Greater scrutiny of historical tax behaviour of tech giants should be considered by governments when awarding IT contracts, according to corporate tax experts who argue giving the work to local firms would deliver better delivery outcomes and a more sustainable tax system.
In a submission to the Senate Committee inquiry into the current capability of the Australian Public Service, the Centre for International Corporate Tax Accountability and Research (CICTAR) lashed the ongoing practice of handing the bulk of large-scale IT contracts to multinational tech giants like Amazon, IBM, SAP and Oracle.
The tech giants continue to receive contracts despite commitments from the government to support local IT companies through federal contracts and the recognised need to build long term capability within the APS, according to the trade union-funded CICTAR.
“Multinational tax dodging tech giants still dominate federal IT contracts and Australian companies do not seem to be given the same opportunities,” the submission said.
According to the submission, 28 companies were awarded $4.4 billion in federal contacts for IT services in 2020, but only four of them were Australian. Many of the contracts were handed to multinational technology companies that “extensively used tax haven subsidiaries in global corporate structures”.
The submission provides case studies looking at IBM, Oracle, Accenture, SAP, Amazon and Dell, and alleges the firms are using deliberately complex corporate structures, tax havens, and profit shifting to avoid taxation in Australia.
For example, according to the submission:
- IBM’s Australian business is owned through the Netherlands, a notorious tax haven and the company paid no tax in Australia between 2015 and 2018
- Accenture has reported its Australian business as being half as profitable as its global rate, suggesting ‘profit shifting’ out of Australia
- Oracle is owned by a “complex web of Irish companies” and continues to receive large federal contracts despite an ongoing $300 million dispute with the ATO
- SAP paying no corporate income tax in Australia for two years in which it reported more than $2 billion in Australian revenue
- AWS contracts appear to have been paid to its American parent incorporated in Delaware rather than to the Australian subsidiary
- Dell’s Irish holding company moving its administrative office in Bermuda
The Australian federal IT contracts also include a high level of labour hire and temporary workers, which CITAR says undermines the development of internal capabilities in the APS.
“The use of external labour is likely to cost more than developing IT capacity within the APS and deepens reliance on future outsourcing contracts with costs escalating further over time. Multinationals can undercut domestic competitors and take losses in order to lock in initial contracts.”
The group said any future contracts should include a requirement for the multinationals to disclose their tax reporting to the Australian government. Any provider determined to be engaging in aggressive tax minimisation schemes should not receive a contract, according to the CICTAR.
Local firms should also be used when outsourcing is necessary, the group said.
“When external contracts are required, preference should be given to companies that make the greatest contribution to the Australian economy through technology transfer to the APS, innovation, high quality jobs and income tax payments,” the submission said.
The Australian government should also consider adopting a “digital profits tax” as part of reforms to fund the economic recovery from the pandemic.
“The federal government has a major opportunity to use procurement of IT contracts to increase transparency, encourage responsible corporate behaviour, level the playing field and ensure that tax dodging corporations are not rewarded with federal contracts,” it said.
“Ensuring that global tech giants pay the taxes they should is the best way to help fund Australia’s economic recovery from the global pandemic. The time for reform is now.”