How Nike Avoids Paying Taxes in Australia

How Nike Avoids Paying Taxes in Australia(abc.net.au)

34 points by wasx 8 years ago | 18 comments

atonse 8 years ago |

I’ve had this very cynical idea for a while now. And that is, the only way we will get governments to stop this nonsense is if we democratize the extreme tax evasion... ahem ahem.. sorry, “smart tax planning” that these companies take advantage of.

Perfect opportunity for the Stripe Atlas team :-)

If you make it so an individual can pay $50 a month and they get this full double Dutch Irish sandwich shell company crap setup for them, and millions of citizens start to get incomes this way and pay their “lawful amount” rather than their fair share, then governments will start to clamp down.

Because right now we (private citizens who pay 25-40% in income taxes) are powerless in convincing our governments to do something about this travesty.

Thoughts? Remember, as these companies say with their weasel words “we pay the full taxes we owe!” So it would be legal.

xmodem 8 years ago | |

That would be funny, but I think if you actually tried to do it, you would very quickly run into overheads which make it unviable for most individuals. A lot of tax havens outsource the cost of compliance by requiring all financials to be independently audited, for instance, and when you have a couple of layers of shell companies that's 15-20k right there.

That, and you probably still end up having to pay income tax on it when you bring it into the country.

paulddraper 8 years ago | | |

Exactly. And that is why you won't see small or even mid-sized companies arranging their taxes like this: it's just too expensive.

Only big companies -- Apple, Nike, Amazon, Google -- can afford to save international taxes like this.

IMO, the better solution is 100% sales tax (ala the US FairTax proposal https://en.m.wikipedia.org/wiki/FairTax). Companies avoid paying corporate income taxes far easier than avoiding sales tax.

turc1656 8 years ago | |

Several thoughts on this. First, this is legal tax avoidance, not evasion which is actually illegal. Yes, it sucks, but it's completely legal, which you mention, but the terminology is important.

Second, I've thought of something similar for a different tax issue but didn't pursue it because I would probably run into a million legal and political problems. I had considered trying to legally deprive the state where I live of taxes on the sale of vehicles. I came up with a plan to use an intermediary and a set of contracts that are similar to stock options to allow pass through premium for the contract to flow though the intermediary for what would amount to basically 99.99% of the total cost and then exercise the contract for $1. So $1 would be the purchase price, the intermediary gets a small fee, and then remits the rest of the flow through premium to the entity selling the vehicle. In this manner, the total cost remains the same, and the profit of the dealership remains unchanged (less the small intermediary fee) and therefore their corporate tax would be unchanged. But since the purchase price is $1 no sales tax would need to be paid. I didn't pursue it because 1) I'm not a lawyer and 2) this would put a giant target on my back for the corrupt trash that runs my state to aim for.

Lastly, I think your thought is good but wouldn't pan out because in the end individuals can't not receive income wherever they live. So if you receive that income in your home country, you are paying income tax on it. These companies are able to have special laws that apply because they simultaneously exist in multiple locations. And they have an entirely different set of tax laws than those that apply to individuals. So this doesn't seem possible. The way I think this should be done is to apply a flat rate on top line revenue of, say, 2%. This can't be avoided because the tax is incurred simply by doing business in the country. That's basically the equivalent of making sure they are paying some minimal amount to access the market. Then the rest of the income tax laws can still apply and corporations can offset their income tax with whatever has been paid via this top line revenue tax.

pkaye 8 years ago | |

The average person gets most of their income through wages and it very hard to shelter it through these schemes.

atonse 8 years ago | | |

So this is where you change things.

You get a company out of this service, and then you tell your employer to actually pay your company. The good thing is that they save on various payroll taxes, so they should actually kind of be ok with it, right?

Again, this is all kinds of rotten, but I don't know how else we can raise the attention of lawmakers _around the world_, but put the tax-planning power of billion dollar corporations in the hands of individuals.

