Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Strengthening our taxation system



Download PDFDownload PDF

HON J. B. HOCKEY Treasurer

Media Release

Monday, 11 May 2015

Strengthening Our Taxation System

Today I am announcing that the Government will be proceeding with two new major tax

integrity measures in the Budget tomorrow night.

Multinational Anti-Avoidance Law

The first measure deals with the activities of 30 identified multinational companies.

These companies are diverting profits earned in Australia away from Australia to no or low tax

jurisdictions.

After months of the Australian Taxation Office being embedded in these businesses we now

have a better understanding of how these companies have used contrived or artificial tax

arrangements such as the much publicised “Double Irish Dutch Sandwich”.

These contrived and very complicated arrangements have been used to avoid paying Australian

tax.

Tomorrow night I will be releasing legislation that strengthens our anti-avoidance regime.

After consultation with the United Kingdom it is clear that we do not need to replicate their

Diverted Profits Tax.

If we strengthen our own anti-avoidance laws to ensure the Tax Office has the powers to see

through these contrived arrangements, then we will be able to recover the tax that should be paid

in Australia.

Our penalties for diverted profits will go further than the United Kingdom.

The Tax Commissioner will have the power to recover unpaid taxes and issue a fine of an

additional 100% of unpaid taxes plus interest.

Australia has played a lead role in the BEPS program that has helped facilitate this measure.

Levelling the playing field for GST

The second tax integrity measure will ensure that there is a level playing field for the suppliers of

digital products and services in Australia in relation to the GST.

It is plainly unfair that a supplier of digital products in Australia has to charge GST and an off-shore supplier does not.

When the GST legislation was drafted it did not anticipate the massive growth in the supply of

digital goods like movie downloads, games and e-books from overseas.

I have consulted with the States and Territories and following further discussions at an officials

level we are releasing the draft legislation for review.

The revenue from this initiative is expected to be $350m over the next four years, every dollar of

which will go to the States.

The OECD has recognised this as a problem for some time and a number of companies are

working constructively with governments.

A number of other countries have or will introduce similar rules such as Japan, Norway, South

Korea, Switzerland and member countries of the European Union.

[ENDS]

MEDIA CONTACTS: Jennifer Clark

0402 970 419

Mike Willesee

0408 383 076

 

Problem

Action

Future Action

Rigorous thin cap rules restrict interest deductions (tightened in 2014)

Avoiding a taxable presence (30 companies under suspicion)

OECD Action Items 8-10 - Tighten transfer pricing rules

Further consultation, including with UK

World best practice transfer pricing rules (updated in 2013)

ATO audits

Inflated transfer pricing

Multinational Anti-Avoidance Law - addresses cases of no or low tax

- consistent with OECD direction

Inflated interest deductions

Multinational tax avoidance

No action required

Being considered by OECD Action Item 4

Labor’s proposal will damage the economy

OECD Action Item 7 - Change treaty rules to redefine a taxable presence

Further consultation, including with UK

1 2 3

No

Yes

No

Yes

No

Yes

No

Yes

No

Yes

Application of the Multinational Anti-Avoidance Law

Is Australian sales revenue channelled to tax havens?

Foreign multinational supplies goods or services to Australians?

Foreign company

Large

$$ booked offshore from Aus activites

Aus taxpayers not caught

Profit ends up in a tax haven

Multinationals not using tax havens not caught

Result

Was a principal purpose of the scheme to avoid a taxable presence in Australia?

Is revenue from Australian sales booked offshore? + Do Australian customers deal mainly with Australian employees?

SMEs not caught Global revenue over $1 billion?

Schemes without a tax purpose not caught

Tax

avoidance purpose

$$ booked in Aus not caught

Minor Aus activities = not caught

Income tax on profit

Withholding tax on royalties and interest

Interest on unpaid taxes

Penalties