The Australian government intends to write new laws to tax digital businesses, crack down on research and development (R&D) tax incentive abuse, and revise the thin cap provisions, among other initiatives, budget documents released today said.
“The next big challenge is to ensure big multinational digital and tech companies pay their fair share of tax,” said Australian Treasurer Scott Morrison said in his budget speech.
Morrison said the government will release a discussion paper “in a few weeks time” that will explore options for taxing digital businesses in Australia. He noted that the Australian government has been working at the OECD level to reach international consensus on the taxation of digital firms.
The budget announced several changes to Australia’s R&D tax incentive applicable to income years starting on or after July 1. The changes are based on a 2016 government report on the R&D tax credit.
“We are cracking down to ensure that R&D tax incentives are used for their proper purpose, with enhanced integrity, enforcement, and transparency arrangements, saving taxpayers $2 billion over the next four years,” Morrison said.
The government also said it will tighten Australia’s thin capitalization rules, requiring entities to align the value of their assets for thin capitalization purposes with the value included in their financial statements.
Another change will ensure that foreign controlled Australian consolidated entities and multiple entry consolidated groups that control a foreign entity are treated as both outward and inward investment vehicles for thin capitalization purposes.
The thin cap changes are designed “to stop multinationals from fiddling with how they account for debt to reduce their tax liabilities,” Morrison said.
The government will also introduce a package of measures to address risks to the corporate tax base posed by stapled structures and similar arrangements, the budget documents announced. The package will limit access to concessions for passive income used by foreign governments and foreign pension funds.
Moreover, the government will extend the GST to ensure that offshore sellers of hotel accommodations in Australia calculate their GST turnover in the same way as local sellers from 1 July 2019. Offshore sellers will no longer be able to take advantage of a GST exemption designed for offshore tour operators.
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