Facebook pays Aussie taxman $A31m in back taxes

Facebook has paid the Australian Tax Office (ATO) $A31 million in back taxes following a crackdown on multinational tax avoidance.

The settlement covers the period between 2009 and 2015.

It comes against the background of the Australian government's so-called "Google Tax" law that came into effect in March last year, and a parallel move to beef up ATO staff and investigations into profit-shifting by multinationals (booking revenue to a subsidiary in a lower-tax country; the Australian government has estimated it loses $A2b a year to the practice). 

Similar profit-shifting crackdown legislation is making its way through New Zealand's Parliament. Google, which is in negotiations with the ATO, has already said it will change its billing practices and pay tax on New Zealand-generated revenue in New Zealand (up until now, most of its New Zealand business has been invoiced to Google Ireland).

In a parallel move, IRD is auditing 16 multinational firms for alleged tax avoidance. The agency has refused to name the firms, but in filings, Oracle and Microsoft (which recently transferred ownership of its New Zealand operation to Bermuda) have acknowledged they are part of the audit. Microsoft reached a settlement with the ATO over its Australian earnings in August last year.

Facebook Australia-New Zealand did not immediately respond to a request for comment on its future billing plans.

But in December, Facebook chief financial officer David Wehner flagged a global strategy shift, saying "In simple terms, this means that advertising revenue supported by our local teams will no longer be recorded by our international headquarters in Dublin but will instead be recorded by our local company in that country."

Google and Facebook have historically booked minimal revenue to their respective Australian and New Zealand operations, despite taking an estimated $4b from the Australasian ad markets.

In 2015 — the final year covered by the settlement revealed this morning — Facebook reported a loss of $A970,647 on revenue of $A33.6m.

In 2016, Facebook's reported Australian revenue jumped 10-fold to $A327m but a slim profit saw it pay just $A3.3m in tax. And, despite billing more revenue to its local office, the social network still faced accusations of under-reporting. 

Latest results
In 2017 (reported this morning), Facebook paid $A11.6m in tax during a year that it booked $A476.8m. The social network reported a loss of $A9.6m for the year, taking a $A42m charge for tax costs (the $A31m in back taxes plus this year's $A11.6m).

In keeping with its new era of transparency for local results, Google Australia booked gross revenue of $A3.06b — for the first time equalling analysts' estimates of the amount of business it actually brings in the door across the Tasman. It voluntary declared that $A2b in "reseller costs" were paid to its parent in the US. On its $A1b or so net revenue, Google Australia made a profit of $A125.1m and paid $A37.2m in tax.

In New Zealand, Facebook has not posted a public financial statement to the Companies Office since 2015, when it reported a loss of $31,198 on revenue of $1.2m (NBR has sought clarification whether that is because Facebook's revenue booked to New Zealand has fallen below the reporting threshold or if there is another reason).

Google most recently filed in mid-2017 for its 2016 year when its New Zealand operation reported a loss of $604,000 on $12.6m revenue – despite dominating the $541m search category in New Zealand's $943m online advertising market in 2017.

Despite resolving its tax issues across the Tasman, the social network still faces a major headache. The ACCC is investigating whether Facebook and Google have developed outsized bargaining power in the Australian ad market and, if so, whether that has distorted the market and/or impacted major news organisations' ability to produce quality content.