Multinational tech companies that use complex profit-shifting schemes to minimise the corporate tax they pay within Australia are likely to be slugged by new anti-avoidance measures announced today by the government.
Treasurer Joe Hockey announced today that as part of tomorrow night's federal budget he will unveil a proposed 'Multinational Anti-Avoidance Law' that targets 30 multinational companies that operate within Australia.
Hockey did not name any of the companies, but a Senate inquiry into corporate tax avoidance has seen scrutiny of the tax affairs of a number of tech companies, including Apple, Microsoft and Google.
The companies targeted by the new law "are diverting profits earned in Australia away from Australia to no tax or low tax jurisdictions," Hockey told a press conference today..
"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'," Hockey said.
The 'Double Irish Dutch Sandwich' refers to a package of tax minimisation strategies that were raised during a hearing of the Senate inquiry attended by representatives of Apple, Microsoft and Google.
Australian Taxation Office deputy commissioner Mark Konza told a 22 April hearing of the inquiry that the technique involved shifting profits to low or no corporate tax jurisdictions, such as Ireland and Bermuda, and using The Netherlands for "treaty shopping", "to allow you to move money around the world without a transaction cost as you go".
"They are just insuring against change in treaty and law arrangements around the world and hedging their arrangements," Konza said.
"These contrived arrangements have been used to avoid paying tax in Australia," Hockey said today.
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"The economic activity occurs in Australia, the billing occurs out of Singapore and the money is transferred to Ireland and then advantages taken of a range of different EU tax procedures in relation to royalties," the treasurer said.
Hockey said he had been working on the new law for more than a year, including discussions with his international counterparts. The United Kingdom has introduced a 25 per cent diverted profits tax, Hockey said.
"This is not a new tax in Australia; we don't need to have a new tax in Australia," Hockey said.
"We need to strengthen our anti-avoidance measures, and if we do strengthen our own anti-avoidance measures to ensure that 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 on the profits that are made in Australia."
The Tax Commissioner will have the power to fine companies that do not comply with the new rule.
"The tax commissioner will have the power to recover unpaid taxes and issue a fine of an additional 100 per cent of those unpaid taxes plus interest," the treasurer said.
Hockey didn't reveal how much revenue the new law would raise.
"We have identified the sums that are being shifted, but now identifying the actual amount that is required to be remitted in tax is a different story."
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The treasurer also announced a second tax measure that will see the imposition of the GST on digital goods.