It’s taken the Americans long enough to work out what is going on.

The AFR is reporting:

The Obama administration is pressuring the Abbott government to back away from plans to target American technology multinationals with higher taxes in next month’s federal budget.

The US Treasury’s top international tax official, Robert Stack, is also concerned about Australia forming an alliance with Britain and lining up US digital companies to be slugged with a so-called Google tax. The mooted changes would divert to Australia money that was potentially in line for US government coffers, triggering a cross-country fight over taxing rights.

Any additional tax that US firms get slugged for in Australia effectively becomes a transfer from the US treasury to the Australian treasury. So the Americans have woken up to the fact that Joe Hockey wants the US taxpayer to finance his budget deficit.

Spot the veiled threat:

“We understand that governments are under enormous pressure to raise revenue and it must be tempting to target non-residents,” Mr Stack said in an interview with The Australian Financial Review in his Washington office. “However, we hope and expect that all companies, including US companies, will be treated fairly and in accordance with international norms of taxation.”

Maybe those numpty know-nothing Senators who were verballing US corporations would like to summon Robert Stack to address them, so they can try bully him. Even better why don’t they go to Washington and explain to the US Congress why the US taxpayer should transfer their hard-earned to the Australian government.

Update: Another way of looking at this is to argue that while the Australian government is complaining that US MNCs are eroding the Australian corporate tax base, the Americans are now complaining that Australia is eroding the US corporate tax base.

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35 Responses to It’s taken the Americans long enough to work out what is going on.

  1. Barry

    Maybe it’s a masterstroke.

    A reasonable countering move against the US relentless pressure on IP – copyright, software and drug payments / royalties, DMCA etc. etc.

    But hey this is Hockey right.

    A masterstroke from him is impossible. It’s just another brain explosion / bubble / fart which will turn to disaster.

  2. Squirrel

    That report must surely be a clerical error – it may actually cause Fairfax readers to feel the odd twinge of common-cause with Hockey.

  3. Rohan

    Even better why don’t they go to Washington and explain to the US Congress why the US taxpayer should transfer their hard-earned to the Australian government.

    I wonder if this is payback for Ford and GM transferring billions of hard-earned Australian taxpayers revenue to the US? /sarc.

  4. Zippy The Younger

    No honour amongst thieves.

  5. Tel

    Hey Obama, hands off! We saw it first and besides, we are running out of other people’s money here.

  6. Unconvinced

    @Sinc: I am not getting your lobby on behalf of these folk. It is quite plain the money earned in Australian operations is being shifted to tax havens and the sole purpose is avoidance. The fact that they may appear vaguely legit dies not belie the factual effect.
    This is not discrimination. This is overdue enquiry. Whether the problem can be fixed is another question. But it is not tenable to ignore these impacts of globalisation and technology.
    We should not tolerate any situation in which one business is afforded large tax advantages.
    A look at the typical Google billing path is instructive.

  7. Entropy

    As a matter of fact I don’t think the US is getting hold of the moolah either. If the U.S. corps bring the money back they are taxed again (after Ireland has taxed them I mean). So these enormous war chests are being built in OS countries, and to distribute dividends companies like Apple and a Google are borrowing money in the U.S. to buy back shares and distribute dividends, because it is cheaper than paying tax again.

  8. Mayan

    What Zippy The Younger said.

    They’re squabbling over stolen goods. Really, are the Cat’s editors now trying to find a moral hierarchy among thieves? For shame!

  9. JC

    As a matter of fact I don’t think the US is getting hold of the moolah either.

    Eventually it does make it’s way back. Eventually. However in the mean time the US doesn’t want that money gouged

  10. Roger Reyes

    What hasn’t been mentioned is the United States is the only country in the world that taxes it’s citizens regardless of their residence. In a world that is moving toward flat, broad based sales taxes to recover revenue, it’s to be expected the US would oppose any further claim on its very unreasonable citizenship based tax system. If anything it is the US that has been most aggressive in attempting to increase its revenue through very illiberal means such as FATCA.

    The US and most western countries would prefer to expend their efforts on chasing tax revenue, which they are desperate for, as their capability at growing their economies seems to be limited by crypto-socialistic tendencies.

  11. Armadillo

    I’m not an economists bootlace. I wasn’t privileged enough to attend a University. In a big family with limited resources, you only get the education afforded to you, and then you go out to work. I only come here to “The Cat” to learn. My “take” on what this post says is more than likely misguided. However, I’ll have a stab in the dark.

    America has spent billions developing their technology. I don’t just mean that in the sense of money being spent by American companies, strictly speaking. I mean in the sense of the history, business culture, leadership, immigration, education, entrepreneurship, infrastructure, and the “we can do” attitude. Western attitudes.

    Other countries (including Australia) now want to take a “cut” of that investment. Despite internationally agreed tax arrangements, we now want our “fair share”. Forget history. Forget your mates. Forget the deals, done on a handshake. What happens then?

    Do we really want to do that? America has been our friend, all throughout our short history. Sure, obnoxious at times, in some people’s minds, but that has more to do with Government and politics. Argue all you like, but America is more friend than foe.

