Australia is to become the third country in the world to enter into new transfer pricing documentation standards to crack down on multinational tax avoidance.
The budget measure allows the Australian Taxation Office to receive information on companies with global revenue of $1bn or more which operate in Australia.
It follows the announcement on Monday by Joe Hockey of laws aimed at multinationals’ tax avoidance. The budget papers said the laws would target multinationals that “artificially avoid having a taxable presence in Australia”.
In this year’s budget, Australia committed to sign up to the Organisation for Economic Cooperation and Development’s new transfer pricing documentation standards, which will come into force on 1 January 2016.
So far, only the UK and Spain have signed up to the new standard, which is forecast to cost Australia $11.3m over the next four years.
Hockey confirmed the multinational anti-avoidance law announced on Monday that would “stop multinationals using complex schemes to escape paying tax”.
“Under this new law, when we catch companies cheating, they will have to pay back double what they owe, plus interest,” Hockey told parliament.
Budget documents said the new laws would target “approximately 30 companies” where:
· The activities of an Australian company or other entity are integral to an Australian customer’s decision to enter into a contract
· The contract is formally entered into with a foreign related party to that entity, and
· The profit from the Australian sales is booked overseas and subject to no or low global tax.
The budget papers said the new law was estimated to have “an unquantifiable gain to revenue over the forward estimates period” but the savings were not booked in the budget.
Also not estimated in the budget was the revenue expected from doubling the maximum penalties for multinational tax avoidance and profit shifting schemes. The budget papers said the penalty was due to come into force from 1 July 2015.
The budget also confirmed the so-called “Netflix tax”, which extends the GST to the supply of “cross-border” digital products and services such as TV and film streaming sites.
The measure is expected to result in $350m in revenue over the next four years and requires the unanimous agreement of the states and territories before the legislation can be enacted. Given that all GST goes to the states and territories, those governments are expected to agree to the move.
“It is unfair that overseas-based businesses selling services into Australia may not charge GST when local businesses have to charge GST,” Hockey said.
“A local business that employs Australians, pays rent in Australia, pays tax in Australia and helps build our economy is disadvantaged by the current system.”
The two tax measures follow a Senate inquiry that heard that 10 companies transferred a combined $31.4bn in the 2011-2012 financial year from Australia to Singapore, where the corporate tax rate is 17%.
In that inquiry, Maile Carnegie, the managing director of Google in Australia and New Zealand, said that while she could not disclose Google’s Australian revenues, in 2013 Google had paid $7.1m in tax on $46m in profits.
“When I think about morality I don’t think about it in terms of geographic boundaries … we are not opposed to paying tax but we are opposed to being uncompetitive … when I think about the morality, the people who need to answer … are the people sitting on your side of the room,” she told the senators.
“I am not saying whether those arrangements are right or wrong … they are simply the way the global tax system is working.”
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