BrettW raises this issue in the Government by opinion poll thread:
I guess you have not heard of Google ads or Facebook advertising or Ebay fees. These are huge income earners at the expense of more traditional advertising. Why does an Australian pay GST on Yellow Pages online advertising but not on Facebook, Google or Ebay ? They are trading at an unfair advantage and most of their income is going overseas.
Amazon does not have any warehouses in Australia but does in the UK. Even then its payment system operates via countries outside UK and they pay little UK tax whilst undercutting many high street retailers and cause closed businesses and job losses (which result in less tax from those shops and workers).
Going after those huge online businesses for their Australian earned profits / GST is something I strongly support. How they have got away with it for so long is amazing.
This is an argument – actually a series of arguments – we hear quite a lot.
First thing: The Australian government taxes foreigners on their Australian source income. If they do not earn Australian source income they are not taxed in Australia. As Amazon has no physical presence in Australia (as BrettW acknowledges), it has no Australian source income and so pays no Australian company tax. The same goes for Google – under our own laws, voted for by our own Parliament and enforced by the Australian Taxation Office, and ultimately by Australian judges these companies do not have a company tax liability under Australian law.
Second thing: When I purchase e-books from Amazon UK I pay UK VAT on those purchases – the UK VAT rate is well in excess of the Australian GST rate. So my online purchases from Amazon UK are hardly a contrivance to avoid taxation.
Third thing: It is true that Australian resident companies pay Australian company tax whereas non-Australian resident companies do not. Kind of obvious once you think about it, I suppose. There is nothing stopping Australian companies from incorporating overseas, and then pursuing precisely the same tax strategies that these foreign companies pursue. There are no barriers to entry or exit precluding such a strategy. Bear in mind, however, that those Australian companies would not then be able to pay franked dividends in Australia – exposing their Australian shareholders to double taxation, and they would then be subject to the tax rates in whichever other country they incorporate into.
Fourth thing: There is no evidence, as opposed to assertion, that the Australian company tax base is being eroded. Nor for that matter is there any evidence that either the UK or US company tax bases are being eroded either.
Finally, there is the small issue of consumer sovereignty. BrettW complains:
… undercutting many high street retailers and cause closed businesses and job losses …
I’m going to let my old friend Ludwig von Mises deal with that complaint:
The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor. They are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy.
I would have more sympathy for BrettW’s argument if the only differential in price was tax related, say the GST. Online purchases, however, are substantially cheaper than in-store purchases.
If people want to tax foreigners more then an argument for increased taxation needs to be mounted. Simply asserting that the current taxation arrangements are unfair isn’t a good argument.