By Julian Bajkowski
In a strong sign that bipartisan support is mounting for a crackdown on transfer pricing tax schemes, Opposition Communications spokesman Malcolm Turnbull has come out swinging against multinational technology companies that generate billions of dollars of revenue in Australia but pay proportionally miniscule amounts of tax here through transfer pricing arrangements.
The Communications shadow on Tuesday again singled out Google and Amazon for strong criticism over the small amounts of tax they pay, a topic already close to the heart of Communications Minister Stephen Conroy, Treasurer Wayne Swan and Assistant Treasurer David Bradbury.
“Transfer pricing laws and treaties were designed to deal with an analogue world,” Mr Turnbull said at the Kickstart conference in Maroochydore earlier this week, before questioning whether existing laws used to challenge tax arrangements for physical goods were effective in the internet age.
“The challenge governments are facing from the digital world is that when Google sells ads to Australian businesses – and generates revenue in Australia – it’s not actually transfer pricing. People are actually dealing directly with a company in Singapore or Ireland,” Mr Turnbull said.
Mr Turnbull’s repeated flagging of the insignificant amounts of tax paid by technology vendors operating in Australia as a problem is closely in-step with the government’s own concerns.
Communications Minister Stephen Conroy has hit out at technology vendors for price-gouging consumers here while contributing essentially nothing to Treasury coffers, spotlighting Google’s now infamously small tax contribution of $74,000 in Australia compared to estimated advertising revenues well in excess of $1 billion.
“Not only is there being no profit generated in Australia – this is how Google can be the single biggest advertising platform in Australia and have, you know, a huge margin but pay $70,000 in tax –but there’s no GST [Goods and Services Tax] paid either,” Mr Turnbull said.
“So you’re not only seeing federal revenues being impacted but the GST which goes to the States is being impacted. You see a similar issue with Amazon where there’s no GST paid on goods under $1000. So there are some really big issues.”
Those issues are not confined by Australia or party-political branding. Federal Treasurer Wayne Swan last week used the G20 conference of finance ministers in Moscow to push for international reforms to multinational corporations’ profit-shifting.
The push to rein-in profit shifting multinational mega-brands has also being backed by Britain’s conservative Prime Minister, David Cameron, who is similarly worried about the shrinking tax-base that governments rely on to fund activities ranging from health and welfare to defence and education.
Tax-base erosion is also a big concern for Treasury bureaucrats here and abroad because they will ultimately be required to advise on and draft ways to stop digital businesses bleeding the tax base dry as they gradually replace traditional merchants.
“The existing laws are not actually designed – there weren’t designed in contemplation of this digital marketplace. And it raises very big issues for countries as they see their tax bases being eroded,” Mr Turnbull said.
However the government is not standing still, with Assistant Treasurer David Bradbury heavily pushing important tweaks to tax existing laws that are now before Parliament and aim to protect at least $1 billion a year.
One push is to deal with the so-called “general anti avoidance rule” and will attempt to ensure that law can tackle sophisticated arrangements that are technically legal but essentially engineered as vehicles to avoid tax.
At the same time laws updating Australia’s transfer pricing rules are before the parliament to ensure that the regime works in better with existing international arrangements set out by the Organisation for Economic Co-operation and Development (OECD).
“This problem is not confined to Australia. Internationally we have seen some of the world’s largest multinational companies publicly exposed for their aggressive attempts to shift profits into low-taxing jurisdictions,” Mr Bradbury said.
“Without serious co-ordinated global efforts, profit shifting and base erosion will see a spiralling risk to the tax revenues of some of the world’s largest economies.
“When multinationals don’t pay their fair share, they gain an unfair competitive advantage over domestic companies and disadvantage Australian taxpayers who must make up the tax shortfall or accept fewer Government services.”
However despite Mr Turnbull’s admission that the transfer pricing system is effectively obsolete when it comes to dealing with the technology industry’s multinational giants, the Coalition is yet to say whether it will back the latest transfer pricing tweaks.
A spokesman for Shadow Treasurer, Joe Hockey, repeatedly stressed that any of Mr Turnbull’s comments made in Maroochydore were not in reference to transfer pricing legislation now before Parliament.
Mr Hockey’s spokesman said there was “no official Coalition position” on the legislation.
“Everyone should pay their fair of tax. We haven’t declared a position yet.”
Declared, fair or otherwise the issue is rapidly gaining momentum as May’s Federal Budget approaches.
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