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Australia targets UK-style ‘Google tax’
From the Financial Times of Tue, 09 Dec 2014 05:14:11 GMT
SYDNEY, AUSTRALIA - JULY 24: Treasurer, Joe Hockey speaks to the media following his launch of his biography at North Sydney Oval on July 24, 2014 in Sydney, Australia. The biography, authored by Madonna King, names Joe Hockey as the most likely successor to PM Tony Abbott. (Photo by James Alcock/Getty Images)©Getty

Australia may follow the UK in implementing a “diverted profits” tax on multinationals to crack down on tax avoidance, which it says is costing the country up to A$3bn (US$2.5bn) a year.

Joe Hockey, Australia’s treasurer, said on Tuesday his office was exchanging information with London on its “Google tax”, which was announced last week.

“I am absolutely determined to ensure that everything is done to make sure that people or companies who earn money in Australia pay tax in Australia,” he said. “We are contemplating additional legislative action.”

Last week George Osborne, UK chancellor of the exchequer, announced a 25 per cent levy on companies that artificially divert profits generated in Britain to lower tax regimes.

Details of the scheme remain scanty, although the UK is expecting to raise an extra £1bn in tax revenue over five years through the levy.

During its G20 presidency this year, Australia has been at the forefront of global efforts to tackle tax avoidance by supporting the OECD’s base erosion and profit-shifting plan.

It has also taken domestic action with the Australian Taxation Office ordering reviews of 86 multinational companies’ tax affairs to assess if they are paying sufficient tax on their activities within Australia.

Thirty of the reviews have been completed, with concerns identified by officers in about a third of cases, according to the taxation office, which expects to commence 10 audits based on these concerns.

“We expect to raise over A$1bn in additional revenue through this programme over the next three years, and have already raised an additional $204m in liabilities,” said Chris Jordan, Australia’s tax commissioner.

Mr Hockey said $1bn-$3bn in taxes are estimated to be lost every year due to multinationals’ tax avoidance.

Canberra is eager to collect additional taxes as it struggles to contain a $48.5bn budget deficit in 2014 amid a slump in the price of key exports such as iron ore and coal. But there are concerns that pressing ahead with a UK-style “Google tax” on a unilateral basis may prove ineffectual or even counterproductive.

“There is a risk for Australia in pursuing unilateral action,” said Frank Drenth, executive director of the Corporate Tax Association, which represents 110 of the biggest companies in Australia.

“Politicians need to be careful that in trying to chase a little bit of tax from multinational technology companies they don’t end up losing a lot of tax revenue from Australian companies operating abroad by prompting retaliatory tax actions by other countries,” he said.

Some of Australia's biggest companies pay the bulk of their taxes at home, even though a large amount of sales activity takes place overseas. For example in 2013 Rio Tinto, one of Australia’s biggest companies, paid $3.1bn in taxes in Australia but just $3m in taxes in China, where it conducted a third of global sales.

Lorena Sosa, a tax expert at Grant Thornton, said adopting an unilateral approach to tax avoidance was a short-term solution, which overlooked the need for collective global structural tax and economic reform

“Acting in isolation with other nations will have a significant cost impact on multinationals,” she said. “Not only from a double taxation perspective but [it will] also impair the contributions they make to the local societies they operate in through their ability to invest in local job generation and technology development.”

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