Consumer sovereignty and taxation

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.

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51 Responses to Consumer sovereignty and taxation

  1. feelthebern

    5 thumbs up.
    All that needs to be done by the ATO is to enforce the laws regarding bullshit internal company loans.
    It wouldn’t make the swampies any happier though.
    Swampies just cant stop taxing.

  2. feelthebern

    Example, in September 2014 Glencore Australia issued bonds at 4.75% pa.
    At that same time, Glencore Australian subsidiaries took out an internal company loan with Glencore International at a rate of 8%.
    That 8% loan reduced Glencore Australian tax bill by circa $300mill.

    That shit aint right.

  3. Pyrmonter

    Sinc – if you’re paying VAT, there is something odd about your vendor. Wiggle – the big cycling and sporting goods site – sell ex VAT to foreigners.

    http://www.wiggle.com.au/h/option/international

  4. Sinclair Davidson

    the big cycling and sporting goods site

    Heh – I’ll keep that in mind if I ever buy cycling stuff. 🙂

  5. Sinclair Davidson

    I also paid Dutch VAT when I updated my Tom-Tom maps recently.

  6. feelthebern

    Tom-Tom

    Eh?
    Why not use google maps?
    Its free.

  7. Sinclair Davidson

    I use the Tom-Tom overseas as well as locally.

    I have used google maps too – another zero-price product from that great company.

  8. H B Bear

    Actually using Amazon owned Book Depository costs the UK taxpayer money because they subsidize it to create jobs in some impoverished part of the UK (ie everything not owned by the Saudis or Chinese). And no Australian GST – talk about a win-win.

  9. feelthebern

    Google doesn’t do these internal loans.
    Google good.

    Glencore does.
    Glencore less good.

  10. Robert Crew

    While I mostly agree, I think this part is dead wrong:

    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.

    From my experience with bookdepository.co.uk, most recently ordering Steve Kate’s Free Market Economics, I don’t pay VAT because the books are exported from the UK (they don’t charge shipping either, which is why I prefer them to Amazon).

    Sinclair, if Amazon UK has been charging you VAT, they have defrauded you as the rate is zero for exports to non-EU countries.

  11. dalai lama

    Any strategy that reduces tax to be paid is to be applauded. It’s absolutely amazing that in this day and age, where we have governments like those in Europe consuming over half of the economic output, some people continue to think that it is still not enough.
    Even that would not be so tragic, but when one looks at the enormous waste and corruption the gangsters that are ‘modern governments’ manage to achieve with those trillions of stolen cash, how can one support yet more of the same?
    Kerry Packer was exactly right – it’s everyone’s duty to minimise his/her tax bill.
    I say, all the power to the Googles, Apples, Amazons etc. Starve the beast!

  12. Hydra

    Example, in September 2014 Glencore Australia issued bonds at 4.75% pa.
    At that same time, Glencore Australian subsidiaries took out an internal company loan with Glencore International at a rate of 8%.
    That 8% loan reduced Glencore Australian tax bill by circa $300mill.

    That shit aint right.

    The acceptable going rate for these internal loans is from 6-10% in Australia. Anything more or less gets picked up.

  13. Pyrmonter

    d L

    Packer may have been right about the expenditure of tax, but he was a dab hand at extracting favours from government himself: limiting competition in FTA television; then getting the SGC trustees removed so he could run pyjama cricket: is there a business he ran in which he wasn’t the recipient of a government franchise or largess in some form?

  14. Sinclair Davidson

    Robert – I buy my physical books from the US. E-books I buy from the UK (long story as to how that came about, basically I was in the UK when I purchased my first e-book). Physical books are VAT free.

  15. Robert Crew

    Isn’t that interesting. I suppose because e-books are not delivered overseas, but remain on an EU server, there was no export? You’d probably save a lot of money buying physical books from the UK where possible, they seem to have crazy-cheap or even free shipping on a lot of goods – probably via a government subsidy to the Royal Mail. I even get my prescription glasses from the UK (parts and lenses from Hong Kong, assembled in the UK).

  16. feelthebern

    The acceptable going rate for these internal loans is from 6-10% in Australia. Anything more or less gets picked up.

    The Glencore deal is the best example of a tax dodge.
    It should be managed away by linking that which you can claim to rate you can get borrowings at.
    Like the amount of interest that can be claimed as a deduction on a capital protected product.

  17. Sinclair Davidson

    There is some story about EU treaties not allowing them to zero-rate e-books (or extend the existing zero-rating for physical books to e-books). All very strange – but then tax issues often are.