    The repercussions of this? If you want to start hassling your wealthy ‘mate” for a share of his income, then don’t expect gratitudes. We are wealthy enough, and smart enough, to make our own way in this world. If the next “Google” comes out of Australia, then don’t be surprised if the Americans give our companies a “kick in the guts” as well. More importantly, our existing companies. And it would be deservedly so.

    Never “renege” on a deal. Wear it. And don’t shit on a mate. A handshake, is a handshake.

    Back to the “Open Forum”, where I belong.

  12. Sydney Boy

    @Armadillo – That would be nice, except the US (government) never plays fair. Despite free trade agreements and the World Trade Organisation, the US consistently and constantly subsidises their agricultural sector to undercut Australia. There are a number of other issues such as wage costs that make Australian product expensive, but we actually have a highly efficient and technology driven agricultural sector for the most part. The EU is the same, they have tariffs for anyone trying to export into their block, and provide subsidies within the EU.

    As for sending someone to lobby the US government, I vote Christine Milne. She reckons she has all the answers.

  13. rebel with cause

    Two centre-left governments squabbling over tax revenue like seagulls over hot chips

  14. I Am the Walras, Equilibrate and Price Take

    Treasury should have been all over this, the second it started.

    Either Treasury has fallen much further than we could have imagined, or Hockey ignored their advice, or both Hockey and the senior officers of the Treasury really need to be cashiered.

    I think it’s the latter. And the sooner, the better.

  15. rebel with cause

    Thankfully this type of unpleasantness among friends will end under the incoming HRC administration. Instead of paying taxes, all corporations will pay a gratuity into Clinton Foundation coffers

  16. Andrew

    Serves the Kenyan right. He’s an enemy of this country. When we pass the Google tax, the preamble to the Act should read “Whereas the U.S. are a nation of tax cheats, and
    Whereas the fucking Kenyan turned up at G20 telling lies about the Reeeeeef and pushing his warmist fabrications and making a total asshole of himself…”

  17. Tel

    I don’t see how the Hockey plan can actually tax google anyhow. If google close their Australian office and customers just use a credit card to purchase online (which is about the only payment google accepts anyhow) what’s Hockey going to do? Go the full China and start filtering the Internet?

    The biggest outcome Hockey can achieve is a handful of Australian techs looking for new jobs.

  18. JohnA

    The US Treasury’s top international tax official, Robert Stack, is also concerned about Australia forming an alliance with Britain and lining up US digital companies to be slugged with a so-called Google tax. The mooted changes would divert to Australia money that was potentially in line for US government coffers, triggering a cross-country fight over taxing rights.

    Something tells me this can only end badly for us.

    The US have Elliot Ness and The Untouchables on the job!

  19. Tel

    Come to think of it, if they try to heavily tax Apple, same thing will happen… close Australian office, sell the same number of iPhones via resellers, make just as much revenue, outsource warranty repairs and probably provide worse service to the customers.

    I really don’t see how this plan can work. IMHO, Apple are making slightly lower profits in Australia, nothing to do with transfer pricing, but as a brand image and promotional effort: big fancy stores, they can do without that, high quality service… all those trimmings are what slightly reduces the profit they make in Australia.

    The most Hockey can do is forcibly cut those trimmings by pushing Apple to run their sales through resellers like Kogan who are very no-frills.

  20. Sinclair Davidson

    We should not tolerate any situation in which one business is afforded large tax advantages.

    US MNCs are not tax advantaged. They will pay a higher rate of tax in the US at some stage.

  21. Tel

    Sydney Boy #1667162

    That would be nice, except the US (government) never plays fair.

    The US government has capacity to do things that our government does not. Essentially they are selling military hegemony… our government never negotiated hard in the previous free trade agreements because all of our ministers are way too gutless to say boo.

    To some extent the US have overplayed this hand, especially in the light of their own internal difficulties and a more balanced world military situation (we hope it stays balanced). Frankly speaking, it’s a hand Australian government never had a chance to play, and never will do.

    Fairness is a waste of time complaining about… everyone had an opinion on it, generally one that gives some advantage to themselves.

  22. Rabz

    Neither ‘government’ deserves a cent more than any taxpayer is currently legally obliged to tithe them. Their obscene waste and brazen attempts to buy off captive voting constituencies is criminal.

    So if Hockey does think this is a winner just watch what ends up happening – hint – not what Hockey and his fellow imbeciles in treasury think will happen, but in all likelihood, the opposite.

    Morons.

  23. BrettW

    Going to go against the flow again on this one.

    I heard on the radio the other day that Google is going to set up some sort of phone / broadband delivery system in Australia that will compete with Telstra etc.

    I guess the supporters of the overseas businesses will be campaigning on their behalf as they remit their profits (earned at the expense of local companies) to Ireland, Luxembourg and Singapore etc.

    Much has been said about the Intellectual property of such companies as Google and Facebook. They created the system in USA and spent a lot on R&D etc. However at what point is that money recovered as surely by now their mega billion dollar businesses have already repaid that money?

  24. candy

    So the Americans have woken up to the fact that Joe Hockey wants the US taxpayer to finance his budget deficit.

