SAP’s background and operations

SAP provides enterprise resource planning (ERP) software systems tailored for businesses in a wide variety of industries. The company operates in the software industry. ERP systems enable businesses to run their processes such as sales, accounting, human resources, and production in an integrated environment. An integrated data environment makes sure that all the processes run seamlessly to increase the efficiency of resource use (Snabe et al., 2008). The company was started in Germany in 1972 and is currently a global leader in the enterprise software sector. Currently, its global headquarters are in Walldorf, Germany. The company provides products for small, medium, and large-sized businesses. In its 46 years of history, SAP has grown to currently serve at least 400000 customers in more than 180 countries (Colombo et al., 2014). The company has set up operations in more than 1430 countries worldwide employing about 93800 employees (Magal & Word 2011). In Australia, SAP has more than 600 employees providing services to customers in various industries (Colombo et al., 2014).

SAP Australia is a subsidiary of SAP SE, a global software company based in Germany. A subsidiary is a business entity which is recognized as a separate legal entity as an Australian entity for legal purposes and with limited liability. Subsidiaries can be owned wholly or partially by the foreign shareholder. SAP Australia should have one or more directors who are residents of the country. At the same time, the company has to lodge its accounts with the Australian Securities and Investments Commission (ASIC).

As a private company operating in Australia, SAP is under both the federal and state taxation regimes. Federal taxes include fringe benefit tax, sales tax, superannuation tax, capital gains tax, corporate tax, and goods, and sales tax. Income tax is calculated at progressive rates. Resident and non-residents have different rates. Corporate tax is fixed at 30% (Vom Brocke & Rosemann 2010). For companies with revenue of less than A$25 million, the tax stands at 27.5% (Vom Brocke & Rosemann 2010). Capital gains tax is applied to revenue gains or capital gains and is included in the calculation of taxable income. Goods and Sales Tax (GST) is applied to the value added to goods and services in the economy. The tax is fixed at 10% of the taxable supply (Vom Brocke & Rosemann 2010). A taxable supply requires the supply of a product for consideration, the supply is connected to Australia, the supplier is registered for GST, and the supply is made in the course of the business the supplier conducts (Vom Brocke & Rosemann 2010). One state level tax is stamp duty that is imposed on business transactions concerning that involve property that is dutiable. The primary product vended by SAP Australia falls in the category of intellectual property which is classified as dutiable property. (Farrar 2008). Franking credits apply to profits that are remitted abroad to shareholders. If the dividend paid by the company is fully franked with the credits, the remittance will not be liable to withholding tax. In te case of an unfranked dividend, a 30% withholding tax applies (Woellner et al. 2010). This rate is however affected by double taxation agreements which reduce it to zero or 15% depending on each case (Woellner et al. 2010). SAE Australia is also subject to thin capitalization rules. These policies are created to place a cap on the tax deduction for debt expenses where such levels are more than the specified debt threshold level (Woellner et al. 2010). The maximum debt threshold is six tenths of the entire asset value as per the safe harbour test (Woellner et al. 2010). The maximum debt threshold can also be determined using the debt to equity ratio as determined by the Australian accounting standards (Farrar 2008). Australia also has tax and grants incentives to encourage investors to set up businesses in the country. Some states also have similar incentives. These incentives include deductions for setting up or relocation of an enterprise, exemption from dividend withholding tax, and capital gains on the sales of shares (Woellner et al. 2010). There are also a wide range of grants that are offered to businesses in the information and communication technologies industry.

Taxation policies in Australia

Given SAP has several hundred employees, it is bound by employment legislation and its application to terms of employment, employee protection, union regulation, employment tribunal and matters such as discrimination, unfair dismissal, and equal opportunity. Employment-related legislation occurs both at the federal and state levels. The national employment standards outline the minimum standards or entitlements of various aspects of employment. A work week should have 38 hours and reasonable additions (Farrar 2008). Every year should have a four-week’s paid leave. Any leave that is not taken by the employee ought to be carried forward with the assurance that it will be paid out on termination. There is also a parental leave of one year with the right to request another additional one year which is unpaid (Farrar 2008). A notice of termination and redundancy can be given five weeks before the date of termination. A 16-week’s redundancy pay is required based on the length of service (Farrar 2008). There are eight core public holidays plus any state-specific holiday. Employees have the right to flexible work arrangements. Awards establish the minimum terms and conditions of employment (Tham 2009). Awards deal with matters such as the federal minimum wage and job classification structures, length of work and rest breaks, overtime, penalty rates, full time or part time work, and consultation and procedures for selling disputes (Tham 2009). The Fair Work Act of 2009 governs business-specific conventions between the buyers and sellers of labor (Tham 2009). Similarly, employment contracts are formulated as per relevant general and industry-specific legal requirements. Employers should guarantee the safety, welfare, and health of their employees while at work (Tham 2009). In case of a breach of this duty, employers are liable to the employee in tort as well as in contract. They can, therefore, be prosecuted under federal or state legislation. Every employer must have an insurance policy for the compensation of employees who encounter harm as they are working (Tham 2009). Discrimination is prohibited both in federal and state legislation. During the processes of recruitment, promotion, and termination, employers cannot discriminate against employees by age, religion, gender, race, and disability. As a company with more at least 100 workers, SAP Australia is required by law to institute programs that provide women with equal opportunities in the workplace (Tham 2009). Employees are protected from unfair dismissal, and they can establish proceedings if they consider their termination to be unjust, unfair or unreasonable.

