We popped by to visit Mark Stewart Tucker on Saturday at his home at Bungan Beach. Mark lives on the leafy northern peninsula of Sydney and is one of Google Australia's three directors.
The other two, a couple of low-key finance operators called Sucherman and Marocco, reside in California. The person Google Australia publicly calls its ''managing director'', Maile Carnegie, is not actually a director of any Google entity, according to corporate database searches.
Perhaps her managing director title has been fashioned in the tradition of a Knight of the Jedi. Perhaps we can all anoint ourselves directors of Google and Knights of the Jedi to boot!
Maile is accomplished enough. She was a director of Gillette Australia and Procter & Gamble Australia, but has never been registered with any Google entity on the Australian Securities and Investments Commission database.
Anyway, Mark Stewart Tucker, the one statutory director of Google Australia within a distance of 11,960 kilometres, wasn't home when we dropped by, so we left a note.
Mark hasn't called back yet. No matter, it was quite invigorating to do a ''doorknock'' as they call it in the trade. We finance hacks are more likely to be seen dabbing a sliver of filet in a fine red-wine jus than chasing a real yarn with a notebook and a biro. And in order to make this a multimedia story, as journalists are wont to do these days, we took a picture of Mark's house and tweeted it last night. Why not? Google has taken a photo of everybody else's house in Australia. You see, Google is exceedingly liberal with other people's information but assiduously furtive with its own, even to the point of deceit. That is why we were desperately seeking somebody accountable.
The $7.1m tax figure
For the past three weeks, via a dozen phone calls and emails, Google's spokespeople have sworn black and blue that the company ''paid $7.1 million tax'' last year. This had been triple-checked with internal and external parties, and with Ernst & Young, the auditor, too, we were told.
This wild $7.1 million claim was also written up in an exclusive interview by The Australian Financial Review's Boss magazine with Maile Carnegie.
The truth is that Google has been exaggerating the amount of tax it pays in Australia by 2388 per cent. It paid $295,727 in 2013, not $7.1 million.
Being charitable, you could say that the total income tax expense for the year was $466,802 and that Google has been misrepresenting its tax only by a factor of 15 times (rather than 24 times) but we shall leave the intricacies of Google's corporate embroidery for later.
Suffice it to say that Walter Mitty himself would resile from such brazen distortions. Even so, this is only a small part of the overall Google charade. While its public relations machine finally confessed last week that it might have erred on the tax paid, it still left more critical questions unanswered.
Not a 'permanent establishment'
On what profits are these minuscule taxes being paid? The profits ''from'' Google Australia are not the same as the profits Google makes ''in'' Australia.
Google Australia books contract revenues for R&D from its related Google entities overseas in order to help itself to the government's R&D tax break schemes. Those revenues were $340 million last year (from Google Inc, Google Ireland and Google Asia Pacific). The actual advertising revenues from Google's Australian customers - estimated at $2 billion - are booked through Singapore (Google Asia Pacific).
Yet Google is pretending that Google Asia is not a ''permanent establishment'' in Australia under the tax laws; that is, that it does not carry out a business here selling advertising services to its Australian customers. If it were, it would have to pay the 30 per cent corporate rate.
It is pretty obviously a permanent establishment (even if it runs the business through third-party resellers to distance itself). This is an Australian business but the tax office chooses to let Google get away with it.
Meanwhile, while it has been dissembling over its tax avoidance, Google has been hosting tech journalists on a lavish junket overseas. And so it is that we have been treated to effusive yarns about the magnificence of its latest contraption: Google Cardboard.
A Luddite of our standing could not possibly pass judgment on something as sophisticated as Google Cardboard. But Google is without peer when it comes to its financial structuring and PR service, Google Smoke & Mirrors.
To address Google's misleading claims about the amount of tax it pays, the $7.1 million number is but one component of its 2013 tax expense calculation.
Conveniently, it bandied this number about when the newspapers noticed its financial accounts had been released. The PR strategy was to spin that Google Australia's tax payments had shot up tenfold and that they now represented 15 per cent of profits.
The advertising issue
As explained before, the profit number is illusory anyway, since it has nothing to do with Google's primary and ostensible business here, which is advertising.
Even so, no such payment of $7.1 million was ever made by Google Australia to the taxman. After three weeks of needling them for the truth, Google finally told us tax installments of $3.2 million were paid in respect of 2013 but these were offset by a refund in respect of 2012 of $2.9 million (that's how you get to the $0.28 million shown in the cash-flow statement).
Originally, Google had tried to make out that 2012 amounts were part of its "$7.1 paid in 2013" story. Deducting installments of $3.2 million plus the $0.028 million prior year adjustment (made in the 2013 year) from $7.1 million gives the $3.8 million shown as payable in the company's balance sheet.
At best, Google can claim they made some cash transfers to the ATO totalling $3.2 million but then, either before or after those payments, they got a refund of $2.9 million. At no stage was Google Australia ever out of pocket in 2013 for an amount of the $7.1 million.
As Google does not publish general purpose accounts it is impossible to get much idea of the related party transactions which are going on. The only clues in the accounts to tax minimising are the R&D concessions and the fact that Google Australia remunerates staff with Google shares.
Two things here: one, hooking staff up with Google shares ensures their loyalty to Google Inc, as opposed to Google Australiaor any other stakeholder. Two, the R&D concessions have been claimed for years despite the fact that IP developed here inAustralia has been transferred overseas to Google Inc. Google Australia has admitted as much.
In their defence – and in the defence of the tax authorities who are doing a lacklustre job when it comes to policing multinational companies – there is merit in offering inducements for companies to conduct R&D in this country. Whether they should be taking the IP out of the country is another thing.
There is a high aroma coming from these financial statements. The suspiciously heavy expenses line in the P&L – including a $14 million travel bill for a staff of 900 (claimed to be mostly software engineers) and $40 million in advertising and promotional expenses to break out two items – are cause for an arched eyebrow.
The big question is, and this one is yet to meet a response, how can Google justify claiming that its advertising operation (whose income is booked through Singapore) should not be classified as a permanent establishment in this country and therefore taxed at the corporate rate of 30 per cent?
Incidentally, Google Inc released the results for New Zealand the other day. According to Google Australia's accounts, revenue was $358 million for 2013 but the Kiwi operation recorded $438 million ($NZ471 million) in revenue. That's right, a country with population one-sixth the size of Australia recorded higher sales with Google.
Frankly, we haven't got a clue what makes up that number in New Zealand but one thing is clear, Google is taking Australia for a ride. Let's say the Kiwi revenue is ad revenue, if we multiply that for a larger population we get revenues of $2.6 billion. That's more like it.