As published on afr.com, Friday 5 August, 2022.
The Albanese government is moving quickly to impose a $1.9 billion tax crackdown on multinationals to repair federal budget coffers, with companies privately fearing the measures could raise significantly more money than forecast.
The release of a Treasury consultation paper on Friday to limit interest deductions comes on the heels of Rio Tinto last month settling a $1 billion dispute with the Australian Taxation Office over the use of an offshore marketing arm in Singapore, a similar structure that BHP was earlier penalised for.
Miners, oil and gas producers and technology companies are among the multinational companies the government is targeting through proposed new laws.
The new paper details Labor’s election commitment to strengthen the interest limitation rules for multinationals, deny deductions for payments relating to intangibles and royalties, and enhance multinationals’ disclosure of tax information, “to ensure the public is better informed of multinationals’ tax arrangements”.
“Multinational corporations making a profit in Australia should pay their fair share of tax in Australia,” Treasury ministers Jim Chalmers, Stephen Jones and Andrew Leigh said in a joint statement.
“Our multinational tax package will close tax loopholes exploited by multinationals and improve tax transparency.”
A corporate tax expert, who did not wish to be named, said the measures were likely to raise more than the $1.9 billion over four years projected by the Parliamentary Budget Office, which Labor sources admitted in May was a “conservative” estimate.
“It seems undercooked,” a corporate tax expert said.
About $1.4 billion of the extra revenue over four years is slated to come from capping interest deductions at 30 per cent of earnings before interest, taxes, depreciation, and amortisation (EBITDA).
Corporate Tax Association executive director Michelle de Niese said she hoped the government was genuinely only targeting “those that are doing the wrong thing, to ensure “sensible, targeted tax laws with a focus on Australia’s tax competitiveness”.
She sounded a note of caution on the 30 per cent of EBITDA interest restriction, saying a “crucial design feature in most other jurisdictions with such rules is the carry forward of denied interest deductions.”
“The vast majority of countries that have introduced EBITDA-based rules have some form of carry forward of denied interest.
“Without carry forward rules of some sort, [this] makes Australia’s proposal a global outlier potentially impacting start-ups and those with volatile earnings in particular.”
Commissioner of Taxation Chris Jordan said last month the model by which resource companies repeatedly flouted rules to avoid paying tax has effectively been broken, delivering an extra $12 billion to the budget bottom line since 2017.
Deloitte tax partner David Watkins said the July 2023 start date for the new laws is “just around the corner”, in the midst of two federal budgets in October this year and May 2023.
“The paper highlights the magnitude of the task ahead, and for the interest and royalty measures, the urgency,” he said.
“At a high level, the paper says that the measures seek to target activities deliberately designed to minimise tax.
“However, that objective is not necessarily reflected in the detail which starts to emerge in the paper.
“It will be important to get the balance right between addressing integrity concerns whilst respecting arm’s length dealings.”
On the plan to improve tax transparency, Ms de Niese said the current rules were a “dog’s breakfast”.
”The transparency component of the paper is very wide-reaching covering not only public country by country reporting, but seeks comments on the voluntary tax transparency code, the published ATO numbers, and disclosure of material tax disclosures to name a few.
“A full ranging review of all tax transparency measures is welcome, after all it seems best placed as a part of your wider ESG reporting.”