In a year where the Panama Papers shone a spotlight on the murky practices of large multinational companies and the ultra-rich, the Federal Budget has introduced its Tax Integrity Package as a means of addressing the growing problem of little to no tax being paid by the likes of Apple and Google.
The package has four main parts to tackle the issue of tax fairness, and also supplement the corporate source of revenue, given the proposed reductions in company tax.
- Diverted profits tax
Coming into effect on 1 July 2017, this is the Federal Government’s version of the much-hyped ‘Google tax’, expected to raise $200 million in revenue over 2018/19 and 2019/20.
Who is now liable?
Any company that has global revenue in excess of $1 billion and which shifts profits offshore such that less than 80% of the tax that they would have been legally obliged to pay in Australia, is paid overseas in a tax haven. If those profit shifting arrangements can be reasonably concluded to occur to gain financial advantage, and have no economic reasoning, that company is now liable to pay an Australian company tax rate of 40%. This “penalty rate” is significantly above the current rate of 28.5%, a gap which will further widen once the general company tax rate declines to 25% by the end of the decade.
- Establishment of a Tax Avoidance Taskforce, within the Australian Taxation Office
Following an initial set-up cost of $678.9 million this year, which is to establish the new Tax Avoidance Taskforce as a tax compliance measure with an average annual staff increase of 390 personnel, the government aims to have better company audits and higher tax collections from multinationals.
The taskforce is expected to raise $77.4 million in its first year during 2016/17, with estimated revenues increasing for each subsequent year, forecast to be $1.6 billion by 2019/20. This is the critical part of the Tax Integrity Package which brings in the most substantial proportion of the revenue that is needed in order to balance against the revenue decreases from the company tax cuts.
- Update of transfer pricing rules
Multinational companies set (often differing) prices for their goods and services across the various countries within which they operate, and it is this pricing strategy that is regulated by transfer pricing.
The OECD has undergone systemic consultations and has published a series of guidance documents on updating transfer pricing rules and closing loopholes which arise from taxation inconsistencies across nations, termed “anti-hybrid” policies. Together, they are designed to minimise the ability of multinational corporations to exploit differences across jurisdictions for their own financial gain, and thus enforce greater tax fairness.
- Better legal protections for tax whistle-blowers
The Federal Government is also seeking to strengthen legal protections for employees, Board members or any agent who provide the ATO with tip-offs (which often involve commercial in confidence information) that allow for stronger taxation practice. The new and improved legal protections will come into effect on 1 July 2018, to encourage a freer flow of information, where it relates to corporate tax avoidance, and reduce barriers for information disclosure.