Tech companies are likely to be the focus of an Australian government review into the taxation of multinational corporations, where profits are sent into other countries with a lower tax rate than Australia.
The so-called "Double Irish Dutch Sandwich" method of funnelling money through other countries from Australia in order to pay a lower tax rate has been a focus of the Australian government for the past few months amid significant tax revenue declines, in a time when the government is seeking to pay down the deficit. The federal government has previously called out companies such as Google and Apple for using this method to pay very low taxes in Australia, despite significantly high revenue from Google's advertising and Apple's products sold in Australia.
On Friday, the Treasury Department released an issues paper (PDF) seeking views on whether this is something the government should address.
"Tax laws that allow some companies, such as large multinational enterprises, to access more favourable tax treatment than domestic firms will distort the allocation of scarce resources within the economy, and imposes efficiency costs that are ultimately borne by all Australians," the paper stated.
"Similarly, gaps in the integrity of the corporate tax system can affect perceptions of the fairness of the overall tax and transfer system, and require other taxpayers to either make a larger tax contribution or accept a lower level of government services."
The paper seeks to determine whether there is evidence that the practice is eroding the government's tax base, and what actions can be taken to fix the issue, both in the short term and the long term.
The Australian government has stated that it will take action to ensure the integrity of Australia's tax system, and guarantee that there are anti-avoidance measures in place.
The paper suggested that in the short term, the government could address gaps in the current system, such as through transfer pricing rules or fast-track initiatives out of the OECD on transfer pricing guidelines.
In the long term, systematic reform to the taxation system, a reform of institutions around taxation, and multilateral reforms have been suggested, as well as fundamental reforms of taxation globally, with bilateral taxation treaties taking into account the digital nature of the world today.
Submissions are being accepted until May 31, 2013. A Treasury Scoping Paper on the issue is due out in June.