A few years ago we posted a piece about Michael West – then employed by the now defunct Fairfax Media:
An international expert who can’t tell the difference between revenue and taxable income? Really? A journalist that doesn’t bother to check? Wow. Simply wow.
At the time I was quite astonished that a finance journalist would confuse revenue and taxable income. Fairfax had to clarify:
Fairfax Media also wishes to clarify that the $15 billion presented as taxable “income” in these stories relate to revenue and not taxable profits.
But this is a common problem. Emma Alberici made the same “mistake” at their ABC last year. Even the ABC identified problems with the article:
An internal ABC review found significant problems with the article, including that it didn’t mention that all the largest five and most of the top-ten companies by value pay corporate tax; that depreciation, amortisation and operating losses are not tax concessions, which was implied by the article; and that the suggestion that JP Morgan was writing off a US fine against its Australian income was highly implausible.
Other problems included describing Etihad, Emirates and Qatar as Australian airlines; accusing companies of lending money to Australian operations at inflated prices to reduce tax; implying Babcock & Brown shifted profits overseas to avoid tax; failing to mention that property trusts are not liable for corporate tax; not realising CSR had sold its sugar business; and describing MYOB as a corporate adviser instead of a software company.
In reviewing the data, there can be a disproportionate focus on the number of groups which paid either no tax or small amount of tax relative to gross income. As we are trying to build trust and confidence in the system for all taxpayers, it is important to remember that:
- corporate income tax is payable on profits, not gross income
- profits for tax purposes are closely linked to realised earnings, not paper earnings
- in any given year a significant percentage of even the largest companies make losses, not just for tax purposes, but also for accounting purposes
- it reflects the tax returns as lodged, and does not reflect subsequent ATO compliance activity.
While information included in the corporate tax transparency report may be new to the community, it’s not new to the ATO. The ATO has access to far more detailed information and regularly engages with these large companies to assure their tax behaviours, with a particular focus on companies which make sustained losses.
Let’s emphasise that: “corporate income tax is payable on profits, not gross income”.
Okay – why am I banging on about this? Well Michael West is still at it.
According to Roy Morgan research, 3.9 million Australian households had a Netflix subscription during the June 2018 quarter. The average Netflix monthly subscription is about $12.72 before GST, delivering Netflix an estimated gross income from Australia of $595 million for 2018. User numbers for June 2018 were up around 11.7% on the prior year, which gives estimated Netflix gross income from Australia of $533 million for 2017.
The estimated income for Netflix Inc in Australia of well over one billion dollars in two years, and growing rapidly, might lead a rational person to conclude that Netflix pays a significant amount of income tax to the Australian Taxation Office. …
In the year to 31 December 2017, Netflix Australia Pty Ltd paid income tax of $0.185 million or around 0.0035% on the estimated subscription income of $533 million flowing out of the country. Individual taxpayers can only dream about a tax rate of 0.0035% on their total income sourced from Australia.
So we are invited to believe that Netflix has no expenses. No royalty fees to be paid? No production costs on any of the original shows they produce? No business expenses?