A 40% tax rate on multinational companies that use overseas tax havens to avoid paying tax in Australia was passed by the Senate last night.
The diverted profits tax (DPT), also known as the “Google tax”, was a key part of treasurer Scott Morrison’s budget measures last year and will begin on 1 July, 2017. The government hopes it will deliver $100 million in revenue annually from 2018-19.
The DPT only applies to multinationals with a global income of more than $1 billion and an Australian income of more than $25 million and follows on from the Multinational Anti-Avoidance Law (MAAL), introduced in January this year, which targets artificial profit shifting by multinationals.
The new law means Australia is just the second country in the world, after the UK in 2015, to introduce such a company tax. The 40% rate has a built-in penalty, 10% higher than the standard 30% company tax rate. The tax is triggered if a company moves revenue initially booked in Australia to a country with a tax rate lower than 24%.
Debating the bill in Parliament, Morrison said the higher penalty rate was aimed at “encouraging greater cooperation between uncooperative multinationals and the ATO. As a result this will greatly reduce the length of disputes between the ATO and multinationals, and lead to timelier dispute resolution.”
The DPT does not apply to managed investment trusts or similar foreign entities, sovereign wealth funds and foreign pension funds.
“The Turnbull government is determined to ensure multinationals do the right thing and pay their fair share of tax here in Australia so that Australian citizens get the money that is owed to them to fund vital infrastructure and services,” Morrison said.
In last year’s budget, the treasurer allocated $679 million over four years to fund a 1,300-member ATO taskforce focussed on multinationals, private companies and wealthy individuals. The measure is expected to raise $3.7 billion up to 2020.
Earlier this year, Apple Australia revealed its net profit for the financial year to September 24, 2016, fell by 97%, following a tax “adjustment”.
The small profit came from a revenue base of $7.57 billion, a $296 million drop from the previous year’s $7.86 billion.
Apple’s tax bill for its 2015-16 financial year amounted to $128.2 million, up 51% on the previous year’s $84.9 million.
In 2014, details of how Apple shifted an estimated $8.9 billion of Australian income to Ireland, where between 2002 to 2013.
Senior executives from Google, Apple and Microsoft fronted a Senate inquiry in 2015 to explain and defend their tax arrangements, with one such scheme described as a “double Irish sandwich with Dutch affiliations”.