Just last week Treasurer Joe Hockey was “absolutely determined” to ensure multinational companies earning profits in Australia pay tax here too, but Monday’s Mid-Year Economic and Fiscal Outlook (MYEFO) appeared to show a backdown.
Here’s the line, on page 117 of the 2014/15 MYEFO report:
The government will not proceed with a targeted anti-avoidance provision to address certain conduit arrangements involving foreign multinational enterprises, first announced in the 2013-14 MYEFO.
Fairfax Media reported Australia-based global businesses will benefit the most from the government’s backdown.
However, Mr Hockey said the Fairfax report was incorrect.
The specific measure to abolish the deduction in the story relates to changes Labor proposed to the tax act in 2013 but did not bother to legislate when they were in Government. Treasury advised the new Coalition Government that the abolition of 25-90 should not proceed.
“The decision not to proceed with this aspect of Labor’s proposed law was not an ideological policy choice. It was a practical decision because the draft law could not be satisfactorily implemented.
“The Government is firmly committed to ensuring that Australian tax is paid on profits earned in Australia.”
One example of a multinational earning large sums but paying little tax in Australia is Apple. In 2013, the computer giant had revenues for more than $6 billion in Australia but paid just $56 million in tax.
Another is Google which reported paying just $4.1 million in tax on revenue of $268 million.
An added bonus for these types of businesses is their international subsidiaries’ interest on borrowings – used to grow overseas operations – is tax deductible.
Two weeks ago, the BBC reported UK Chancellor George Osborne would be implementing a so-called “Google tax”. He said the levy would deliver around £1 billion over five years to government coffers from multinational organisations.
Osborne is planning a 25% tax being imposed on “profits generated by multinationals from economic activity in the UK which they then artificially shift” abroad.
In response, Hockey said: “We are closely monitoring new developments in the United Kingdom. We see it essential that all corporations contribute to the country in which they operate.”
While he said “it robs Australians when multinationals don’t pay tax here”, Hockey was quick to add that if Australia was to take unilateral action and other jurisdictions did not then “what you do domestically isn’t going to work”.
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