 billion in total investments, and paid no tax in 2020 despite an operating profit of $US2.352 billion. Microsoft manages to avoid tax by shifting funds between subsidiaries around the world.

The corporation founded by Bill Gates is surely not the only tech giant avoiding tax. According to a recent report from the Fair Tax Foundation, the “Silicon Six” (Facebook, Apple, Amazon, Netflix, Google and Microsoft) paid $149.4 billion less, over the period 2011 to 2020, than the headline rate of tax implied they would.

Asked whether Microsoft’s vast international network of subsidiaries could be used to ensure its profits are booked in low-tax or no-tax jurisdictions, Jason Ward, principal analyst at CICTAR, said: “We can’t say for sure, but it’s awfully suspicious that everything owned in Australia owned by Ireland and then tax residency in Bermuda.”

It appears that Microsoft does not contribute fairly to funding the public services that its global workforce and customers depend on, and from which it earns enormous profits.

CICTAR report

Hard times at Microsoft Australia

In Australia alone, Microsoft’s 2021 revenue was over $5 billion, with profit before tax of $231 million and tax paid of just $91 million. The profit margin for 2021 is around 4.5%, a large difference from the global profit margin of 42.3%, the report finds. So, how does Microsoft get away with such a small profit margin in Australia?

“Microsoft engages in extensive related party transactions which could facilitate profit shifting to other jurisdictions,” says the report. Related party transactions mean that Microsoft Australia is making payments to other Microsoft companies around the world for interest payments, purchases of goods and services, commission payments, deferred costs and debts.

This is a way that Microsoft can take money out of Australia before it gets taxed. In 2021, Microsoft purchased over $AU3.4 billion in goods and services from related parties.

 The report found that:

Related party purchases of this Australian subsidiary represent nearly 70% of $5 billion in total revenue for the year.

In Australia, Microsoft has been awarded over $AU634 million in federal government contracts), including $270 million since 2017. The majority of these contracts are for Defence ($90 million), Services Australia ($42 million), the Department of Education, Skills and Employment ($13 million), the Digital Transformation Agency ($11 million) and the Department of Home Affairs ($10 million).

Microsoft also receives contracts from state governments such as NSW and Victoria.

Is transparency around the corner?

“What we’re after and what we want is more transparency,” says Ward. “Obviously, we want companies to behave responsibly. I’m optimistic that the Australian government will move to mandatory country-by-country reporting.”

This was a policy that Labor brought to the last election and has thus far resulted in a multinational tax integrity and tax transparency review which finished consultation in September.

Treasurer Jim Chalmers has subsequently announced that changes will be made to the tax regime in the Budget on October 25.

“Multinational corporations making a profit in Australia should pay their fair share of tax in Australia,” says Ward. “Our multinational tax package will close tax loopholes exploited by multinationals and improve tax transparency,” he said.

Mandatory country-by-country reporting will allow researchers like those at CICTAR to accurately see the flow of money around the globe.

CICTAR has worked with Microsoft shareholders to table a resolution at the next meeting in December that would require the company to report country-by-country financial information regardless of government regulation. Microsoft has advised its shareholders to vote against the resolution.

A previous resolution prepared in consultation with CICTAR tabled by Amazon shareholders received support from 20% of non-Bezos shareholders earlier this year. 

 

 

READ MORE:

https://michaelwest.com.au/microsoft-tax-avoidance-a-bunch-of-shifting-bastards/

 

 

 

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