Employment legislation and standards in Australia

SAP provides products that are mostly in the services sector of the economy. These services include intellectual property that has various legal aspects given their unique nature. Although services differ from goods in various ways such as tangibility and standardization, they are still subject to various requirements especially when they are being exchanged for consideration or crossing borders. The parent company, SAP SE is based in Germany. Germany is in the European Union (EU), a trading bloc that has streamlined trade within its member economies and which has become a union that deals with non-members as a united front. Australia, on the other hand, is a member of the Asia-Pacific Economic Cooperation (APEC) bloc. This bloc is concerned with trade and economic cooperation. Both countries are members of the World Trade Organization, a United Nations organization created to enhance free trade and minimize friction amongst trading partners in the world.

Both the EU and APEC have various policies regarding intellectual property rights. The EU seeks to support companies in from its members to better manage intellectual property rights in the EU and beyond. It also encourages trading partners to protect these rights. The EU also works to improve the enforcement of intellectual property rights while actively campaigning against piracy (Reimer, Schmid & Orell 2018). APEC, on the other hand, seeks to deepen the dialogue on intellectual property policy among its members. It also studies measures for the effective enforcement of intellectual property rights. While the two blocs may have similar or different current or developing intellectual property policies, SAP has the mandate to harmonize its processes such that it conforms to requirements in both blocs.   

Australia and Germany developed a tax treaty that was signed in Berlin on 12^th November 2015. It was given effect in Australia through the development of legislation on 20^th October 2016. The treaty’s provisions include mandatory arbitration in mutual agreement procedures, introduction of the concept of a fiscally transparent entity, limitation of benefits and the principle purpose tests for the entitlement of benefits, methods to eliminate double taxation, amended definition of permanent resident, amended withholding tax rates for interests, royalties, and dividends, alienation of property, and tie-breaker rule for a treaty residency determination of dual resident persons. The treaty also provides guidelines for the place the countries have in the multilateral convention (MC). The MC opens pathways for negotiations for the adoption of bilateral and multilateral tax treaties.

Managing intellectual property in a global context

The treaty is a double taxation agreement (DTA) that has replaced an older version that was in place since 1972. The primary aim of the treaty is to strengthen trade and investment between the two countries while eliminating or reducing tax uncertainty. At the same time, the DTA applies the OECD/G20 Base Erosion and Profit Shifting (BEPS) principles in a bid to tackle avoidance by companies with multinational operations (Lang & Brugger 2008). Both investors and businesses with multinational operations or assets are affected by the treaty. The DTA provides for the reduction of withholding taxes that may be imposed by the source country. The maximum interest rate is 10%, and the maximum royalty rate is 5%. The dividend rate has been reduced from 15% to 5% for intercorporate dividends to companies that hold at least 10% of the voting power in the paying company (Becker, Reimer & Rust 2015). The definition of a permanent establishment has been amended to allow for new ways of determining whether an enterprise that is resident in one country and has operations in another is subject to taxation in the latter country. There has been an addition of several activities that constitute a permanent establishment as long as they are carried out for certain minimum time periods. The minimum time for operating an installation project has been increased from six to nine months. Anti-avoidance measures were defined to prevent businesses from structuring their operations to avoid the permanent establishment definition.

SAP Australia is a private limited company. As a subsidiary of SAP SE, the company is subject to the changes made in the new treaty. For instance, the company may be defined as an Australian permanent resident enterprise given the nature of its operations. In this case, the company’s capital and income taxes are paid to Australian authorities. However, given that it has German shareholders, remittance of profits will be subject to the new dividend rule. Given the treaty has removed ambiguity with regards to permanent residence, double taxation is likely to be significantly reduced. The two countries have also agreed to avoid taxing income that has already been taxed in the other country. At the same time, the company works on complying with both the EU and APEC intellectual property rights policies.

References

Becker, J., Reimer, E. and Rust, A., 2015. Klaus Vogel on Double Taxation Conventions. Kluwer Law International.

Colombo, A.W., Bangemann, T., Karnouskos, S., Delsing, J., Stluka, P., Harrison, R., Jammes, F. and Lastra, J.L. eds., 2014. Industrial Cloud-Based Cyber-Physical Systems: The IMC-AESOP Approach. Springer Science & Business Media.

Farrar, J., 2008. Corporate governance: theories, principles and practice. Oxford University Press.

Lang, M. and Brugger, F., 2008. The role of the OECD Commentary in tax treaty interpretation. Austl. Tax F., 23, p.95. Available at: https://heinonline.org/HOL/LandingPage?handle=hein.journals/austraxrum23&div=9&id=&page= [Accessed 29 Aug. 2018].

Magal, S.R. and Word, J., 2011. Integrated business processes with ERP systems. Wiley Publishing.

Reimer, E., Schmid, S. and Orell, M. eds., 2018. Permanent establishments: a domestic taxation, bilateral tax treaty and OECD perspective. Kluwer Law International.

Snabe, J.H., Rosenberg, A., Mller, C. and Scavillo, M., 2008. Business process management: The sap roadmap. Sap Press.

Tham, J. (2018). Towards an Understanding of Standard Employment Relationships under Australian Labour Law. [online] Papers.ssrn.com. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1346202 [Accessed 29 Aug. 2018].

Vom Brocke, J. and Rosemann, M., 2010. Handbook on business process management (p. 3). Heidelberg: Springer.

Woellner, R.H., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2010. Australian taxation law. CCH Australia.