Facebook accused of under-reporting Aussie revenue as new profit-shifting law kicks in

Facebook’s Australian operation has been accused of under-reporting its revenue for 2016, the first year of filing under a new law designed to clamp down on profit-shifting.

The Multinational Anti-Avoidance Law – popularly known as the “Google Tax” – came into force on January 1 last year.

It targets multinational companies that artificially avoid having a taxable presence in Australia despite having a significant presence and "permanent establishment" in the Australian market.

The new law is nicknamed after Google, which often bills business in Australia (and New Zealand) to subsidiaries in lower-tax Ireland and Singapore.

But if allegations aired in the Australian Financial Review today are correct, it will be Facebook attracting the first controversy under the new law.

The paper says it has obtained accounts that show Facebook had revenue of $A326.9 million in the 2016 calendar year.

That’s a ten-fold increase from the previous year.

But unnamed ad industry experts suggested to AFR that Facebook actually booked in excess of $A550 million in Australia in 2016.

In 2015, Facebook booked revenue of $A33.6 million. It paid tax of $A814,187 and recorded a loss of $970,647 loss.

NBR has asked Facebook for comment (the social network had no immediate comment for AFR).

On this side of the Tasman, Facebook and Google have both reported revenue that seems light relative to the size of the online advertising market as reported by the Interactive Advertising Bureau or IAB (Google, for example, reported a $601,000 loss on $10.7 million revenue in New Zealand for 2015; whereas IAB figures for 2016 show the total New Zealand online ad spending for 2016 was $890 million – and of that total, 55% was spent on search, a category totally dominated by Google).

Whatever happens with Facebook, it could be just the warm-up for Google, which is estimated to have earned revenue of $A2 billion to $A2.5 billion from Australia last year.

Google has not filed 2016 accounts yet but, for 2015, it reported Australian revenue of $A501.8 million and profit of $A50 million. It paid $A16 million tax.

Our government has broadly favoured following a slow-moving OECD multilateral “BEPS” process rather than the unilateral actions taken by the UK and Australian governments.

On April 3, Revenue Minister Judith Collins hinted a tougher stance could be on the way. Ms Collins said Inland Revenue had advised her that up to $300 million or more a year in tax was being lost under current rules because of New Zealand business being booked to offshore subsidiaries, and practices like loans to parent companies at high interest rates to minimise tax paid in New Zealand.

Ms Collins and Finance Minister Steven Joyce released three discussion papers containing measures against multinational profit-shifting. A consultation period has just closed. It remains to be seen if the government will follow through on any of the papers’ recommendations, if any.