    Seems fair. Obama dumped on the Government at the G20 and told the world we had destroyed the Great Barrier Reef.

    Anyway, it’s a political winner for the government. To retreat from it will do them great damage, it’s very popular policy and if does help the deficit – excellent.

  25. Rabz

    Anyway, it’s a political winner for the government. To retreat from it will do them great damage, it’s very popular policy and if does help the deficit – excellent.

    No, it’s incredibly stupid, blatant pandering to a left wing constituency who know nothing about economics or perverse incentives.

    As noted above, it will simply put people out of work and encourage (cue spooky music …) ‘multinationals’ to take their business elsewhere.

    Candy – this shouldn’t need explaining.

  26. JohnA

    BrettW #1667212, posted on April 28, 2015 at 8:37 am

    Much has been said about the Intellectual property of such companies as Google and Facebook. They created the system in USA and spent a lot on R&D etc. However at what point is that money recovered as surely by now their mega billion dollar businesses have already repaid that money?

    Yes, and…?

    Surely, now they can reap the rewards for the risks taken earlier?

  27. Dan

    It’s illogical to think you can compete with low-tax jurisdictions by raising the rate of tax in your country. Do the brains trust at Oz HQ think Singapore, Ireland etc will go full retard and enact a google tax just because everyone else did?

    Foreign executive types may like Potts Point and Bondi beach, but that alone wont keep them here if we jack up the tax rates

  28. Zatara

    What hasn’t been mentioned is the United States is the only country in the world that taxes it’s citizens regardless of their residence.

    True, as far as it goes, but not quite true when the details are examined.

    In accordance with the Oz/US Tax Treaty for instance, if a US citizen works in Australia they pay income tax in Australia. US Ex-pat tax payers may exclude from their US assessable income up to $95,100 of their foreign earnings as well as certain foreign housing amounts. The difference between that and pay is taxable by the US.

    However, they do have to file a US tax return annually to explain those conditions and computations, which is taxing enough as it is.

    Frankly, I am surprised that Australia doesn’t have a similar tax structure as otherwise they are subsidising the export of Australian expertise and work ethic to the world with no (or little) return.

    This isn’t a new idea.

    “In 2003, the Australian Bureau of Statistics reported that approximately 290,000 Australian expatriates over the age of 15 were living in the OECD alone. It is therefore reasonable to assume that approximately 300,000 Australian expatriates presently live in the OECD, and that at least half of this number are taxable income-earners (as opposed to retirees or others subject to substantial offsets). Using NSW’s 2010 average salary of $50,328, and operating on the presumption that up to 75% of this amount might be excluded as non-taxable foreign earnings, the average expat’s annual income tax might amount to as much as $987.30 per expatriate. This leads to an estimate of approximately $148,095,000 in annual government revenue from a worldwide income tax levied on Australian expatriates based in the OECD alone.”

    Back to the topic – Government intrusion/taxation into the process is IMO the absolute last thing a Libertarian should want. Buying stock in internet marketing multi-nationals is likely the best way to get “your share” of the loot.

  29. Validator

    @Entropy+Sinc: there is no requirement for the funds to arrive in the US. As many companies have demonstrated, dividend can readily be paid without to the ultimate residency. And the US has no imputation, so US shareholders are not disadvantaged by an Irish tax residency. In fact aggressive users of tax havens such as News Corp et al have enjoyed shareholder support without ever paying significant divs.
    There is onloy one issue: businesses operating in a given market ought to be subject to comparable tax as those they compete with. Australia should aim for no tax disadvantage. In the case of people selling advertising and related services (google), physical objects (Apple), rocks (BHP et al) the principle is clear.
    The problem we have is that technology and globalisation advantage some over others and it must be addressed. Whether it’s done best by imposing GST universally or some other means is the difficult question, but one obvious option is to reduce the taxes that don’t stick (income) and increase those that do (GST, land tax, etc).

  30. M Ryutin

    Perhaps it is just that the US is worried about Australia and Britain hiving off a very small piece of the already tiny proportion of multi-national earnings that it gets a piece of by way of tax. GE paid zero US tax a few years ago due to offshore operations and Apple has earned the envy of US regulators when its tens of billions of cash permanently held offshore get a mention. So much so, that it is often mentioned that perhaps some further tax break should be extended to the US-owned big companies to entice them to bring some of that money onshore to the US.

  31. Sinclair Davidson

    there is no requirement for the funds to arrive in the US.

    Yes – I understand that. Yet the US has a contingent claim on tax revenue that the Australian government wishes to claim for itself. In the process of doing so, it will single out US MNCs for special tax treatment. Unsurprisingly the US government is taking a poor view of that idea.

  32. 1234

    Bullshit, the US corporations will do what they did with George W Bush in 2004. A nice little amnesty so that they can bring offshore back to the USA at a discounted rate. Australia can go whistle.

  33. 1234

    Davidson is labouring under the misaprehension that the USA will somehow play fair. He is dreaming. Amnesty all round for MNCs.

  34. At last

    Zinc: the problem is more basic. When some businesses can opt out it disadvantages others. This is it a debate about MNCs. It’s about the total burden of oz tax and where it falls.

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