Hockey aiming to tighten tax loophole
Treasurer Joe Hockey will introduce legislation this month to tighten corporate taxation loopholes but says there must be a global solution to tax evasion.
The government is going ahead with rule changes to lower the amount of debt a multinational firm based in Australia can have on its books.
This will reduce the offset it can make on its tax liability from the interest it has to pay on its loan.
“We are determined to create a level playing field for taxation of businesses so that a large multinational faces the same tax environment as a small business on the corner,” Mr Hockey says.
A Fairfax story this week claimed coalminer Glencore paid almost zero tax over the past threes years, despite income of $15 billion, because it was able to reduce its tax exposure by taking on large and expensive loans from overseas associates.
The legislation – backdated to July 1, 2014 – will cut the so-called ‘thin capitalisation rule’ to a 60 per cent debt to equity ratio rather than 75 per cent currently, bringing it down to around the average of other countries.
Also, if repayments are not in the form of debt and interest, and instead dividends or shares, they will be subject to income tax.
These changes were first announced by the previous government in May 2013, but were never enacted.
The Organisation for Economic Cooperation and Development, through the G20 under the presidency of Australia, is currently working on a framework to prevent tax avoidance by multinationals.
Its plans will be taken to the G20 Brisbane summit in November.
‘We need a global solution to a global problem and we need a solution that will work and is not cosmetic,’ Mr Hockey says.