  18. Walter Plinge

    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.

    Is there something unique about ebooks? Books, DVDs and a garden hose reel I’ve bought from Amazon UK (and commercial sellers on Ebay) has VAT deleted as it doesn’t apply to exports.

  19. Notvelty

    I suspect you’re being charged VAT due to the account settings as at your first purchase. You shouldn’t be.

  20. Ken

    What the anti google and amazon authors are arguing for is ridiculous. If my company writes an app called “Angry lefties” and it is only purchased from my website five times, once by a Uzbeki, once by a Syrian, once by a New Zealander, once by a Norwegian and once by a Canadian, according to their bleetings I should prepare five tax return in each of the five countries where the person decided to use my app, rather than declaring my income where I am a resident, where I developed my app and claimed all my deductions for developing it… It is the classic problem of “commentators not being able to see the comic practical conclusion of their ideas…

  21. wreckage

    What Ken said. This is an absurd idea with horrible consequences, and merely invites yet more dodging. One dodge in operation right now is to buy in Chinese chemistry in bulk, pour it into a smaller bottle, and enjoy tariff protection for your “Australian product”. Farmers pay more for chemicals, and a total of roughly 3 jobs stay in the country…. assuming the farmers wouldn’t have hired a farmhand with the saving, which most of them would.

    In fact, given the very sweet deals farmers can offer while remaining at the basic wage (very low to zero rent, “free” fuel, and so on) the net result is probably a substantial loss of jobs, but nobody gives a shit.

    For the case at hand AUSTRALIANS GETTING CHEAPER, BETTER GOODS MORE CONVENIENTLY IS GOOD FOR AUSTRALIANS. And that means it’s good for Australia. Any other argument is economically illiterate tripe.

  22. Robert Crew

    I fell down a bit of a rabbit hole trying to follow the recent changes in the EU, but it seems that Luxembourg, where Amazon UK, iTunes, etc. are based only charged a 3% VAT on ebooks, the same as paper books. Last week an EU court ruled that ebooks are not books, but “electronically delivered services”, and must be charged the full rate of VAT, and cannot get the VAT discount most EU countries give to paper books. Also, last year, a new law (#VATMESS) was brought in that said VAT would be charged where the customer resides, not where the sale is made, but the law is being phased in over the next four years.

    As far as I can tell, the new rules do not apply to EU businesses selling outside the EU, which should still be exempt from VAT, the same as Australian exports are exempt from the GST. I think Notvelty is right that Amazon UK have mistakenly listed Sinclair as a UK resident – even then, until quite recently, he should only have been charged the Luxembourg 3% rate.

  23. wreckage

    Electronic books aren’t books. FMD. Stone age shamans are running the EU.

    THAT NOT BOOK! THAT SORCERY! *rattles beads*

  24. thefrollickingmole

    I have used google maps too – another zero-price product from that great company.

    We had a callout for a search and rescue last week, problem was out SES boys were all off site doing…you guessed it an SES refresher course.
    So 2 of us used googlemaps and the GPS co-ordinates to get the position the EPERB had been set off in and the map was damn well nearly spot on.

    Cost: $0

    /poor old buggers were fishing and got lost/ran out of fuel and set off the EPERB in desperation, so not massively life threatening, but they did need assistance.

  25. rickw

    … undercutting many high street retailers and cause closed businesses and job losses …

    High street retail are the walking dead. Online retail will replace almost all of it except where:

    – The purchase is extremely high value and the consumer values feel touch and try.
    – The overall service offering is something that consumers value.
    – The speed of service and convenience makes the consumer consider it a better value proposition.

    These business closures and job losses will be a source of capital and labour for much more productive segments of the economy. No politician or political party should stand in the way of this transition, it is merely delaying the inevitable.

    It should also be noted that the market has already closed the potential “issues” that might arise from online retail, Paypal as an example already offers quite significant protection for consumers in a bid to win their business. Do consumer protection laws actually still have any purpose?

  26. Pyrmonter

    @ wreckage, you’re missing the point. The purpose of Australian consumers is to buy Australian Goods to keep Aussie Workers in Jobs: to say otherwise betrays your avarice.

    Facepalm.

  27. wreckage

    pyrmonter: shyeah, and then when to cost of living goes up AGAIN they’ll have to jack the minimum wage up, which will drive up the cost of living ….

    … and everyone will vote for it. Then when the whole thing falls to bits they’ll blame the Right and spend the next twenty years planning how they’re going to get back to The Good Old Days, in an ongoing and self-reinforcing cycle of delusion and catastrophe.

