Australia copies UK's Google tax on 'contrived' dodges
Because you pay Microsoft Singapore for software bought inside the Sydney Opera House
Australia has copied the United Kingdom's Government Digital Service and has now decided the UK's Google-busting Diverted Profits tax is also worth replicating.
Australia's national budget was delivered on Tuesday and treasurer* Scott Morrison's speech introducing the year's planned government expenditure promised “a new diverted profits tax, as implemented in the United Kingdom, that taxes multinationals on income they have sought to shift offshore at a penalty rate of 40%, that is higher than the current company tax rate.”
The UK's rationale for the tax speaks of “entities or transactions that lack economic substance to exploit tax mismatches”. The discussion paper (PDF) for Australia's version uses slightly different language, saying the nation's tax authorities will be charged with “eliminating hybrid mismatch arrangements where corporates take advantage of differences in the tax treatment of financial instruments or entities in different countries to avoid paying tax.”
Australia's already adopted one part of the UK law, by going after what the discussion paper dubs “entities using artificial or contrived arrangements to avoid a taxable presence in Australia.” This year's effort goes a step further, and is designed to “will help ensure that large multinational corporations pay an appropriate amount of tax on profits made in Australia.”
That's code for “getting more money out of Google and Microsoft,” both of which use Singaporean companies to bill Australians for goods and services bought and consumed locally. Buying Software from Microsoft Australia often sees Microsoft Singapore appear on the bill, which is good for Microsoft given that Singaporean tax rates are rather lower than Australia's.
Australia's signalled its new penalty tax will come into force on July 1, 2017.
Google recently changed the structure of its Australian operations so that it now recognises revenue won from local marketing efforts. That change lifted the Alphabet subsidiary's tax payment to AU$16m on a $50m profit on revenue of $501.8m. That's not far off Australia's company tax rate of 30 per cent. But Google still sells ads served to Australians in Singapore and the amount of money that effort generates is thought to be well and truly in excess of the revenue reported to local authorities.
Australia's budget also planned for a deficit of AU$37bn in 2016/17, a slight erosion on this financial year's expected$40bn, showing neatly why multinationals are in Australia's sights.
The Register has asked Google and Microsoft for comment on the diverted profit tax. ®
* Treasury Secretary for US readers, Chancellor of the Exchequer for UK readers