The rise of e-commerce has prompted the Australian Government to re-examine multinational corporate taxation in Australia Multinational corporations with Australian operations should monitor developments, prepare to be involved in the discussion and review tax planning strategies in place for Australia
There has been much government and media scrutiny around the world in recent months of the tax affairs of multinational corporations, and the adequacy of existing tax laws in light of the Internet and technology changing the way business is being done. Given the subject matter, particularly those in the e-commerce and technology sectors such as Google, Amazon, Apple, eBay and Microsoft have been the subject of attention.
This scrutiny prompted what appears to be an unprecedented move by Starbucks in the UK to voluntarily restructure its affairs to pay an additional £20 million in UK corporation tax over the next two years.
Multinational corporations are also facing this scrutiny in Australia. There are reports of the Australian Taxation Office issuing Apple Australia with a bill for $28.5 million in unpaid taxes earlier this year. In late November, Assistant Treasurer David Bradbury gave a key speech to the ICAA National Tax Conference criticising the tax planning practices of multinational corporations, including Google.
Following this trend, Mr Bradbury announced last week the appointment of a specialist reference group to advise the Australian Government on multinational corporate taxation issues. The specialist reference group will advise Treasury in relation to a scoping paper addressing risks to the sustainability of Australia's corporate tax base from multinational tax minimisation strategies and potential responses by the Australian Government.
The group members have been appointed in their personal capacity based on their expertise rather than as representatives for stakeholders, and includes Clayton Utz tax partner Niv Tadmore.
The appointment of the specialist reference group is on top of other initiatives announced in the past year that promise to impact multinational corporations with Australian operations, including:
- reforms to Australia's transfer pricing regime
- proposed changes to the Part IVA anti-avoidance regime and
- changes providing the Commissioner of Taxation with new powers to retain refunds of GST and proposals that if enacted will effectively expand that power further, by deeming almost all overpaid GST (including GST overpaid by mistake) to have always been payable to the Commissioner.
It remains to be seen what will be considered in Treasury's scoping paper. However, possible areas that may be examined by Treasury would include:
- further reforms to transfer pricing laws;
- international tax treaties, and whether existing concepts of "source" and "permanent establishment" should be reconsidered;
- the role of withholding taxes on payments to overseas parties;
- lowering the GST and customs duty low value import threshold;
- changes to the GST law to capture supplies that would not otherwise be connected with Australia; and
- more extensive information reporting requirements.
The rise of e-commerce, the challenging economic environment and growing pressure on corporate tax revenues suggest there will be continued attention and calls for reform to how multinational corporations are taxed in Australia. This will particularly be the case for e-commerce enterprises based in the United States with low headline tax rates due to carefully structured global tax planning strategies.
Multinational corporations with Australian operations should monitor developments, and prepare to be involved in the discussion on Australia's tax rules and policies and how changes may be implemented. They should also be reviewing existing tax planning strategies in place for Australia in light of the anticipated high level scrutiny.