Australia’s Economics References Committee, which has been conducting hearings into corporate tax avoidance, looks to have made a breakthrough in the fight on rich tech companies avoiding taxes by using elaborate networks of subsidiaries.

The committee has developed a new method for taxing multinationals from the nation’s Taxation Office.

The hearings have shown how the likes of Apple, Google and Microsoft manage to pay such low tax in Australia, just as they do here in America.

In Apple’s case the company uses a structure where it pays more than fair value for the products it resells, so that the company’s business can be done in nations with lower tax rates. This scheme sees Apple report tiny profit margins in Australia, well out of kilter with the 30 per cent plus margins it reports to investors.

Microsoft and Google book their sales through their Singapore entities to take advantage of the island-state’s kinder tax rates. They also use Ireland for the practice for other countries.

While the practices are not illegal they are certainly cynical.

To figure out how to crack down on these practices, in which different methods for hiding profits are used, the Committee asked the Australian Taxation Office (ATO) to explain how it might be possible to compare the practices of businesses with conventional tax arrangements to those using the typical tech tax dodges.

The ATO has delivered a 13-page document which explains how to unravel tax tricks in order to assess how much multinationals actually earn.

The methodology counts many payments made to related entities as income so that, for example, the payments Apple Australia makes to other Apple companies to buy products would be assessed for the component of income in the transferred sums.

Apple Australia has argued that it pays above market price because doing so means it is contributing to R&D costs, among other expenses borne by Apple USA.

The ATO’s delivery of the document to the committee is unusual, as the bureau has previously argued it can’t discuss individual company tax matters.

The chair of the committee’s inquiry, opposition senator Sam Dastyari, has said he expects the methodology will let the committee report on just how much tax tech companies and other multinationals should be paying.

The next step will be to see if any countries decide to enact new laws to properly tax the tech titans.

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