Joe Hockey warned a 'Google tax' could land Australia in hot water with other countries

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The Parliamentary Budget Office is warning that if federal government introduced a “Google tax” in the May Budget, it could be at risk of breaching international tax treaties, affecting Australian firms that maintain operations offshore.

Treasurer Joe Hockey reportedly wants to go after the the profit shifting activities of giant international companies he believes are not paying adequate levels of tax in Australia.

The PBO told Fairfax Media that the “legal validity” of such a tax could be challenged under either Australian or international law, which could have financial implications for the nation.

“Other countries may respond by imposing taxes that breach their tax treaty agreements with Australia,” the office said.

Australia could end up following the UK’s lead in adopting the ‘Diverted Profits Tax’ system, which taxes profits declared overseas but earned from local activity.

The treasurer sought advice from British chancellor George Osborne on their system, and the idea of a 25% tax has been floated, which is 4% higher than the UK’s rate.

“We now understand how they make their money in Australia, and now can appropriately formulate the way to tax it for that activity in Australia,” Hockey said.

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