Australian Treasurer Scott Morrison has said in his budget speech on Tuesday night that in response to calls from the Australian public, the Australian government would introduce a Diverted Profits Tax (DPT) on multinational companies avoiding tax.
Under the new arrangements to take effect from July 1, 2017, the DPT will penalise companies that are found to have shifted profits offshore by taxing those profits at a rate of 40 percent. Along with the DPT, Morrison announced the creation of a 1,300-person Tax Office taskforce to crackdown on multinationals, increasing protections for tax avoidance whistleblowers, and bumping up penalties on companies that fail to meet their disclosure obligations with the ATO.
"These measures will raise an additional AU$3.9 billion in revenue over the next four years, helping us to reduce the tax burden on hard-working Australians and small business," Morrison said.
The proposed DPT is slated to apply to companies with global revenue of more than AU$1 billion which have Australian revenue of greater than AU$25 million.
"Those seeking to do the wrong thing will be left with no doubt that deliberate tax avoidance and evasion will not be tolerated," Morrison said in a statement. "Tax cheats will be tracked down and will face the full force of the law."
At the same time, the government released a consultation paper on the implementation of the DPT, and would accept submissions on it until June 17.
Last month, a report by a trio of University of Technology Sydney academics called for the introduction of a UK-style Diverted Profits Tax.
The report said foreign multinational companies and large private Australian companies involved in technology were able to get away with paying an effective corporate tax rate of 7.6 percent.
Well-known tax avoiders and Double Irish Dutch Sandwich users, Apple and Google, were singled out in the report.
"Apple is able to load intellectual property rights charges into the cost of its products so that there is very little profit," the report said. "It is difficult to put a realistic price on those intellectual property rights in order to ascertain a non-contrived cost base for its products as that information is not publicly available."
According to the report, Apple's Australian operations show a "very low" gross profit margin of between 8-9 percent, while overall the company is closer to a 40 percent gross margin across its operations. Similarly, Apple's net profit margin before tax in Australia is a mere 4-6 percent compared to 30 percent margin.
"The cost structure embedded in the price of Apple's products in Australia is just sufficient to cover the costs of their operations here," the report said.
For Google, while it was called out for being "more generous" than Apple with Australian taxpayers by having a margin of 13 percent, it was only on revenue recognised in Australia. The company books its advertising revenue from Australia in Singapore.
"Out of Google's global revenues in 2014, only 0.54 percent was booked through Australia. The Australian economy generates almost 2 percent of the world's GDP," the report said. "For a company so closely integrated into all aspects of business, it would be expected there would be a closer correlation between Australia's share of GDP and our share of Google revenues."
Following the introduction of a DPT in the UK, Google agreed to pay the UK government £130 million in back taxes.
Google said in its latest set of Australian earnings that it would start booking more of its advertising revenue in Australia going forward.