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Executive Summary
This report is based on organizational context of AT&T Inc with the aim of identifying the existing legislative framework and signed agreements of Australia (host country) that is affecting the service delivery of AT&T Inc. Further, this report discussed about few significant agreements that are affecting the business of AT&T Inc in Australia. Through the report it can be identified that the existing Taxation system and Free Trade Agreement of Australia have a significant impact on the business of AT& T Inc. While paying business tax is helping the company to develop positive market within Australia, Free Trade Agreements allows the business to enjoy non-discriminatory business Australian market.
1 Introduction
The regulatory framework is the essence of business as it holds everyone accountable for their actions within or outside the organisations. Therefore in order to operate business in global locations, businesses need to ensure they operate within the legal framework of both host nation and home nation. This report is based on organizational context of AT&T Incwith the aim of identifying existing legislative framework and significant agreements of Australia (host country) that is affecting the service delivery of AT&T Inc. Further,this report discussed about few significant agreements that are affecting the business of AT&T Inc in Australia.
1.1 Overview of the telecommunication industry and AT&T Inc
AT& T Inc is an American multinational company and headquarter is in Whitacre Tower in Downtown Dallas which is in Texas. The journey of the company started with the beginning of Southwestern Bell Telephone which is a subsidairy of Bell Telephone founded by Graham Bell in the year 1880. As a part of the growth initiatives in 2018, AT7T Inc took over the Warner Media and transformed into the world’s leading media & Entertainment Company based on its profitability (Salop, 2018). AT&T Inc is a modern media company based in the US and operating their business across the globe, within the telecommunication industry. This company operates their business with total employee strength of 2, 73,210(AT&T, 2019). The operation of AT&T Inc started in Australia in the year 1992 and at present it has position itself as the leading solution provider within Australia. The Australian telecommunication industry generates $38 bn every year with an annual growth rate of 0.2% (2014-2019)(Ibisworld.com.au, 2019).
2 Evaluation of legislative regulatory framework affecting the business of AT&T Inc (MNC)
Over the years a paradigm shift can be evident in the way companies run their business. Companies have shifted their interest from local or domestic to global market. According to Gunn (2017) the positive impact of globalization is that it allows companies to access a bigger market for selling products or services, across different continents; however, that has increased the level of complexity. As companies started operating in global market, the initial concern for business is to understand different regulatory frameworks of different countries and ensure operating business within those existing regulatory frameworks.
2.1 Corporate tax in Australia
A business must pay tax to federal, state and local governments in order to operate within Australia. This tax rate is dependent on the size and location as because tax rate for small business in Australia is 27.5%, whereas MNC and other big companies of Australia pay tax at the rate of 30% (Austrade.gov.au, 2019).AT&T Inc which operates within Australian market are liable to pay 30% tax of their total income to the federal government of Australia. Taxes of Australia are collected and controlled by Australian Taxation Office (ATO) and in few cases by the revenue offices of state government. Parker (2018) opined that businesses can save money and time by paying right amount of tax and enjoy taking advantages of tax concession. Some of the key taxes systems that can have significant impact on the service of AT&T are as followed
Company Tax
Capital Gains Tax (CGT)
Goods and Services Tax (GST)
AT&T has the right to decide whether it wants to pay the tax on monthly, quarterly or yearly basis.
2.1.1 Company Tax
AT&T which is a non-resident company in Australia pays tax on its domestic source of income in Australian market, same as domestic companies. However, taxable amount might differ under certain conditions like industry or business structure. AT&T must pay regular tax on their income amount of Australian market to continue operating their business.
2.1.2 Capital Gains Tax
Capital Gains Tax (CGT) is applicable on any assets gained through the disposal possessions (Faccio and Xu, 2015). AT&T needs to pay CGT as a part of their income tax to the federal government of Australia. However, as a foreign entity, AT&T might have to pay CGT on various assets acquired and used for their business. AT&T need to ensure that they keep a track of every asset it uses for business and it could be subject to CGT in future.
2.1.3 Goods and Service tax
Goods and the service tax is applicable on most of the goods and services purchase and used in Australia. AT&T needs to list itself for the GST in the ATO office. Businesses that buy business supplies with GST can declare a similar amount of tax credit (Ramliet al., 2015).
