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Microsoft Australia reaches new tax stance in Australia

Microsoft Australia reaches new tax stance in Australia

All profit generated from sales and marketing will be taxed locally, the company says

Microsoft has revealed it had reached a new tax arrangement with the Australian Taxation Office (ATO) on the very same day it fronted up to a public hearing for the Government's inquiry into Corporate Tax Avoidance on 22 August.

Corporate vice president, worldwide taxes at Microsoft, Daniel Goff, told the Parliamentary committee overseeing the inquiry that the new agreement with the ATO, which comes as the country's tax collector wraps up its audit of the company, will last until 2022 - unless local laws change.

Goff was unable to provide the committee with further information, at the time requesting this to be done confidentially as competitors were present at the hearing.

Microsoft, along with Apple and Google, have been under scrutiny by the ATO and the Federal Government over their tax practices in Australia dating back to at least 2012 in some cases.

Today, the software giant said that it is putting in place changes to how it sells and recognises revenue in Australia. In the 2016 financial year Microsoft generated $1.8 billion in sales, which have been booked in Singapore.

The company has had an operation in place whereby its Singapore business effectively sells certain products to Australian customers, which would result in a large portion of the revenue being booked in Singapore, which claims a much lower corporate tax rate than Australia.

Given Goff's evidence during the hearing on 22 August, it appears that the company's new way of doing business locally will see Microsoft Singapore selling to Microsoft Australia who will then sell on to Australian customers.

It is understood that this arrangement will see the profit generated from sales and marketing taxed locally, within Australia.

"Under the old model for every dollar of Australian profit, about 15 per cent of that was subject to Australian tax," Goff said at the hearing.

"Under the new model for every dollar of Australian profit, about 20 per cent of that will be subject to Australian tax. So there's about a 30 per cent increase that will be subject to Australian tax."

This means that Microsoft Australia’s taxable profit from Australian sales has increased from  $0.15 cents in the dollar to $0.20 cents in the dollar. This profit is set to be taxed at Australia's standard corporate rate of 30 per cent.

Microsoft's representative was also questioned about a report published in November 2016 by The Australian Financial Review, where the vendor said it had agreed to sign the Board of Taxation’s Voluntary Tax Transparency Code. 

According to Goff, the company saw fit not to sign it but, “if the Australian Government wanted to have the transparency code we would be compliant”, he said.

It also emerged that Microsoft currently has no advance pricing arrangements (APA) - an agreement between a taxpayer and a tax authority on an appropriate transfer pricing methodology for a set of transactions at issue over a fixed period of time. 

According to the ATO, this reduces the potential for double taxation on covered cross border dealings.

Microsoft said that, following the agreement with the ATO, Australia's tax collector saw no need for an APA.

Earlier at the hearing, Apple Australia and New Zealand managing director said that the new tax laws resulted in zero change to the company’s local operation. Apple Australia and New Zealand managing director said the company is a "compliant taxpayer everywhere that we operate in the world"

The story has been updated on 23 August at 9:20AM to reflect that the taxable profit from Microsoft Australia has increased from 15 cents per dollar to 20 cents per dollar.

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Tags MicrosoftATOtaxcorporate tax avoidance

More about AppleAustraliaAustralian Financial ReviewAustralian Taxation OfficeBoard of TaxationFederal GovernmentGoogleMicrosoft

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