Australia reaches tax loophole crackdown deal with UK

Summary:Australia and the UK have reached a deal aimed at helping tackle profit-shifting practices by multinational companies, such as Apple, Google, and Microsoft.

Australia and the United Kingdom have agreed to form a joint working group to tackle profit shifting by multinational companies such as Google, Apple, and Microsoft.

The deal, secured between Australian Treasurer Joe Hockey and British Chancellor of the Exchequer George Osborne during last week’s G20 meeting, will build on the UK’s experience of introducing a diverted profits tax at the beginning of April, commonly known as the “Google tax”.

The agreement is dependent on the completion of the UK general election, in order to determine the establishment of the senior officials’ working group.

“We are going to work with them on their diverted profits tax, which is already implemented, but we are going to send officials over to the United Kingdom as soon as their election is complete, and we are going to together lead the world and ensure that we work with the OECD in developing the very best practices,” Hockey told the ABC’s Barrie Cassidy on April 19. “That will absolutely ensure that companies earning profits pay tax in the jurisdictions where they earn the profits.”

Hockey’s approach is to make sure that companies can’t avoid having a taxable presence in the country by pretending they don’t have an establishment in Australia. He intends to make changes to the current laws sooner than waiting for the OECD, with which Australia has been working on a profit-shifting action since 2013.

The UK agreement comes just over a week after Hockey backed moves by Tax Commissioner Chris Jordan to shield from the Senate committee inquiry into corporate tax avoidance the identity of 10 companies under investigation after being found to be sending billions of dollars offshore.

Despite Jordan’s refusal to identify the companies by name, executives from Apple, Google, and Microsoft, under questioning at a public hearing by the committee in Sydney on April 8, confirmed that they are being audited by the Australian Taxation Office.

The three tech companies, among other multinationals, have been under the watchful eye of the government for employing tax minimisation strategies such as the so-called “double Irish Dutch sandwich” method, which enable multinational companies to legally funnel profits through countries outside of Australia in order to pay very low taxes domestically.

Earlier this month, the Australian government reached a deal with the county’s states and territories that would see digital downloads, such as music, movies, and books, become subject to the national Goods and Services Tax (GST).

Under the plan, companies like Google and Apple providing an “intangible service” to Australia, wherever they are located, would have to charge GST on those services.

The move, which Hockey said has the potential to generate billions of dollars in revenue, could be followed by a further change involving applying the GST to goods imported online that are valued at less than AU$1,000.