The federal Treasurer has cranked up the rhetoric about targeting tax avoidance among multinationals companies in Australia, and outlined measures the government will take to the G20 to help end the scourge.
Joe Hockey says that profits earned in Australia must be taxed in Australia, and that complicated avoidance structures deployed by some multinationals would be put under greater Australian Taxation Office compliance scrutiny.
Mr Hockey says he has asked the Tax Commissioner to “double his efforts” in examining the legality transfer pricing and profit-shifting mechanisms that multinational corporations use in order to make sure they pay their fair share of tax in this country.
Mr Hockey has asked the Tax Commissioner to “double his efforts” in examining the legality of transfer pricing and profit-shifting mechanisms that multinational corporations use avoid paying a “fair share” of tax in this country.
Technology companies will be chief among the targets, mainly because they have become very good at generating huge revenues in Australia while keeping their tax bills small. This Treasurer, like the one before him, is impatient. These tech companies can now expect to be audited.
“The Australian Taxation Office has extensive investigative powers and can take appropriate measures to ensure that multinational companies operating in Australia are not just complying with our laws but also paying their fair share,” Mr Hockey told the Parliament. [You can read the full text of the speech to Parliament here.]
“I have asked the Commissioner of Taxation to double his efforts in this area by undertaking more extensive inquiries and audits of multinational companies considered a risk to Australian tax collections.”
Mr Hockey should be applauded for at least having a go, although it is hard to imagine multinational tech companies reacting to his speech with anything other than a gigantic yawn.
For a start, Mr Hockey foreshadowed deep cuts to the ATO’s enforcement staff in his May Budget. These cuts are expected to number as many as 2,000 as part of an office-wide restructure. This makes enforcement more difficult.
And secondly, if your company has the chutzpah to decline to collect even the GST on services sold in Australia, to Australians, via internet-connected devices located in Australia and paid for in Australian dollars – let alone acknowledge that this revenue is attributable to the Australian tax jurisdiction – then you’re probably not going to be concerned about a Treasurer talking the talk rather than walking the walk.
However, the day is coming. The appalling abuse of the tax system by companies like Google is an international issue, requiring an international solution. All eyes will be on the G20 this year to see whether it has been able to agree on a framework that to stop corporations cheating their way out of tax obligations.
Mr Hockey has been diligent since becoming Treasurer in pushing for international reforms through the G20 process – just as the Labor Treasurers had before him.
And there is an international appetite for this kind of reform. The tax base is being severely eroded by these practices, not just in Australia, but elsewhere.
“The G20’s tax agenda responds to international concern about the ability of multinationals and high wealth individuals to avoid or evade their tax liabilities. The G20 is committed to making our international tax system fairer for all countries, whether they are fully developed economies or not,” Mr Hockey said.
“The G20’s tax agenda focuses on addressing base erosion and profit shifting (or BEPS), tackling tax avoidance and promoting tax transparency and automatic exchange of information.”
In two weeks, the Treasurer will meet with G20 Finance Minister’s in Cairns to discuss, among other things, international tax reform. A large part of the conversation will be about automatic information exchange.
That is, the tax authorities want to share more information among themselves to get a much better picture of the activities of multinational companies that would prefer to remain opaque.
“We are determined that multinational taxpayers will not be able to avoid their Australian tax obligations by shifting their international profits to low tax or no tax jurisdictions.”
A very long and protracted fight can be expected. Companies such as Google react to paying tax like Linda Blair reacted to having Holy Water chucked on her in The Exorcist.
By which I mean not well.