The Federal Government’s so-called “Google Tax” has been passed into law, with the new legislation, aimed at targeting profit-shifting among multinational enterprises, set to come into effect from the beginning of July.
The Diverted Profits Tax Bill 2017 and the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 were introduced into Parliament by Treasurer, Scott Morrison, in February, and were passed by the Senate into law on 27 March, having already made their way through the House of Representatives.
In the words of the Bills’ explanatory memorandum, the new legislation aims to “ensure that the tax paid by significant global entities properly reflects the economic substance of their activities in Australia and aims to prevent the diversion of profits offshore through contrived”.
Ultimately, the new laws will see some companies that book their profits in international regions that claim a lower tax rate than Australia’s standard 30 per cent company rate slugged with a tax bill based on a rate of 40 per cent.
The move to crack down on multinationals’ profit-shifting practices was announced by the government in the 2016-17 Budget.
It follows a series of parliamentary inquiry hearings carried out in 2015 that saw representatives from some of the largest technology companies operating in Australia grilled by a Senate committee panel about their tax practices in Australia.
Among those under scrutiny were Apple, Microsoft, and Google, all of which have been on the Government’s radar in relation to their local tax practices.
In 2013, Labor MP, Ed Husic, singled out Apple over its tax practices, questioning how the company's local operation could accrue $5.5 billion in costs.
"How? They don't manufacture here, there are no factories here. I don't know what their R&D effort is here," he said at the time, according to ZDNet.
In 2015, during a Parliamentary hearing, Google Australia’s then managing director, Maile Carnegie, revealed that the company reported profits exceeding $46 million in 2013, while paying just $7.1 million tax for that year – well below Australia’s standard company tax rate.
Now, with the Diverted Profits Tax in place, the Government hopes to see fewer examples of large companies paying a tax rate that falls below the standard company rate, and expects the new measures to raise $100 million in revenue a year from 2018-19.
However, the new laws will only apply to multinationals that have a global income of more than $1 billion and an Australian income of more than $25 million.
The legislation is also aimed at complementing existing anti-tax avoidance rules such as the Multinational Anti-Avoidance Law (MAAL) to clamp down on artificial profit shifting by major multinationals and increased penalties for breach of tax reporting obligations for global companies with incomes of $1 billion or more.
Additionally, the Diverted Profits Tax will not apply to managed investment trusts or similar foreign entities, sovereign wealth funds and foreign pension funds.
This exclusion is aimed at ensuring that such entities do not face an unnecessary compliance burden as a result of the introduction of the Diverted Profits Tax.