2.1.4 Payroll tax
Payroll taxes are applied on the salary business reimburse to its employees and it need to be paid to the state government of Australia. It is considered on monthly salary of employees and must be paid if total salaries (Australian) surpass the exempted amounts per the state. AT&T needs to pay Payroll tax to the state government if the monthly wages of employees exceed the excepted threshold for Australian wages.
2.1.5 Consequences of unpaid taxes
Based on the latest Corporate tax transparency report released by Australian Taxation office suggest that one-third of the large Australian companies do not pay their taxes or failed to pay their taxes, even after making a gross profit (ABC News, 2019). The officials of ATO referred in this report that concentrated effort on multinational tax avoidance had begun to appear as multinational companies reconstructed their tax payment structure to stay within the law. This report further highlighted that companies reconstructed tax payment structure to increase the compliance with country based reporting system.The report of ATO report clearly states that AT&TInc has total income of $ 146,079,439 with a taxable income of $7,206,984 and tax payable for the company is $ 2,162,095. If companies failed to pay taxes there are some consequences that companies need to faces such as
- ATO can add interest to the total unpaid amount on a daily compounding basis
- Companies will receive notifications from ATO via letter, phone, SMS or message in MyGov
- If there is any future credits left for the company, ATO will use that to repay the unpaid amount
- ATO has the right to appoint external collection agencies to collect debt on their behalf
- ATO is authorised to take string actions on the denial of working towards repayment of unpaid amount or repeatedly defaulting agreed payment plans.
These above actions are applied only when companies including MNC failed to pay their tax on time of the gross income and Australian Taxation Office has the authority to take any of the above actions. However, each of these actions might have negative impact of the business process and reputation of AT&T Inc. Hence, it is critical for AT&T Inc to understand different tax applied of business to run smooth business and develop positive reputation among customers and global investors. Not only AT&TInc, but also every MNC which are planning to enter the Australian market for their business must consider the existing taxation system of Australia for efficiency business process.
3 Discussion of agreements that are affecting the services of AT&T Inc
Trade agreements have major impacts on business and investment across the globe. As a matter of facts trade agreements are accountable for shaping business relationships among companies all over the world (Kohlet al., 2016). In order to deliver service or sale products in global market, MNCs needs to be aware of different trade agreement and impact of those trade agreements on business. Similarly leaders or managers of big corporate must be aware of the trade agreements to understand the market need and financial concerns of consumers. Based on this rationally, AT&T Inc needs to build awareness about the Australian Free Trade agreements (FTAs)as it might impacts the provision of services offered by the company.
3.1 Free trade Agreements of Australia
Free Trade Agreement is agreement between multiple countries that generate benefits for importers, exporters, producer and investors of Australia by eliminating some barriers of international trades and investments (Department of Foreign Affairs and Trade, 2019). Australia signed total 11 FTAs with individuals and group of countries.
3.1.1 Australia-United States FTA
The FTA between Australian and United States implemented on 1st January 2005. This contract presents a landmark in developing Australia’s trade association with United States which is known as world’s richest economy. Besides, the US is known as most significant service exporter and importer across the globe. Thus, this FTA significantly developed Australia’s importance as a destination of the US investment and important for the effort which makes Australia competitive in global market. This FTA holds special significance for service providers like AT&T Inc in Australia. This trade agreement provides immediate benefits for the US manufacturing workers and companies. This will further help the US to enter into service market with the sense of equal behaviour (Department of Foreign Affairs and Trade, 2019). One the basis of this FTA, the US based service providers will be allowed to bid for Australian’s government purchases on a non-discriminatory basis. All exporters of the US will be able to enjoy duty free services in Australia. This will bring more transparency in the pricing policy as the US based multinational service providers will be allowed to fix the service price based on the domestic market. For instance, AT&T Inc being a US based company will be allowed to charge same for their services in Australian market, like other existing service providers due to the FTAs.
3.1.1.1 Electronic commerce
Australia is the leader in the electronic commerce market and comes 9th in world ranking of readiness and 8th in the world in Internet penetration. Notably, 95% of Australian businesses along with the 66 % of households are connected to internet service. This makes Australia a profitable market for the US for investing in electronic commerce. In the market, FTA is accountably securing the rights of products like software, music & video and ensures it receives non-discriminatory treatment. Further customs duty will not be applied on these services under FTA. AT &T Inc which offers pay -TV services to its customers will receive non-discriminatory treatment in the Australian market, leading to more profitability for the business.
