Labor plans to close tax loophole

A Labor government would crack down on foreign companies avoiding tax under a plan Bill Shorten says will net almost $2 billion in lost revenue.

In its first major policy to be revealed since losing government, Labor says it will make changes to the way companies claim tax deductions and crack down on so-called "profit shifting" by foreign-based corporations.

The move comes amid growing outrage at the small amount of tax being paid in Australia by foreign companies.

"How can we ask Australians to work hard and pay tax if we let big multinationals off the hook," Mr Shorten said.

"How can Australian businesses compete if they pay more tax at home than big multinationals?"

US-based computer manufacturer Apple paid just $38 million in Australian tax in the 2013-14 financial year despite earning local revenues of about $6 billion.

Search engine giant Google pays only about $500,000 a year in Australian tax even though it is thought to earn about $2 billion locally.

And American company James Hardie operates at a net taxable loss in Australia despite making annual profits of more than $200 million.

Mr Shorten says a Labor government would amend so-called thin capitalisation rules to reduce the amount of debt companies can claim as deductions in Australia.

Companies would no longer be able to claim up to a 60 per cent debt-to-equity ratio for Australian operations by their global debt-to-equity ratio.

Labor would standardise tax rules on hybrid entities with some foreign countries to close a loophole that allows foreign-based companies from treating assets as debt.

And the Opposition is promising to better fund the Australian Taxation Office to properly pursue multinational profit shifting.

Treasurer Joe Hockey has suggested he could follow Britain's lead and introduce a "Google Tax" to catch profits in Australia.