The integrity of the tax system is among the key themes of tonight’s budget, with Treasurer Joe Hockey set to announce a series of measures in his budget speech which will ensure “people or companies who are avoiding their tax to pay their fair share”.
As revealed by Hockey on Monday, the government will introduce legislation to impose greater penalties for companies that illegally use artificial tax arrangements to avoid taxes in Australia.
The Multinational Anti-Avoidance Law will be part of the existing Income Tax Assessment Act 1936.
The new law will target approximately 30 global companies which have a local division where the activities of an Australian company or entity directly influence an Australian consumer’s decision to enter into a contract; where the contract is entered into with a foreign related party; and where the profit from the sales in Australia is booked overseas and subject to low global tax or no tax at all.
Under the new measures, the companies will be fined a penalty equal to the amount of tax avoided, plus interest, as well as being forced to repay taxes owed.
But as reported by SmartCompany earlier today, the measures will not apply to businesses with global revenues of less than $1 billion. This means, as the Treasurer’s office wrote in a pre-budget briefing, SMEs will not be caught.
However, the budget papers do not contain any detail as to how much the measure will cost the government to introduce or how much revenue it will raise.
The Australian Tax Office will also get an additional $11.3 million over four years to introduce new transfer pricing documentation standards, which will give the tax office more detailed information of how multinational corporations operate and therefore help it detect tax avoidance.
The government said this measure will have “an unquantifiable gain to revenue” over the same four-year period.
“Everyday Australians rightly believe that if a dollar of profit is earned here, then you should pay tax here,” Hockey will say in his budget speech.
“Unfortunately this is not always the case for some multinationals. Many have the capacity to aggressively minimise their tax.”
“What this means, is that families and small businesses are forced to carry more than their fair share of the tax burden.”
Hockey will also say “it is unfair that overseas based businesses selling services into Australia may not charge GST when local businesses have to charge GST” and that is why the government will add GST to digital downloads, which is expected to raise $350 million for the states over four years.
The so-called “Netflix tax” will come into effect from July 1, 2017, as long as all the states and territories support the measure.
This seems likely, with Hockey saying in April the states “agreed in principle that we should move in that regard”.
“I have offered to work as quickly as possible with them to introduce legislation to address that in relation to intangibles,” Hockey said.
“I see those things as integrity measures for the tax base, not the broadening of the GST or an increase of the GST.”