Under the FTA both Australian and US governments recognise the legal validity of the electronic signature and ensure maintaining a technology-neutral approach for their use (Weatherall, 2015). Further Free Trade Agreements develop compliance on part of both governments to start discussion on the identification of digital certification issued by or on behalf of third party. Another significant approach included in FTA agreement defines effective online consumer protection. As per this clause, both Australian and US governments must be liable for any paperless trade administration and ensure consumer protection even under paperless trade agreements.
Therefore, after evaluating the Free Trade Agreement between Australia-US, it can be identified that Free Trade Agreement of Australia with the US will allow AT&T to run their operation is the Australian market with a sense of non-discrimination. While delivering service to the customer, AT&T Inc will enjoy an equal market share in the Australian market. The price of services will be fixed against the existing market price of other telecommunication providers. Any and every legal agreement or contracts that aresigned online,with the customers will be administered by both Australian and US governments, ensuring online consumer protection. Further, AT&T Inc under the FTA will not be subject to custom duty. Custom duty free business under the free trade agreement will help the company to keep their service price low compared to those companies which pay customsduty to the Australian Government. Thus Free Trade Agreement helped AT&T Inc to be one of the major competitors in the telecommunication market.
4 Conclusions
The aim of this report was to identify any legislative regulatory framework and agreement of Australia that can create impact on the services and business operation of AT&T Inc. Through the discussion it can be identified that existing Taxation system and Free Trade Agreement of Australia have significant impact on the business of AT& T Inc. While paying business tax is helping the company to develop positive market within Australia, Free Trade Agreements allows the business to enjoy non-discriminatory business Australian market. Therefore, it can be concluded that regulatory framework and agreements impact the way an MNC operate in host country and regulate their service terms.
References
- ABC News. (2019). You’re paying more tax than some of Australia’s biggest companies. [online] Available at: https://www.abc.net.au/news/2018-12-13/one-third-of-australian-companies-paid-no-tax-ato/10614916 [Accessed 25 Apr. 2019].
- AT&T. (2019). AT&T® Official Site – Phone Plans, Internet Service, & TV – att.com. [online] Available at: https://www.att.com/ [Accessed 24 Apr. 2019].
- Austrade.gov.au. (2019). Australian business taxes – Austrade. [online] Available at: https://www.austrade.gov.au/International/Invest/Guide-to-investing/Running-a-business/Understanding-Australian-taxes/Australian-business-taxes [Accessed 25 Apr. 2019].
- Department of Foreign Affairs and Trade. (2019). Australia’s free trade agreements (FTAs). [online] Available at: https://dfat.gov.au/trade/agreements/pages/trade-agreements.aspx [Accessed 25 Apr. 2019].
- Faccio, M. and Xu, J., 2015.Taxes and capital structure. Journal of Financial and Quantitative Analysis, 50(3), pp.277-300.
- Gunn, S., 2017. Globalisation, education and culture shock.Taylor & Francis.
- Ibisworld.com.au. (2019). Telecommunications Services Australia Industry Report | IBISWorld. [online] Available at: https://www.ibisworld.com.au/industry-trends/market-research-reports/information-media-telecommunications/services/telecommunications-services.html [Accessed 25 Apr. 2019].
- Kohl, T., Brakman, S. and Garretsen, H., 2016. Do trade agreements stimulate international trade differently? Evidence from 296 trade agreements. The World Economy, 39(1), pp.97-131.
- Parker, H., 2018. Instead of the Dole: an enquiry into integration of the tax and benefit systems. Routledge.
- Ramli, R., Palil, M.R., Hassan, N.S.A. and Mustapha, A.F., 2015. Compliance costs of Goods and Services Tax (GST) among small and medium enterprises. JurnalPengurusan (UKM Journal of Management), 45.
- Salop, S.C., 2018. The AT&T/Time Warner Merger: Judge Leon Garbled Professor Nash.
- Weatherall, K., 2015. The Australia-US free trade agreements impact on Australias copyright trade policy. Australian Journal of International Affairs, 69(5), pp.538-558.
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