  28. notafan

    No VAT on books, they are exempt. Amazon UK used to remove the VAT on DVD purchases from Australia which was nice considering how high the vat was.
    I don’t know if ebooks are subject to vat.
    I noticed book depository added French vat if the shipping address was in France.

  29. tgs

    Great post.

    Keep up the good work, you’re a lonely voice of sanity in the generally overly emotive and uninformed nonsense that makes up most commentary on taxation issues.

  30. Pyrmonter

    @ wreckage – indeed, the universal benefits of protection all round.

    If this didn’t seem to be the analytical framework of the present cabinet, it would make for amusing parody.

  31. notafan

    Australia post have admitted to losing money on international deliveries due to the machinations of the UN related universal postal union which sets the rates at which member countries get reimbursed for delivering parcels.
    The UK does alright because it’s base rate for local delivery is much higher.
    Australian users of domestic and international parcel delivery are forced to subsidise those free post books from the UK. That’s how Australia post stays in profit.
    If Australia abandoned the UPU and forced internationals like British post (and Hong Kong based businesses)to pay the same bulk delivery rates as domestic businesses I might be more sympathetic to kill Australian retail cries.
    I’ve bought stuff on eBay delivered from Hong Kong for under $2.00 including postage, when the same parcel size for domestic delivery (not including the item) is retail $7.30. Even with a huge discount for bulk something isn’t right.

  32. DaveR

    Sinc, in regard to your First Thing:

    Your argument is far too simplified. When these tax laws were brought in, it was never envisaged that goods sold to Aus buyers (sitting at home in Australia) would actually be run through a till in a foreign country. Simply put, the internet age has overtaken the tax laws.

    The only historical equivalent I can think of anywhere close was in the seventies when legislation was passed to end the practice of transfer pricing by some of our vertically-integrated companies with an offshore subsidiary deliberately set up in a low tax country. In this situation, companies substantially reduced their domestic tax (often to zero) by internal charges between subsidiaries, and moving the profit offshore. What a pity they didnt legislate away the loan/profit transfer scheme at the same time, effectively another way of doing the same thing.

    In any event, in my view the tax laws must be overhauled to recognise the problem of “tax rate domicile shopping” which is rife in Europe, and spreading fast.

  33. Waz

    I agree with Sinc in most respects. For example Australians have been buying cars (and virtually everything else) from overseas for donkey years and the only Australian company income generated by those sales are the importer and local retailer margin with resultant company tax payable. This is exactly what Apple does at its stores i.e. the sales revenue is huge but only the retail margin is taxable (which is completely reasonable) but this doesn’t stop politician and commentator railing against the tax to revenue ratio despite paying GST on every sale.
    What I struggle with is the lack of GST on foreign Internet sales where the transaction occurs mostly in our homes or work places. In a sense I think it can be quite properly argued that GST is in effect a “market access” tax and that if foreign merchants want access to our market then they should pay a market access levy. I also think collection is a lot simpler than made out. Simply put the responsibility on the payment services lick PayPal and credit card companies and make them sort it out, charge it to their customer and on-pay to the ATO. And made avoidance a very heavily fined offence.
    What do others think?

  34. JohnA

    … undercutting many high street retailers and cause closed businesses and job losses …

    Hey BrettW,

    DAT CALLED COMPETITION, MATE!

    I typed that slowly so you could read it without straining yourself.

  35. Rabz

    … undercutting many high street retailers and cause closed businesses and job losses …

    Oh, cry me a river. The amount of shopping I do online nowadays is phenomenal. All my sporting equipment, and most of my clothing, to cite two obvious examples.

    The two standout reasons are as follows:

    – The goods are significantly cheaper and if purchased overseas mean I pay neither local VAT or our own extortionate GST.
    – Most of the goods I buy can’t be purchased in this preposterous provincial hellhole anyway – and yes, that includes high profile retail centres in Sydney and Melbourne.

    And yes, it is known as competition – and I get to stick to the taxman in two different countries.

    That’s what I call a win-win situation. 🙂

  36. Rabz

    … stick it to the taxman …

  37. Empire

    Hard books, bikes, shoes…consumed offshore and VAT free. If the vendor charges it, they’re probably skimming.

    An eBook is considered to be “consumed” onshore – VAT payable.

  38. Alchemysa

    I buy Google ads for my local business. (About $400 per month). I pay for these ads with money from my Australian bank account. These ads appear only in Australia on Google pages that appear on Australian computers. Over 10 years I have paid Google about $48,000 yet you imply Google has ‘no Australian source income’. How do you work that out?

