Australia can thank its No. 1 trading partner, whose old economy is reviving as fiscal stimulus gets smokestacks billowing again. Traditional Chinese industries seen as proxies for growth, such as electricity and rail cargo, have collectively bounced back to the highest level in three years. The big unknown: the durability of a turnaround that’s ended a more than 50 percent drop in commodity prices between 2011 and 2016.
Thursday, January 5, 2017
Monday, June 13, 2016
Just because you spent a fortune on setting up overseas tax ministration structure does not mean that you won't end up paying it. Aivars Lode
By Heath Aston
Apple is one of many tech companies accused of shifting its Australian profits to places such as Ireland.
Imagine the extra cream left in the jug of the household budget if we all paid an income tax rate of one cent in the dollar.
So how does Apple justify such a laughably low profit margin in Australia?
Holidays on luxury yachts would no longer be the preserve of rap stars, investment bankers and the founders of Silicon Valley start-ups.
Chief executives and their advisers will tell you that understanding a multinational company's tax bill is far too complex for mere mortals.
It is not. And the numbers don't lie.
Apple's offering to the Australian tax man in 2015 was $85 million. In the same year, the company notched local sales of $8 billion. Of course, company tax is paid on profit not sales. Apple announced an Australian profit on those $8 billion of sales of just $123 million.
If you believe that is Apple's actual profit margin on products sold in Australia, step this way and start queuing for the iPhone 7. It washes the dishes and walks the dog and I can get you one cheap.
On Wednesday morning, Apple released its global profit statement. It was a far more plausible $US18.4 billion net profit on sales of $US75.9 billion.
So how does Apple justify such a laughably low profit margin in Australia?
With the same excuse used by all the big multinational companies, from its rival Google to the big pharmaceutical groups and the oil and gas giants: related party transactions.
These can include loans from a separate division of the company based in a low-tax country that come with punishing interest rates. They can also be steeply-priced intellectual property charges that the Australian arm is asked to pay another division.
In Apple's and Google's cases the process has been referred to as the "double Irish Dutch sandwich" but, whatever the means, the end result is a flow of funds out of Australia, severely limiting the profit that is left behind to be taxed. It is not rocket science.
The next 12 months will be the defining moment in forcing multinationals to at last pay a fair share in Australia.
The Coalition's multinational tax-avoidance law took effect on January 1 and will target 1000 companies with global sales of $1 billion or more.
Under the law, companies can be slapped with double tax, plus interest, if found to be illegally shifting profits offshore.
The carrot effect in encouraging companies to sit down and negotiate a more reasonable tax contribution is already working, according to Tax Commissioner Chris Jordan.
In Britain, the first OECD country to introduce a diverted profits law, Google this week offered $265 million in back-taxes as a token contribution to signify its acceptance of the new playing field there.
But if anyone thinks all 1000 multinationals will meekly start paying 30¢ in the dollar, you might also want to buy my iPhone 7.
Even after their humiliating grilling by the Senate's tax avoidance committee, the tech companies have maintained their implausibly low profit margins in Australia this year.
Those companies are known for the kind of agility lauded by Malcolm Turnbull.
Unfortunately, it is their agile approach to tax minimisation that is putting pressure on the Prime Minister's budget bottom line and making it more likely we will all be paying a higher GST on everything - including the next model of iPhone.
Trouble in the unicorn world. Are valuations artificially being kept high by staying private? Aivars Lode
By Mark Boslet
Private company investors showed an abrupt caution for unicorn financings in the fourth quarter of last year with average valuations plunging and the use of tough deal terms on the rise.
A Fenwick & West survey of most, if not all, unicorn deals from the final nine months of 2015 uncovered a big drop in the fourth-quarter appetite of VCs and non-traditional investors to reward entrepreneurs with big mark-ups and eye-popping company valuations.
The study is the latest piece of evidence to point to a cooling of interest in so-called unicorn deal making as venture capitalists reassess exactly what their startups are worth.
In contrast to a prior study covering most of 2014 and the first quarter of 2015, the average valuation of unicorn financings in the fourth quarter was $1.6 billion. This is down from $4.1 billion in the third quarter and $5.6 billion in the second quarter.
Worth noting is that half of the Q4 deals came in with valuations of between $1 billion and $1.1 billion, or just enough for each of the companies to win the moniker of a being unicorn as they crossed the $1 billion threshold.
As a result, the average mark up over a company’s Series A round was a third or less than what it was earlier in the year. The average per share price increase over an A round was 2,081 percent in the fourth quarter compared with 6,291 percent in the third quarter, the study found.
The use of investor friendly terms also jumped. Senior liquidation preferences were far more common and the use of IPO protections increased. A third of deals had blocking rights, keeping a unicorn investor’s shares from automatically converting into common stock at an IPO unless the IPO price meets a certain level.
Ratchets giving investors extra shares if an IPO price falls below that of the unicorn round also were more frequent. They turned up in 17 percent of fourth quarter deals, the study found.
Non-traditional investors led 84 percent of unicorn deals in the final nine months of last year and the average deal size was $222 million.
The takeover, which was announced in October, looked like plain sailing, but the falling stock market, and in particular the crash in tech stock prices, appears to have had a knock-on effect: Dell has, we're told, hit a fundraising snag.
The New York Post reports that the banking consortium, led by JP Morgan, that was supposed to have nailed the first $10bn on Wednesday, has asked for a 10-day extension after struggling to price and sell the necessary bonds to the credit markets. This is according to an anonymous source.
It is suggested that Dell is also having problems selling Perot Systems. Dell had been asking around $5bn for the firm, which would help its finances considerably.
Atos had been the front runner to buy Perot but has pulled out of the bidding, citing stock price worries. NTT Data and Tata are apparently still in the bidding to take over Perot Systems.
The stock market has also caused problems with the terms of the EMC takeover deal. Shareholders in the company were due to get $24.05 per share in cash and a tracking stock tied to the value of VMware. That was when stock in VMware was worth $69 per share – it's currently at $43 and trending downwards.
If the deal doesn't go ahead, there's going to be a hefty bill to pay. Under the terms of the deal, Dell has to pay EMC $4bn in compensation if the buyout falls through, and that's going to wipe the smile off Michael Dell's face for a long time.
"The EMC transaction is on schedule under the original timetable and the original terms," a Dell spokesman told The Post. There has been no response to requests for information from El Reg.