The federal government’s plans to target large multinational companies which it says are not paying their fair share of tax could inadvertently impact on small and medium size businesses, according to tax experts.
The government announced yesterday it intended to improve the transparency of Australia’s business tax system to encourage enterprises to pay their fair share of tax and discourage aggressive tax minimisation practices.
Assistant Treasurer David Bradbury said while protecting taxpayer confidentiality for individuals is essential, recent events in Australia and around the world call into question whether large and multinational businesses should have the same level of confidentiality about the taxes they have paid.
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“Large multinational companies that use complex arrangements and contrived corporate structures to avoid paying their fair share of tax should not be able to hide behind a veil of secrecy,” he said.
The stated targets of the government’s “name and shame” move are companies such as Apple, whose most recent Australian tax bill came to $40 million on $6 billion worth of sales, and Google, which paid $74,000 on $1 billion plus sales.
Treasury will join with the Specialist Reference Group on Ways to Address Tax Minimisation of Multinational Enterprises to consider implementing changes to look at making tax information publicly available.
The government says it will explore ways to improve the sharing of tax information between the Australian Taxation Office and other key corporate regulators including the Foreign Investment Review Board, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority.
While the government has specifically said it “will not publicly disclose the tax information of individuals or small businesses”, experts warn the vague definition of what constitutes a multinational business could catch SMEs which trade internationally.
Gavan Ord, business policy adviser at CPA Australia, told SmartCompany while the government’s announcement sounds like a reasonable policy response to the issue, care needs to be taken in implementing the law.
“In particular, we see one critical issue being the threshold test. That is, who the disclosure requirement would be imposed on,” he says.
“There are any number of SMEs that have businesses in multiple jurisdictions – could they fit the definition of a multinational business?”
Ord says he does not think this is the intention of the legislation but it needs to be discussed.
“There will need to be some very careful consideration of policy development of who they want to capture otherwise there may be a whole lot of SMEs who may be inadvertently captured,” he says.
Paul Stacey, tax counsel at the Institute of Chartered Accountants, also raised alarm bells about the government’s move.
“We are concerned at the plan to break taxpayer confidentiality for some taxpayers but not all; it would seem to be quite possibly an unprecedented move and we can’t help but wonder what the intended purpose of this disclosure is,” he says.
“We have concerns that it might result in collateral damage to particular businesses and perhaps the economy more widely.”
Stacey says while the government has expressed an intention not to disclose the tax affairs of smaller businesses “none of this is risk free and it is most concerning”.
“It does leave open a two-tier tax system where you have different rights of privacy depending on the size of your business,” he says.
“If the real question is that adherence to tax law results in an inappropriate outcome then it seems a more sensible approach to change the tax law than publicise the tax affairs of businesses who are complying with those laws.”