Michael Pascoe: IKEA and Netflix tax scandal overshadows shameful PwC saga

Overshadowed by PwC’s scandal of peddling inside data to assist multinational firms keep away from tax is the larger ongoing scandal of multinational firms dodging tax.

Treasurer Joe Hockey’s “Google tax” – the factor PwC sought to take advantage of confidential details about – was alleged to cease worldwide firms ripping off Australia by whisking Australian income away to tax havens.

It didn’t. It nonetheless hasn’t.

A key a part of the Australian Tax Workplace’s (ATO) spirited defence earlier than Senate Estimates this month was that, certain, there was an outrageous breach of confidence, but it surely didn’t matter an excessive amount of as a result of our super-vigilant tax sleuths had been fast to close down the schemes and no income was misplaced due to PwC’s malfeasance.

Besides that the Google Tax hasn’t stopped blatant multinational tax minimisation.

Netflix may make a sizzling mini-series about worldwide accounting skullduggery and tax avoidance.

It has all the fabric it wants for the present in-house – its very personal story of dudding the Commonwealth by funnelling billions of Australian income by the Netherlands.

Netflix was lengthy suspected of doing the soiled on Australia. It was an open secret that Netflix was gathering about $1 billion a 12 months from Australians however submitting accounts with the Australian Securities and Investments Fee exhibiting a tiny fraction of that.

For instance, in 2021, whereas having fun with the COVID increase, Netflix reported Australian income of $30.7 million and revenue of simply $1.5 million after paying the ATO $868,000.

Need to purchase a bridge?

And for those who believed that income and revenue determine, you’d consider something.

Such a low income determine managed to come back in effectively underneath the $100 million minimal the ATO has on its annual tax transparency stroll of disgrace that exhibits how little tax many massive firms handle to pay on their Australian income.

As everybody within the business knew, Netflix was pulling the usual swifty of channelling most of its income – your subscription charges – by the Netherlands, a preferred tax haven for the worldwide accounting set.

I’m certain that Netflix, a fabulously worthwhile American firm effectively on its strategy to dominating the streaming business as others falter, had good motive to have its Australian accounts division in Amsterdam.

Perhaps its executives love tulips. Or clogs.

Joe Hockey
Joe Hockey’s ‘Google Tax’ isn’t working, writes Michael Pascoe. Picture: Getty

Netflix has lastly – however solely partially – caught up its hand for the wheeze in its newest accounts filed with ASIC.

The Australian Monetary Assessment had noticed Netflix altering its subscription billing handle and earlier this month reported the 2022 figures: Australian income was instantly $1.06 billion.

With a level of near-Trumpian elan, a Netflix spokesperson instructed the AFR: “As Netflix continues to develop and put money into Australia, we wish our company construction to replicate our enterprise actions right here.”

Yeah, certain once more.

However admitting its income doesn’t imply Netflix is paying a reputable quantity of tax.

Pull the opposite one, Netflix

Of that $1.06 billion, Netflix claims it solely made $15.8 million revenue after surrendering $6.9 million to the tax workplace.

That works out to be a internet revenue margin of simply 1.5 per cent – a margin that must be thought-about a company failure, barely price maintaining the Antipodean workplace open.

By comparability, Netflix instructed shareholders it loved income of $46 billion final 12 months with an working margin of 18 per cent and internet revenue of $6.5 billion – name {that a} revenue margin of 14 per cent.

So how may the Australian operation be such a dud? We offered 2.3 per cent of complete income, however solely 0.2 per cent of internet revenue.

Ah, it was the great ol’ “charges” to go workplace wot carried out it.

“Netflix Australia paid $966 million to the Netflix Group in distribution charges and different prices,” the AFR reported.

That’s the neat factor about paying charges to go workplace – the native revenue could be just about no matter head workplace desires it to be.

My “favorite” instance of that’s IKEA, the Netherlands-headquartered flatpack large. (Oh, did you assume IKEA was Swedish? House is the place the tax haven is.)

I began writing about what an obvious failure IKEA’s Australian operation was a dozen years in the past – wafer-thin revenue margins and a tax invoice to match.

A fast test of the ATO’s disgrace file exhibits nothing has modified.

In 2020-21, the ATO says IKEA Australia had revenue of $1.625 billion.

That’s lots of Billy bookcases and Kyrre stools.

However the hapless Swedish/Dutch outfit solely managed a taxable revenue of $40 million – a pre-tax margin of two.4 per cent. And it paid simply $12 million tax.

Oh effectively, that was an enchancment on the 1.8 per cent margin the 12 months earlier than on gross sales of $1.552 billion.

IKEA pays IKEA to make use of IKEA title

How may such an enormous operation as IKEA Australia be so marginally worthwhile and survive? They have to be forgiving souls again within the Netherlands.

Or maybe the bean counters in Delft focus extra on how IKEA Provide AG goes in promoting IKEA Australia all these flatpacks and the fats “franchise charge” IKEA Australia pays.

Quite humorous, actually – IKEA paying IKEA scores of thousands and thousands of {dollars} to make use of the title “IKEA”.

There may be one other side to such profitable home tax minimisation, apart from the income misplaced that may very well be used to fund Medicare and pensions and aged care and nuclear-powered submarines: It offers IKEA an unfair benefit when it’s competing with Australia furnishings firms paying full freight.

Michael West Media did a comparability of IKEA and Nick Scali through the COVID-driven furnishings increase.

Scali’s turnover was a few seventh of IKEA’s but it surely paid about 64 instances extra tax than the enormous – which was paying barely any. The odds are too ridiculous to hassle understanding.

IKEA and Netflix are simply two fast examples of the continuing, huge and really profitable tax minimisation business right here.

That business is a a lot greater scandal than just a few ethically-challenged PWC companions.



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