Tech company Microsoft has been accused of hypocrisy, for winning huge government contracts but using aggressive methods to minimise the amount of tax it pays to support public services.
A global report from the Centre for International Corporate Tax Accountability and Research (CICTAR) revealed the tech company's global profit margin was 42.3 per cent last year.
But in Australia its was 4.5 per cent, suggesting it is using complex – but legal — methods to shift money and minimise tax.
"We think there's a strong rationale to not reward tax dodging multinationals with contracts, financed by you and I and other taxpayers," Jason Ward, principal analyst at CICTAR, said.
"Microsoft is winning hundreds of millions of dollars in federal contracts in Australia and much more internationally.
"They should be required to be transparent as a condition of any future contracts."
The report finds the systems used by multinational organisations to move money around are complex but meet obligations in the countries where they operate.
Mr Ward said Microsoft and its associates are not being accused of doing anything that breaks the law.
"We're not making any allegations that Microsoft has done anything illegal," he said.
"We are saying that this shows that the rules need to be changed, because this type of behaviour is unacceptable, and certainly is not sustainable in terms of financing the public services that Microsoft, and the general public and all businesses and communities rely on."
A Microsoft spokesperson said the company was compliant with laws in every country it was a part of, after being presented with the key allegations in the global report.
"Microsoft is fully compliant with all local laws and regulations in every country in which we operate," they said.
"We serve customers in countries all over the world and our tax structure reflects that global footprint."
Big contracts award for little tax paid
The report titled Gaming global taxes – winning government contracts details a conflict between the company's success in deriving billions in revenues from providing IT services to governments, while being criticised for a poor track record of transparency in paying tax – the main way governments get revenue to operate.
The report argues Microsoft has been awarded over $634 million in Australian government contracts, and more than $270 million since 2017.
The major contracts are for Defence, Services Australia – which operates welfare programs – and the Department of Education.
The report claims Microsoft uses a vast network of subsidiary companies around the world to impact its taxes.
Multinational companies have used a variety of ways to reduce their taxable income.
Some demand subsidiary companies in a high-tax country pay an office in a low-tax country for the use of intellectual property. Others make high interest loans between companies in different countries, reducing the amount of tax owed in a jurisdiction with stronger tax rates.
The report said there are "billions of dollars in financial flows between companies that have zero employees and claim residency in known secrecy jurisdictions including Luxembourg, Singapore, Bermuda, Ireland, and the Netherlands".
Global action
Andrew Leigh, assistant minister for charities, competition and treasury, wants big tech companies to change their ways.
"It is vital that all companies – especially large multinationals, pay their fair share in taxes," he said.
Australia is part of a global push to create a "floor" of tax, to prevent companies moving their money between nations.
"When our wealthiest companies refuse to pay their share it threatens to disturb the economic equilibrium of our society," Dr Leigh said.
"That's why the Australian government has committed to taking a range of measures, including supporting the OECD/G20 two-pillar solution that include a global minimum corporate tax rate of 15 per cent."
Investors weigh in on tax tactics
Michael Wyrsch is the chief investment officer at Vision Super and oversees more than $11 billion in funds for members.
The fund holds Microsoft stock as part of its tech holdings and is concerned about its attitude towards tax minimisation.
"I think tax is really important," he said.
"Otherwise you don't have a proper tax system, you have a society that's going to be failing right over time."
He said there is a growing concern about the company's "social licence" to operate, essentially the agreement that taxpayers and businesses will work together to contribute to tax – paying for services like hospitals, schools and roads.
"Those companies that aren't particularly (focused on it) they're in more danger,' he said.
"If they don't have public support, they're in more danger of regulatory risk than they were probably 10 or 15 years ago."
Mr Wyrsch contends the global conversation about tax is changing.
"Five years ago, people were saying things like – I kid you not – investors, were saying things like, 'we've just got to give Amazon a bit more time. They're gonna come to the party'," he said.
"It was just fantasy land and there seems to be a lot harder edge now to this stuff."
Mr Ward said tech companies like Microsoft rely on a safe, secure and well-educated population to sell products — created by a safety net of schools, hospitals, defence forces and services paid for by tax.
He sees it as hypocritical for Microsoft to advocate for the UN sustainable development goals — which push to address challenges like poverty and safety.
"When in fact its business operations are stealing from the public coffers. That could be funding health care, nurses, schools," Mr ward said.
"It's incredible to think that, an aged care worker pays a higher rate of income tax than one of the largest companies in the world."
Issue is now 'on the radar' of investors
Ethical Partners Funds Management head of sustainability Robyn Parkin said the issue of tax transparency is "coming up on the radar" of responsible investors.
Similar to conversations large fund managers are having around sustainability, companies that pay their fair share of tax – or don't – are becoming a factor in decisions about what to invest in.
"Companies are dependent on the social capital that taxation actually helps protect and provide," she said.
"They're dependent on a healthy workforce, they're dependent on a functioning society and paying tax as a good corporate citizen is part of actually maintaining the environment and the society in which they can actually operate.
"Tax avoidance may increase short-term profits, but long-term a company is going to need good social capital and a good social structure.
"Things like inequality and systemic risks like that are a real danger to a company operating in the long term."
