Australia and the UK are joining forces to clamp down on profit-shifting by multinational companies, but Treasurer Joe Hockey insists that won’t involve a new tax here.
Mr Hockey and British Chancellor of the Exchequer George Osborne agreed at last week’s G20 meeting in Washington to set up a working group after the British election in May to tackle tax avoidance by big global companies.
Labor described it as just another discussion group of “all talk, no action”.
But Mr Hockey says Australia can learn from the UK’s experience of introducing a diverted profits tax at the beginning of April, commonly known as the “Google tax”.
However, Mr Hockey won’t be copying that initiative.
“Australia does not need to impose a new tax but certainly there are ways we can beef up the integrity measures around our own taxation system,” Mr Hockey said on Sunday.
He does not believe this will divert attention away from the efforts of the OECD through the G20 under its base erosion and profit shifting scheme.
“By the United Kingdom and Australia coming together on this initiative, we are going to lead the world and work with the OECD and the G20 to ensure that companies pay the proper amount of tax where they earn the income,” he said.
The opposition says it has already put a proposition on the table that the government could adopt right now, which would net $7.2 billion in the coming decade.
It includes tightening of the so-called “thin capitalisation” rules, which allow companies to offset profits against debt servicing costs in high tax jurisdictions such as Australia to reduce their taxable income.
“I don’t know why Joe Hockey needs another committee, another inquiry, another mirror to look into to work out what to do,” Opposition Leader Bill Shorten told reporters in Melbourne.
Mr Hockey’s approach is to make sure companies can’t avoid having a taxable presence in the country by pretending they don’t have an establishment in Australia.
He intends to make changes to the current laws sooner than just waiting for the OECD.
However, the Tax Institute believes this latest approach – along with others in recent days, such as the proposed charging of GST on digital downloads – continues to undermine the integrity of Mr Hockey’s tax white paper process and accompanying national debate.
“The white paper process is fundamental to the future of the Australian economy and holistic action is required, not more tinkering around the edges of real reform,” the institute’s president Stephen Healey said in statement.