news Companies such as Apple, Google and Microsoft who have been transferring billions of dollars of Australian revenue offshore are set to come under renewed attack from the Federal Government, with a raft of anti-avoidance measures announced in this year’s Federal Budget.
Over the past half-decade, it has emerged that many of the largest multinational technology companies which operate in Australia have been controversial practices to minimise the amount of taxation which they pay in Australia.
A common approach used by companies such as Google and Microsoft is to bill Australian customer of their services from subsidiaries located in countries such as Singapore or Ireland, meaning revenue from local customers is not recognised in Australia. Others such as Apple have used techniques known as ‘transfer pricing’ to argue that the cost of goods sold in Australia almost matches its price to consumers.
In jurisdictions such as the UK and France, governments have started cracking down heavily on such practices, seeing them as means for the companies concerned to avoid paying taxes in those countries. In Australia, the Coalition Government has already taken a number of steps to address the issues, but today’s Budget goes substantially further.
Tax Avoidance Taskforce
The first major step announced by the Government today to tackle the issue is what Treasurer Scott Morrison and Assistant Treasurer and Minister for Small Business Kelly O’Dwyer termed a “new Tax Avoidance Taskforce”.
The Government will provide the Australian Taxation Office with $679 million over four years to tackle tax avoidance by multinationals, private companies and high wealth individuals.
Around 1,300 staff will be allocated to the program, including 390 new specialised officers. It will be led by the ATO Commissioner of Taxation, Chris Jordan, who will provide regular reports to the Government on its activities, and external experts, including former judges, will be brought in to support the initiative.
The Taskforce is expected to bring in more than $3.7 billion between now and July 2020, earning its keep many times over.
Diverted Profits Tax
The Government will also introduce a new tax aimed at multinational corporations that artificially divert profits from Australia, applying to income years commencing on or after 1 July 2017.
This tax, which is expected to bring in about $200 million over the next four years, will target companies that shift profits offshore through arrangements with related companies. It will specifically target situations where it is reasonable to conclude that an arrangement is designed to secure a tax reduction; in short, where insufficient “economic substance” of the arrangement exists.
The new rules will apply a 40 percent tax on diverted profits, and will apply to large companies with global revenues of $1 billion or more.
New Transfer Pricing Rules
The Government will also amend Australia’s transfer pricing rules to being them into line with recommendations established by the Organisation for Economic Cooperation and Development.
The changes aim to enhance guidance on intellectual property and intangible assets for taxation purposes, ensuring that transfer pricing (often used by technology multinationals) reflects the economic substance of transactions.
“Applying these changes to Australia’s transfer pricing rules will keep them in line with international best practice so that prifits made in Australia are properly taxed in Australia,” the Budget documents state.
A number of other measures aimed at ensuring “tax integrity” are also included in the Budget. But the three detailed above alone are extremely likely to affect technology multinationals such as Apple, Google and Microsoft operating in Australia, as well as a raft of other companies.
The news comes as Google only last week revealed it would change the way it disclosed Australian revenues, after sustained pressure from all sides of politics on the issue.
“Those seeking to do the wrong thing will be left with no doubt that deliberate tax avoidance and evasion will not be tolerated,” Morrison and O’Dwyer said in their statement today. “Tax cheats will be tracked down and will face the full force of the law.”
opinion/analysis
I applaud these steps announced by the Government today. I’ve been calling for years for the Government to rein in the tax avoidance habits of technology multinationals. I am a huge fan of many of these companies — I used Google, Apple, Microsoft and Adobe technology on a daily basis — but they have been getting away with blue murder in this area for quite some time.
It’s good to see a Liberal Government finally take action on this front. Let’s hope the implementation is as strong as the Treasurer’s fighting words on tax avoidance today.
Image credit: Robert Scoble, Creative Commons
It’ll be interesting to see how it affects local prices too, as the “Australia Tax” has been totally ignored and this just gives them room to add more.
So the libs are hiring 390 new staff, what about the other 4,010 staff they fired?
ssh we’re supposed to ignore that! same with when they take billions in budget cuts and give 100’s of millions back (ie CSIRO … they’re supposed to be thankful for the token return of what they lost …. lol)!
Remember that Australia is in a race to the bottom.
Third world country here we come!
My concerns havent changed. I’m still worried that after all this is done and dusted, the end result still wont please people. Or creates bigger problems.
Not going to bother going through it again, but there are repercussions to ‘solving’ this that may be worse than the solution. For example, if you shut down the Irish loophole, doesnt really matter how, you risk 7 or the top 10 employers shutting up shop and moving elsewhere. And it gets worse when you expand that top 10 to, say, the top 100.
Thats a lot of unemployment to absorb.
Many of these companies already have bare minimum staff in Australia as it is. If they could move jobs offshore this policy won’t start that process, I am willing to bet that some operations manager or efficiency consultant has already built the business case.
Was more talking about the Irish end of things. ‘Solving’ this problem could destroy their economy.
This isnt an Australian problem, its a global problem, and there are repercussions that havent been considered.
Business should be taxed on revenue, just as individuals are, using the same tax scale.
Individuals arent taxed on revenue, they are taxed on net income. Its just that the deductions are generally so small for most that it makes little difference.
And using the same scales would destroy most small businesses, and send most major businesses offshore.
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