Christopher Niesche: How Apple pays just 1 cent in the dollar tax

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Apple derives considerable benefit from the infrastructure and subsidies Australian taxpayers provide. Photo / Bloomberg
Apple derives considerable benefit from the infrastructure and subsidies Australian taxpayers provide. Photo / Bloomberg

How would you like to pay income tax of 1 cent in the dollar?

For the likes of you and me, this will never be anything more than a fantasy because we lack the cash to pay for the lawyers, accountants and finance wizards who invent complex multinational strategies to help us pretend we've earned less money than we really have.

Not so for companies like Apple.

Revelations the iPhone maker paid just A$85 million in Australian taxes last year, despite earning nearly A$8 billion in revenue from this country have put multinational tax arrangements back on the agenda.

It certainly doesn't seem fair.

Apple and other multinationals which derive profits from Australia have a duty to pay tax in this country.

Australia is a strong, stable nation where businesses such as Apple can operate in the knowledge the government won't be overthrown and the rule of law will prevail.

Tax dollars help create this sort of society.

And Australian tax dollars help Apple in a lot of other ways.

When one of its staff catches the train from, say, Arncliffe to the city to get to their job at the Apple store they pay only A$4.20. But this covers only about a fifth of actual cost of the 11km journey - the rest is subsidised by the taxpayer.

Imagine how much more Apple would have to pay staff if it cost them over A$200 a week to get to work - and imagine how much less the rest of us would be prepared to spend on iPhones and iTunes if we were paying those sorts of public transport fees?

The government also pays for other things that create the workers, consumers and conditions which help Apple thrive in Australia, such as education, healthcare and the justice.

Apple claims it pays all the tax it is required to pay in Australia, although the Tax Office has questioned whether the company moves profits to low-tax jurisdictions.

Global companies can avoid tax through what is known as transfer pricing. This is where a subsidiary of the company in one country makes a payment to a subsidiary in another country, ostensibly for goods or interest. By artificially inflating those prices, multinationals can reduce their profits in higher tax jurisdictions.

The Government is promising new laws effective from January 1 aimed at stopping multinational tax avoidance will make it harder for multinationals to move profits from one country to another. The laws could see companies with annual global revenue of $1 billion or more hit with double tax, plus interest, if they are found to be illegally shifting profits offshore.

Retail woes

Profit season kicks off this week and investors will get a look at how well retailers performed over the all-important Christmas period.

But in what could be an ominous warning of things to come, one retailer has already downgraded its earnings because of the lower Australian dollar.

The lower currency means shops selling imported goods have to pay more for their stock.

Discount jewellery chain Lovisa said late last week its profit margins had been crunched because it was paying 15 per cent more for imported jewellery than it was a year before. Its gross profit margin fell by 3.3 per cent to 73 per cent.

The drop might not sound like a lot, but by the time a business' other costs have been taken out it can add up to a big hit on profits.

Certainly that's how investors saw it; the company's shares fell 40 per cent after the profit warning.

Lovisa was able to recoup some of the lost margins by putting prices up, but customers will only accept so many price hikes, particularly for discount jewellery.

The company is also in the lucky position that it designs, develops and sources all of its products, which should allow it to more quickly pass on higher costs to customers.

By contrast, New Zealand's Michael Hill International seems to have so far avoided Lovisa's problem, announcing earlier this year that gross margins had held steady in the last six months of 2015, despite falls in many of the currencies where it has stores.

Other retailers which are straight out importers will be much worse off. There's not much an importer of televisions can do to mitigate the effect of a lower currency. It is stuck with the delicate balancing act of trying to increase prices to recover as much of their margin as they can without deterring too many customers. We'll start to see this week how many of them have got it right.

- NZ Herald

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