The paradox is that Fairfax shed so many staff that it found itself sub-letting the entire second floor of its Darling Island headquarters to none other than Google. That we now share digs with a bunch of nerdy blokes scampering about the pavement on their little metal scooters is one thing but more annoying than that is the fact that Google actually had quite a hand in the Fairfax travails. Advertising revenues which used to go to Fairfax now go to Google. Moreover Google, the greatest swindler of intellectual property in history, simply helps itself to content from Fairfax, and everybody else for that matter, and plonks its own ads next to it. That's business, that's life. The democracy of the internet has been a good thing mostly. The more critical issue at hand is tax. Many corporations who used to contribute substantially to Australia's tax base, are shrinking and therefore paying less tax, while newer companies - the likes of Apple, Ikea and Google - indulge in aggressive transfer pricing. Transfer pricing is loading up costs (often debts) in high tax jurisdictions such as Australia (where the tax rate is high) while booking profits in places like Ireland or Caribbean islands where the tax rates are low. WHAT SHOULD GOOGLE BE PAYING IN AUSTRALIA?

Last week's story touched on Google Australia's latest tax ploys. Although Google spun its 2013 tax bill as 15 per cent of profits – or $7 million on a $46 million profit - the question should be asked, what do they classify as "profits"? The answer is whatever they deem to be the leftovers from their income which they arbitrarily decided to book in Australia. Total income tax expense was less than half a million dollars, which, in light of its billions in revenue, is equivalent to pocket fluff. They even had the cheek to help themselves to tax breaks from the government's R&D scheme. Feedback to the story was strong. People are increasingly fired up about the injustice of multinationals and their transfer pricing tactics. Few however have the expertise to understand tax. It is an arcane area, secretive and highly technical. It was with gratitude then that we heard from a contact who was formerly an executive at a large multinational. Although in favour of multinationals in general, and of the regional efficiencies they bring, he was concerned as an Australian citizen at what he described as "the morality of the switch in attitude from one of being a guest of the host government to that of blatantly stripping striping local operations of profit margins as part of a deliberate tax avoidance policy (to the detriment of Australian citizens)".

Here are his reflections on Google – information gleaned by googling Google - and the matter of transfer pricing more broadly and what to do about it. GDP per capita of both Australia and the US is about $US45,000. It could be reasonable to assume that our respective spends per capita (on Google services) are not dissimilar.

The population of the US is 314 million versus Australia's 22.7 million which makes Australia's population roughly 7.2 per cent of the US.

Google's 10K Accounts reveal that 45 per cent of their $US59,825 million revenue was derived from US sources.

Google's consolidated profit (from continuing operations) before tax was reported as $13,966 million. Consolidated accounts, by their very nature, eliminate all the intercompany profits and other technically legal forms of transfer pricing.

Google Australia's contribution to consolidated profit from continuing operations before tax might therefore be closer to $US454 million (7.2 per cent of 45 per cent of $US13,968 million) rather than the $46 million it has declared to Australian authorities.

Australia's current corporate tax rate is 30 per cent, which leads one to ponder whether a more reasonable tax bill might be closer to $US136 million (30 per cent of $US454 million) rather than $0.46 million (in the absence of currently legitimate legal tax avoidance arrangements).

By far the largest component of the difference between $0.46 million (declared) and $US136 million (this estimate of what should probably be declared) is likely attributable to transfer pricing arrangements which have little or no economic justification. THE WAY FORWARD Like those of many other countries, Australia's corporations tax system is based on an assumption (linked to corporations law) that all legal entities created under corporations law will actually behave like a "Body Corporate". This is true, to varying degrees, of companies which are locally controlled. It is no longer true however of entities whose control, and whose mind and management, are based outside Australia. Advances in communications technology have enabled traditional multinationals to switch their business models from a hierarchy of largely independent legal entities with independent boards (and often including independent directors) to a model which involves centrally delegated authority.

Local staff in multinationals are now more likely to respond directly to the central direction and authority delegation of the parent entity board. Local boards become little more than puppets. Companies like Google went straight to the end game and completely bypassed earlier norms. And they have had no hesitation in pursuing the most aggressive tax avoidance structures available. Having witnessed their success, traditional multinationals have been quick to pursue similar models. Mind and management of Google's global operations resides in the USA and all other locations effectively operate as branches of the US-based Google parent. Most other multinationals now operate on a similar basis. However, If local subsidiaries had their own independent mind and management and were actually required to operate as an independent "Body Corporate", as corporations law envisages, local directors would be in breach of their duties for accepting current fees and other transfer pricing arrangements that have become today's norm with multinationals. Under the new multinational business model, foreign controlled entities are little more than branches of one global entity. Corporations tax law (both locally and with other countries with whom we share tax treaties) should be updated to reflect the new reality of these changes. Home countries for multinationals and the tax havens through which they operate might strongly object given they may have to forgo (some if not all) tax revenues that are rightfully those of the Australian Tax Office and other authorities where the multinational subsidiaries operate. Corporate Tax law should recognise the distinction between traditional "body corporates" and subsidiaries of foreign controlled legal entities which, while masquerading as body corporates, are constructively no more than branches of the controlling parent company. Multinational subsidiaries might be taxed on the basis of how they actually conduct their operations, that is, as a branch of the parent entity rather than an independent local body corporate.

On a branch basis, local tax authorities (including Australia) could ignore royalties, service fees, cost mark ups and other structures (usually directed through tax havens) as being no more than internal transfers of cash. Tax deductions against local revenue should be no more than a pro rata share of the consolidated result. Such arrangements would likely restore Australia to the same corporate tax basis it enjoyed prior to the 1980s. It would fix the budget deficit in a jiffy. Though, when it comes to a potential incursion by the taxman at its revenue line, Google is already half a step ahead because the bulk of revenues it makes from its Australian operations are actually booked in Singapore. The least it could do is to ad a few words to its famous motto: "Don't be evil but don't be good either".