Following the UK’s lead, the Australian government has announced it will establish a diverted profits tax—popularly known as the Google Tax—to combat tax avoidance by large multinational corporations.
During the annual budget speech, which was held on Tuesday, May 3rd, Australian Treasurer Scott Morrison said, “Everyone has to pay their fair share of tax, especially large corporates and multinationals, on what they earn here in Australia.”
The New Zealand Herald reports, “In Australia, corporate giants including BHP Billiton, Rio Tinto, Apple and Google have been identified as using so-called marketing hubs in Singapore to help reduce their tax bill in the country.”
Australia’s Google Tax
This 40 percent tax, which is expected to come into effect in July 2017, will be applied to companies that move income offshore and should bring close to 200 million Australian dollars into Canberra’s coffers over the next two years.
As reported by ZDNet’s Chris Duckett, this move comes a month after a report released by Ross McClure, Roman Lanis, and Brett Govendir, Accounting Academics at the University of Technology Sydney, suggested that “in 2013 and 2014, Australia lost AU$5.36 billion in corporate tax revenue from just 76 multinational corporations.”
According Duckett’s aforementioned article, “Broken down by industry, the report said energy and mining corporations paid an effective tax rate of 20 percent, while technology companies only paid 7.6 percent, and pharmaceutical companies paid the lowest with an effective tax rate of 5.7 percent.”
The report also recommended a series of reforms to combat tax avoidance, including “a harsher Diverted Profits Tax, limiting the deductibility of interest, and increasing transparency, as well as applying Australian accounting standards to company financials without exception.”
For a full copy of this report, check out the version here.
Other Tax Avoidance Regulations to Kick-In
Besides the new Google Tax, the Australian government will implement an entire range of other anti-tax avoidance measures that aim to collect over 3.9 billion Australian dollars over the next four years.
According to Morrison’s speech, which can be found here, some of these additional measures include:
- “Strengthening the protections for whistleblowers who come forward and report tax avoidance;”
- “Increasing penalties for multinationals that fail to meet their compliance and disclosure obligations to the ATO,” and;
- Setting up “a new operational taskforce of more than 1,000 specialist staff in the [Australia Taxation Office] to police and prosecute companies, multinationals and high wealth individuals not paying the tax they should.”
Corporate Tax Rate to Drop in Australia
Alongside this tightening of tax avoidance regulations, the Australian government will also lower the corporate tax rate from 30 to 25 percent over the next ten years.
The first phase of this tax break will happen in July 2016 as “the small business tax rate will be lowered to 27.5 per cent and the turnover threshold for small businesses able to access it will be increased from $2 million to $10 million.”
Regarding this move, Morrison said, “We will not be able to rely on our natural advantages in resources to secure the jobs of the future like we have in the past. If we wish to continue to see our living standards rise with more jobs and higher wages, we need to ensure our tax system encourages investment and enterprise.”
Views on the Google Tax & the Budget Speech
According to Shaun Davies, an Editor for BBC News, Morrison’s balanced speech sought “a way to pay for his tax cuts while not blowing out the budget deficit,” and “without upsetting ordinary Australians who could vote the government out at an early election on 2 July.”
Davies also remarked that the budget’s “biggest risk may be that voters view it as too middling and conservative.”
Other parties were not as excited by these announcements.
Niels Marquardt, CEO of the American Chamber of Commerce of Australia, said in a May 4th Financial Times article that his organization is “concerned about retrospective impacts that can undermine the value of foreign investments already attracted to Australia under more favourable rules.”
Marquardt added, “Australia has long been a very attractive destination for foreign investment, especially from the US. So AmCham is alert to any regulatory or tax changes that could kill the goose that has laid so many golden eggs for so many investors.”