Which businesses pay the most tax in Australia?
October is like Christmas for data nerds. The annual Corporate Tax Transparency Report is out and offers a glimpse into the activities of companies that often keep their business very private.
Through this little porthole, we can see what’s happening for large private companies and foreign subsidiaries that we would normally never find.
Now, there is a wealth of data on Australia’s public companies that must report their earnings to the stock market. It’s easy enough to find out what’s on at Woolworths and Wesfarmers, Myer and BHP. And so, generally, we focus on these companies.
But the economy is much larger than publicly listed markets. Indeed, public markets are shrinking as a share of the economy as more companies access capital privately and unseen. There are many foreign companies operating in Australia and their performance in Australia – even if they are listed in Europe or America – never deteriorates.
Have you ever wondered if Uniqlo is profitable? There you go, let’s compare Uniqlo (Japanese clothing giant) with Unilever (the British soap concern is all about a sideline with a little bit of everything). We can see that Aussies are increasingly crazy for basic clothing, but they may be moving on from Dove Soap and Continental Cup-a-Soup.
The relative height of the tax line and the tax payable line are mostly affected by profit margins. As a company with high margins will pay more of its income in taxes:
It’s worth emphasizing the obvious: Companies pay taxes only on profits, not income. Otherwise a company with skinny margins will get slammed by the cabbie. In this case, we see that Hermès paid approximately $50 million in taxes on approximately $480 million in revenue. This makes sense to me. Let’s assume the profit margin is fat, let’s say 35%. Then the company tax levy is 30%. Therefore, it makes a net profit of $170 million on sales and contributes 30%, approximately $50 million, to the Australian government.
The gross profit would be much higher (Hermes Tie costs $430!) but the net profit would be lower than the rent would be for fancy locations, well-groomed staff, marketing, etc.
No whispers of tax acumen from the storied French workshop. Different… some… Other businesses.
If we check some companies we find a curious ratio. Huge revenues and no taxes. Now, the ATO has a prosecution wing and they would be working furiously if all this were not legal. I believe these companies are probably working correctly. The corporate structure is not explained by this graph, we cannot say that there is profit shifting or any other artistic structuring. Maybe these companies are losing a lot of money. Or perhaps the taxes are paid by another entity not captured in the dataset. Still, it’s definitely a source of intrigue.
To finish, we will go back to where we started, two large companies from Northern Italy. In the North East there is Ferrero, a company that started when a cocoa shortage forced a baker to start adding hazelnuts to their chocolate fillings. And in the middle north is Ferrari, which started when a racing driver stopped working for Alfa Romeo and went out on his own. Both are formidable global brands with enormous appeal. But in the race between horsepower and sugar, it’s the latter that wins the Australian public: Ferrero makes more money and pays more taxes.
