Australian multinational tax avoidance laws to come into effect next year

From the start of 2016, multinational companies found to be avoiding tax will have pay back the tax owed, plus a 100 percent penalty.
Written by Chris Duckett, Contributor on

The Australian Greens have voted with the Coalition to pass legislation that will see multinational companies with annual revenue above AU$1 billion report income, tax, and transfer pricing arrangements to the Australian Taxation Office (ATO), and the penalties for tax evasion increased.

Under the new laws, multinationals will need to provide the Commissioner of Taxation with information on overall transfer pricing policies, and global allocation of income and economic activity in the business. Details of transactions between each Australian-based subsidiary and its associated overseas enterprises, along with the amount transferred and the business' reasoning for its transfer pricing determinations, will also be required.

The maximum penalty for a company found to have engaged in a tax avoidance scheme will be 120 percent of the amount owed, while using a profit-shifting scheme will attract a maximum 60 percent penalty. Penalties are reduced if companies disclose their actions before or during examination, or if its position is "reasonably arguable".

It is expected that between 800 and 1,200 multinationals will need to report, with 30 to 50 businesses being headquartered in Australia.

In its explanatory memorandum, the government said technology had given rise to increased tax avoidance opportunities, and allowed companies to coordinate centrally while moving assets and functions to different countries.

"Developments in technology have also meant that intangible assets (such as intellectual property) are becoming increasingly important to the value of countries. For example, much of the value of digital companies lies not in their tangible assets (factories, warehouses, machinery, and so on), but in their software," it said.

"Unlike tangible assets, intangible assets like intellectual property are easily moved between countries. Its mobility and the fact that it can be very difficult to value means that intellectual property can be used to funnel profit across the globe, from high-tax to low-tax countries, exploiting loopholes in the international tax system along the way."

Despite having its amendments previously voted down by the government in the House of Representatives, the Greens teamed up with the Coalition to pass the Bill.

"This is a huge win for tax transparency," Australian Greens leader Richard Di Natale said. "If we hadn't got this Bill passed today, multinational companies would have enjoyed another full year of not having to disclose their tax on a country-by-country basis.

"Today, we've opened up a crack of light into these dodgy practices, but there's much more to be done."

The laws are the Australian government's implementation of the recommendations from the Organisation for Economic Cooperation and Development (OECD) from its G20-commissioned base erosion and profit-shifting (BEPS) project. Under BEPS, the OECD expects to claw back as much as $240 billion in lost revenue each year through dodgy tax practices across the globe, which it claims represents up to 10 percent of global corporate income tax revenues.

The Australian government did not say how much tax revenue it expects to gain from the new laws.

In August, it was revealed that AU$31 billion was funnelled from Australia to Singapore in a year by 10 multinational companies.

"There has to be consequences for these companies, for what they're doing," Jason Ward, who was part of a coalition that sought Freedom of Information documents over corporate Australia's tax avoidance, said at the time. "It's not illegal, but it's completely immoral."

Days later, a parliamentary report recommended that the Australian government make companies competing for government contracts say where they are taxed, as well as naming and shaming corporate tax dodgers.

Under testimony at an Australian Senate inquiry into tax avoidance in April, tech giants Apple, Google, and Microsoft all admitted that they were being audited by the ATO.

During the hearing, Apple's Australia managing director Tony King claimed not to know of the so-called double Irish Dutch sandwich process of minimising taxation for multinational corporations.

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