Microsoft Agrees to More Transparency on Taxes in Australia
By Matt Day. Updated November 22, 2016.
Microsoft's Australian subsidiary will start disclosing the amount of tax it pays in Australia, opting in to a government-transparency program aimed at shedding light on the shadowy world of global tax avoidance, the Australian Financial Review reported.
Australia's government is one of the most aggressive in a global crackdown on multinational corporations that avoid taxes by stashing income in tax havens.
A statute recently enacted there sets up a voluntary reporting scheme in which companies publicly disclose their profit and income tax paid to Australia, "to highlight those that are paying their fair share and to encourage all businesses not to engage in aggressive tax avoidance."
Microsoft Australia will be the first local arm of a multinational technology firm to join the program, the Australian Financial Review reported Friday. Microsoft declined to comment.
Microsoft, like many multinational companies, has spent decades building a corporate structure designed to minimize taxes by funneling revenue to tax havens, including Singapore, Ireland and Bermuda. A portion of that structure is being scrutinized by the Internal Revenue Service, part of a contentious audit that has wound up in federal court in Seattle.
The Redmond-based company as of June 30 had accumulated more than $124 billion in income, untaxed in the U.S., that it deems permanently reinvested in other countries.
Microsoft says the sum would be subject to $39.3 billion in U.S. taxes if it were repatriated. That disclosure indicates that some income generated by Microsoft's overseas operations is subject to a tax of as low as 4 percent, lower than the going rate in any of Microsoft's major markets.
Australia's top corporate tax rate is 30 percent. The U.S. has the highest corporate rate in the developed world, at 35 percent, though many multinational companies actually pay a lower effective rate.
The scope of the figures Microsoft will report under the new Australian disclosure program likely won't be a surprise.
In December, Australian tax authorities published tax data for more than 1,800 companies, showing Microsoft paid about $31 million Australian dollars to the treasury during the 2013-14 tax year there.
That sum would be higher if Microsoft didn't route the vast majority of its sales to Australian consumers through its Singapore unit.
Bill Sample, Microsoft's tax chief, told Australian lawmakers at a hearing last year that just 5 percent of its sales to Australian consumers during the company's 2014 fiscal year were subject to Australian income taxes. The rest were technically made by a Singapore-based entity.
A structure similar to Microsoft's Australia-Singapore arrangement helped the company avoid paying up to $143 million a year in U.K. taxes by attributing sales to British customers to an Irish unit, the London-based Sunday Times reported earlier this year.
The Australian disclosure regime follows guidelines released last year by the Organization for Economic Co-operation and Development recommending that companies disclose to governments where they pay their taxes and generate income.
The recommendations from the organization, a policy coordinating group for developed nations, are designed to compel tax regulators to ensure that corporate income taxes more closely align with actual economic activity.