  39. johanna

    In any event, in my view the tax laws must be overhauled to recognise the problem of “tax rate domicile shopping” which is rife in Europe, and spreading fast.

    Yep, because businesses should shop around for the jurisdiction where the maximum percentage of their earnings get taken off them in the form of tax.

    You are on the wrong blog, sport.

  40. wreckage

    Your argument is far too simplified. When these tax laws were brought in, it was never envisaged that goods sold to Aus buyers (sitting at home in Australia) would actually be run through a till in a foreign country.

    Utter bullshit. Direct mail-order, especially to the UK, has been a major part of the Australian retail economy forever.

  41. wreckage

    Like businesses never used to move their operations to minimize their expenses! Friggin’ hell, these people think history itself started 3 weeks ago!

  42. .

    wreckage
    #1626860, posted on March 11, 2015 at 6:16 pm
    Electronic books aren’t books. FMD. Stone age shamans are running the EU.

    THAT NOT BOOK! THAT SORCERY! *rattles beads*

    …and making them white devils pay more will bring good luck!

  43. Max

    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.

    In the internet age the source to physical presence nexus is broken. Pretty simple to understand really, tax laws will catch up.

  44. Waz

    Agreed Max. My view is that it is where the margin is earned (Sales – COS) that tax income tax should apply. That is where the order is fulfilled. In physical retail it is the shop location. With internet sales it should be the packing warehouse location for physical sales and for digital sales it should be where the server farm is located. How the digital media gets to the server farm is just another matter in the supply chain with each incremental movement being taxed on its margin.

  45. Max

    That is where the order is fulfilled.

    Correct – The income is earned where the sales is made, at the users computer in Australia

  46. Yohan

    Underlying Brett’s comment is the assertion (common to the everyday person) that big companies and multi-nationals are not paying any tax. The implication is if we only crack down on imports, GST, Google, Amazon e.t.c then everything is going to be fine.

  47. Adelagado

    I’ve paid about $48,000 to Google for Google Ads in the last 10 years. These ads appear on Australian computer screens just as they would appear on Australian TV screens if I was buying advts on Channel 9. Yet Google pay little or no tax because their accounts dept is in some foreign tax haven. That ain’t right.

    Regarding GST on imported goods. Businesses pay GST on ALL purchases either at Customs or at time of re-sale. And private buyers pay GST on items over $1000. So the only GST that the Govt is missing out on is private purchases under $1000. But stats show that the average private internet purchase is $30 (and that may include intra-Australian purchases) so a huge bureaucracy could be set up to collect bugger-all.

  48. FelixKruell

    Sinc – ebooks sold to non-residents of the EU are not subject to UK VAT. This is because it is seen as an export of digital services (rather than being zero-rated because it is a form of book). I suspect if you change your ebook settings to show you are resident in Australia, you will no longer be charged VAT.

    I agree with some of the comments above – the old system of using physical presence in a country as a proxy for determining how much tax (if any) they pay in that country is clearly no longer appropriate in the internet age. However, changing this will likely require lots and lots of treaties to be re-written (and hence require a critical mass of other developed countries taking the same approach). The OECD’s BEPS program is attempting to look at these issues at the moment, in its usual slooooow fashion.

    As a starting point, the GST rules can be changed without such treaties being impacted (that I’m aware of anyway) – copy the EU’s new rules, and make GST payable based on the location of the customer (Customer in Australia = pay Australian GST, regardless of where the supplier is located).

  49. rickw

    In any event, in my view the tax laws must be overhauled to recognise the problem of “tax rate domicile shopping” which is rife in Europe, and spreading fast.

    Why? The Australian Government doesn’t have a revenue problem, it has a spending problem.

  50. wreckage

    People just walked right past the issue of ten sales to ten people requiring ten full tax lodgements to the requirements of ten different jurisdictions.

    Not an issue! Not a problem!

    Dickheads. Have any of you fuckwits ever done a BAS? Now howabout having to do a BAS for every jurisdiction you sell into? Do you brain dead clowns have ANY idea how the GST or VAT even works?

    Don’t fucking bother answering that question, knuckleheads. God preserve us if you subliterate mouth-breathers ever got to run the ATO.

    I mean, just, fuck. How can you be that stupid and not be dead?

  51. Michael

    Mr Davidson, you should NOT be paying VAT as you are not a UK citizen.

    When I bought a watch from the UK since years ago, the initial quote was around 300 but I ended up paying 260 something as the VAT did not apply to me.

    I’m thinking you should ask for a refund

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