The Australian government on May 11 announced plans to beef up antiavoidance rules to tax multinational profits diverted from Australia and to propose laws to ensure that offshore suppliers of digital products and services pay goods and services tax (GST).
The proposals will be unveiled in the government’s budget tomorrow, Treasurer Joe Hockey said.
Antiavoidance rules, which would go into effect January 1, 2016, will address contrived arrangements such as the “double Irish Dutch sandwich,” Hockey said. He said that the Australian Tax Office studied the activities of 30 large multinationals before coming up with the plan.
The law would apply to foreign multinational suppliers of goods and services to Australia that have global revenue of over $1 billion where revenue from Australian sales is booked offshore and Australian customers deal mainly with Australian employees.
If revenue from the sales is channeled to a tax haven and the principal purpose of the scheme is to avoid taxable presence in Australia, the scheme will be caught by the new rules.
The draft amendments give the Tax Commissioner power to recover unpaid income taxes on the profit and to withhold tax on royalty and interest. A penalty of an additional 100 percent of unpaid taxes plus interest would be imposed.
“Part IVA [of the Income Tax Assessment Act] at the moment almost deals exclusively, arguably, only with Australian interests. What we’re doing is saying even if they comply with the laws of other jurisdictions, if there is an element that relates to behavior in Australia, then that gives us the power to go in [to] properly discern what the proper taxable profit should be in Australia,” Hockey told reporters in Canberra.
Hockey also said that other goverments, including China, who are considering adopitng similar measures.
GST on offshore suppliers
The amendments to the GST would impose the tax on items such as movie downloads, games, and ebooks from overseas.
“It is plainly unfair that a supplier of digital products in Australia has to charge GST and an off-shore supplier does not,” Hockey said.
Revenue from the measure is expected to be $350 million over he next four years.
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