Industry sources estimate the Australian operations of Facebook are generating at least $60 million a year in revenue.

Industry sources estimate the Australian operations of Facebook are generating at least $60 million a year in revenue. Photo: Getty Images

US tech giant Facebook has sought immunity from corporate rules in Australia requiring companies to disclose their earnings.

It is also understood to be booking its local revenue in Ireland, amid growing concern over profit-shifting by international companies.

The company applied for an exemption from parts of the Corporations Act in 2009, according to documents registered with the Australian Securities and Investments Commission.

FILE: In this file photo the Facebook Inc. logo is reflected in the eyeglasses of a user in this arranged photo in San Francisco, California, U.S., on Wednesday, Dec. 7, 2011. A Facebook IPO would provide funds to help the social-networking service maintain its expansion and fend off competition from Internet rivals such as Google Inc. and Twitter Inc. Photographer: David Paul Morris/Bloomberg

Facebook is one of Australia's top 10 advertising platforms. Photo: David Paul Morris

It means that the company has never disclosed its Australian earnings – and raises questions about where the company books its Australian revenue.

Industry sources estimate that the Australian operations of Facebook are generating at least $60 million a year in revenue, mostly from advertising on the social network.

However, advertisers have told Fairfax Media that they are billed by an Ireland-based subsidiary of Facebook, whose European corporate headquarters is in Dublin.

'Not part of a large group'

Legal experts said the exemption was an indication the company used an intermediary or shell company to claim control over its local operations. This could also be used to lower its tax bill, they said.

''It's very likely that Facebook is using its Irish companies to book revenue from Australia and Asia,'' Antony Ting, senior law lecturer at the University of Sydney Business School said.

The exemption, signed by former Facebook Australia director Elisabeth Houston, argues the company does not need to file a financial report in Australia under a waiver available to foreign-owned companies that are ''not part of a large group'' – as defined as having more than 50 employees and revenues above $25 million a year.

Facebook's US parent company is one of the biggest companies in the world, with a market capitalisation of $US169 billion and revenue of more than $US7 billion a year.

Tech companies including Google and Apple have come under criticism in Australia and around the world for using low-taxing Ireland to reduce their global tax bills.

Facebook has refused to disclose its Australian earnings or say where it books its local revenue.

''We comply with all applicable laws,'' a spokeswoman said.

Revenue to double

But ad experts tip the company will double its Australian revenue next financial year as it seeks to beef up advertising on its newsfeeds and partner with major sporting codes.

"It's a very important channel and therefore we expect its advertising revenue to grow by 50 per cent plus in the next 12 months," Ben Willee of Spinach Advertising said.

Analysts and ad companies estimate that digital now attracts between 30 and 35 per cent of Australia's $13 billion advertising pie, with social media a key component of the fast-growing digital sector.

Facebook has 12 million users in Australia and is among the top ten digital advertising platforms in the country alongside Google and Yahoo!7. Sources suggest it will attract at least $60 million in advertising revenue in the year to June 30.

Global tax reform

The OECD is currently engaged in a major tax reform project to address the issue of corporate tax evasion and profit shifting.

One of the major considerations is whether the current tax rules need be updated to reflect the ability of digital companies to shift profits overseas.

Prime Minister Tony Abbott told a business conference in the US this week that he was serious about leading global efforts to stop profit shifting by multinationals, many of which are America's biggest companies.

"We need global tax rules to ensure that businesses pay tax in the countries where they earn revenue," he said.

In an interview with Channel Nine's Financial Review Sunday program, Facebook Australia chief executive William Easton, said the company did post financial reports in Australia.

''We comply with all local government policies and regulations, and posting of company reports and tax is a part of that,'' he said.

He would not say how much the company paid in tax or whether it booked Australian revenue offshore.

''I'm not a tax expert,'' he said. ''We comply with all tax regulations.''

Dublin double

Facebook has two subsidiaries in Ireland which are responsible for booking much of its revenue – Facebook Ireland and Edge Network Services.

Mr Ting said it was likely the company was using the same strategy as Google and Apple to minimise its tax through its headquarters in Dublin.

''Most of the income derived by the Irish companies is likely to escape taxation anywhere in the world, similar to the structure of Apple,'' he said.

''The structure is likely to be legal, but highlights the problems of the existing international tax rules, namely the taxing right of income is not allocated to the location where the income is generated.

Julie Flynn, CEO of industry body Free TV Australia, said the exemption was "the latest example of how the playing field is skewed against Australian-based industries like ours."

"We're heavily regulated and pay one of the highest licence fees in the world on top of our company taxes," she said.

"These international online companies are not subject to regulation, and pay virtually no tax in Australia. It certainly doesn't amount to a fair go."

ASIC does not approve exemptions, known as class orders, individually. It is up to a company to meet the obligations and the regulator can take action if it believes the conditions are not being met.

 

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