6nf 8 years ago |

Transfer pricing. It's the same for all big companies operating in Australia (and probably most other countries)

Of course there's nothing illegal about this and it's very difficult to really do something about it. The Australian Tax Office is struggling with this problem every day.

turc1656 8 years ago | |

I think it's pretty easy to deal with it actually. Just apply a top line revenue tax of something like 2%. That can't be avoided because it is incurred at the point of sale. So it becomes an effective tax on accessing the market of that state/country. Then you would still have the corporate income tax that gets applied but companies would be able to offset their income tax liability with taxes paid for this new top line revenue tax. So it essentially becomes a sort of AMT tax for companies to ensure that they are paying some sort of minimum tax. 2% might not sound like much but when you consider that it's top line revenue and the majority of companies have profit margins in the 10-25% range, this equates to a minimum tax rate of 8-20%.

photojosh 8 years ago | | |

How does that differ significantly from sales tax/GST? We'd get the same government revenue increase from increasing GST from 10 to 12%, no?

Ultimately the cost of all taxes will be borne by consumers anyway.

Gustomaximus 8 years ago |

I think there is one solution to this, the G20/WTO type organisations need to come to an agreement that to trade with each other they have minimum tax rates. Countries are free to tax higher but if say these nations agree to say a minimum 25% type thing, then any country or company operating outside of this agreement is not welcome. I'd be inclined to do the same thing for personal tax. Otherwise we risk a race to the bottom for tax rates if we let cooperates continue this.

And this is 'capitalism' done right. Part of governments role is to create a 'level playing field' for business and stop a handful of larger/international companies having a non business advantage.

Further, I'd be inclined to go a bit nuclear with punishments and make rules that abuser pay 100x what they gained and the company assets/brand in which they did this for are seized and auctioned.

This later seems harsh but if we don't stop companies doing this we may see serious repercussions on government's ability to provide for society as we know it. Companies need to feel the risk is not worth the reward. I doubt this will happen, as an Australian our Prime Minister us known to have his hundreds of millions stashed in the Caymen Islands. What an example for the nation and likelyhood of crackdown seems low.

wtfstatists 8 years ago | |

And this is 'capitalism' done right. Part of governments role is to create a 'level playing field' for business and stop a handful of larger/international companies having a non business advantage.

States do not exist over capitalism but under it. States competing for tax money is capitalism working perfectly, and about time this tax nonsense (or atleast overcharging productive class) comes to halt.

To give an contrarian opinion, I am extremely happy that states are finally made to work for the money.

exidy 8 years ago |

I agree that corporate tax avoidance is a problem and needs to be addressed on a global basis.

But as an Australian, I think we're missing the elephant in the room. We hold up these prominent brands like Nike and Apple, but ignore the fact that they are products designed and manufactured elsewhere. All we do in Australia is open the shipping container and distribute the goods to stores. Very little value is added in Australia. Regardless of tax changes, the tax revenue from simple distribution is always going to be low.

If we want to improve our corporate tax revenue, we need to create things in Australia, whether that's manufacturing, software, services or whatever.

plaguuuuuu 8 years ago | |

I don't think that closes the loophole. Although I don't know much about taxation. AFAIK an Australian manufacturer could just as easily do the same thing - set up a shell company in Ireland or wherever then fund the local company's operations and factories through 'loans' which must be paid back to the parent company in Ireland

photojosh 8 years ago | |

Agreed. Disclaimer: I have a slight confirmation bias because I'm involved with "creating things in Australia"...

The article doesn't mention sales tax (so 10% of the purchase price does go to the government), or the income tax from the people who work in distribution and retail.

beckler 8 years ago |

This reminds me of how some pairs of Converse sneakers have a thin layer of felt on the bottom that rubs off, so that they're considered "slippers" at the time they're exported and not "sneakers" to get a cheaper tariff.

Froyoh 8 years ago |

This is not fair