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Spotify’s tax affairs in Australia under the spotlight

By | Published on Tuesday 16 June 2020


Spotify’s tax affairs in Australia have been put under the spotlight after the Australian Financial Review reported last month that the streaming service’s Australian division reported premium revenue in 2019 of just $416,000, compared to $129 million in 2016.

That’s despite the significant growth in premium streaming during that time. It’s estimated that Spotify’s userbase in Australia more than doubled between 2016 and 2019, although exact country-by-country figures are not available for either total userbase or premium subscribers.

The reason for the disparity is that Spotify is no longer running its Australian subscription income through its Australian division, with subscriptions instead handled by its parent company in Luxembourg, where corporation tax rates are much more favourable.

Some speculated that this was a reaction to a change in Australian tax laws that took place in 2016, but a Spotify spokesperson said the shift in the way it reports revenue had been part of a global evolution of its accounting practices and not in response to any specific rule change in Australia.

Spotify’s ad income in the country is still reported by its Australian division, but all subscription monies now go straight to the parent company. The $416,000 of subscription income reported in Australia in 2019 related to a legacy tel co deal.

The way tech companies organise their finances on a global basis – and the impact that has on the taxes that they pay – has been a big talking point for years, of course. And unlike the Googles and Facebooks of the world, to date Spotify has only had nominal profits to tax, if that.

But as the business grows and starts to become profitable – especially in more mature markets – it is likely that the streaming firm’s tax affairs will be increasingly scrutinised by regulators, law-makers and its critics in the music community.

AFR quotes Peter Wells, a professor in the accounting discipline group at University Of Technology Sydney, who says: “As practices like this become more widespread in a service-based economy, the tax base is going to get eroded. I think it’s something we can expect the government to address through more legislation and the Australian Tax Office to address through judicial responses”.