Finance Finance News Facebook, Google and other global tax dodgers to cough up billions in international tax crackdown

Facebook, Google and other global tax dodgers to cough up billions in international tax crackdown

Facebook Australia sent more than $500 million overseas last year to reduce its tax bill. Photo: TND
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Massive multinationals such as Facebook and Google will be forced to cough up billions of dollars to Australia each year under a new global tax plan.

On Friday 130 nations signed up to a new framework that will create a 15 per cent global minimum corporate tax by 2023.

It came after the US agreed to sign a deal earlier this year clearing the way for an overhaul of the international tax system to crack down on big multinationals avoiding their tax bills by shifting profits to tax havens.

The OECD estimates USD$250 billion ($334 billion) will be reaped from what is a two-pillar strategy, with signatories, including Australia, representing more than 90 per cent of global economic production combined.

But one expert, Ann Kayis-Kumar, an associate professor in taxation at UNSW, is sceptical the overhaul will markedly reduce tax avoidance.

“Certainly, this coordinated effort by so many countries is a very symbolic milestone,” Dr Kayis-Kumar told The New Daily.

“However, it is not really going to help us meet the needs and overcome the challenges presented by a post-pandemic future.”

Facebook, Google hit under deal

Although many details aren’t yet ironed out, there are two big changes.

The first pillar of reforms will force companies like Facebook, Google and Apple to pay more tax in countries where they sell services, rather than letting them send all their sales to overseas tax havens.

For example, Facebook paid just $20 million in Australian tax in 2020 by using current rules to send more than $500 million in sales overseas.

Under new rules, Facebook would be required to reallocate some profits (above a limit that’s yet to be determined) to Australia.

University of Sydney Professor Richard Vann said companies with more than €20 billion ($31 billion) in revenue will be covered by the first pillar.

“From an Australian perspective the biggest news is that resource companies are not covered by pillar one, and so we will not lose tax revenue from our resource companies to China, India, Japan and Korea,” Professor Vann told The New Daily. 

That means Australian taxpayers will probably be winners from pillar one, while tax haven nations like Ireland, Switzerland and Singapore will be losers, because that’s where companies like Facebook reside now.

The second pillar of reforms will set a new minimum global tax rate of 15 per cent to end what the US has called a “race to the bottom” on global tax rates.

This will lift tax rates charged by signatories that have tax rates below the threshold, a reform that will increase the total tax bills of companies.

Although the minimum rate agreed at the OECD is half the 30 per cent rate Australia charges large corporations based here.

Still, Australia could be billions of dollars a year better off under both pillars of reforms, depending on how many companies are forced to cough up by the time signatory nations hash out the details.

The money will flow into federal government coffers, so what we do with the windfall will be down to whoever wins the next election in 2021-22.

‘Early days’

Tony Greco, a senior tax adviser at the Institute of Public Accountants (IPA) and a Board of Tax adviser, said that despite the agreement it’s still “early days” for the plan, which wont be implemented until 2023.

“Australia can’t even get six states to agree on General Sales Tax (GST), 130 countries on the global stage is just mind boggling,” Mr Greco said.

“We have this high level agreement, but we need all the countries to agree on the details.”

An implementation plan for the deal will be agreed among signatories by October after negotiations that will include representatives from Australia.

Ending the race to the bottom

The Biden administration surprised the world earlier this year when it declared support for a global minimum tax rate, and on Friday US Treasury Secretary Janet Yellen welcomed news the plan will go ahead.

“For decades, the United States has participated in a self-defeating international tax competition, lowering our corporate tax rates only to watch other nations lower theirs in response,” she said in a statement.

But will it actually work? Dr Kayis-Kumar is sceptical that it will increase corporate tax revenues markedly over the medium term.

“While it is difficult to predict the full extent of the economic aftermath of the COVID-19 pandemic, corporate income tax revenues are likely to be lower over the medium-term,” she said.

“This will put even more pressure on tax revenues collected from the personal income tax system (that is, tax that people like you and me pay on our salaries and wages).

“Given this climate, it might be politically viable, economically efficient and socially acceptable to consider other, more fundamental reforms to the corporate income tax system.

“I think what we really need in the corporate tax space is a global ‘excess profits’ tax (or ‘super profits’ tax).”