Budget blitz on tax havens
Movie, music and e-book downloads will soon attract GST under a Budget crackdown that will also target some of the world's biggest mining and technology companies using offshore havens to dodge tax.
Treasurer Joe Hockey said the so-called Netflix tax would raise $350 million but indicated billions of dollars more could be generated by stopping multi- national firms siphoning profits out of Australia.
Keen to regain some of the limelight stolen by Social Services Minister Scott Morrison ahead of today's Budget, Mr Hockey said taxpayers were being hurt by the actions of 30 companies that were artificially reducing their tax.
The anti-avoidance regime will be one of the centrepiece policies in the Budget, together with childcare reforms, a cut to small business tax rates and changes to the pension eligibility rules.
"This is about the integrity of the Australian taxation system," Mr Hockey said yesterday.
"When someone does not pay their fair share of tax, it means that the mums and dads of Australia, the businesses of Australia, the consumers of Australia end up paying more and that is plainly unfair."
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Tax systems have struggled to keep up with the rise of web digital services such as Netflix, Apple TV, internet gaming, e-book publishing and computer software, slowly eroding the GST's coverage.
Mr Hockey said draft legislation would be released to deal with the tax on "intangibles" but would not nominate a start date for the regime, saying it had to be negotiated with suppliers.
Much more revenue is likely to be raised by getting tax from the 30 companies that are dominated by household technology firms.
The move comes after an Australian Taxation Office operation that saw officials embedded in scores of multinationals to monitor their activities.
The ATO not only tracked where and how much money was being shifted offshore but the payment of special "bonus" payments to Australian-employed staff. The tax office found companies declaring little local income - and tax - rewarded employers for exceeding sales targets.
A common method used for dodging tax has been given the moniker of a "double Irish Dutch sandwich" under which a company appears local in its operations but consumers actually pay an Irish subsidiary.
For income tax purposes, the firm claims it is in Ireland.
It has a 12.5 per cent company tax rate compared with Australia's 30 per cent.
From Ireland, income is paid to a Dutch subsidiary in the form of a royalty payment. It is then paid to a second Irish company controlled in Bermuda where there is no corporate tax.
The original Irish subsidiary gets a tax deduction for its royalty payment, reducing the income subject to tax.
Australian mining companies that have used Singapore through which to move revenue will also get caught up in the Government's plan.
BHP Billiton revealed to a Senate committee last month that it was in three disputes with the tax office over $522 million in tax that relates to the company's use of a Singapore-based subsidiary.
A recent review by the ATO of the annual returns of 92 of Australia's biggest firms found they used 1269 subsidiaries in tax haven nations including Singapore, the Netherlands, Hong Kong and Luxembourg.
More than $322 billion went through the havens.
Mr Hockey would not reveal how much extra tax the measure was likely to raise, prompting claims by Labor that it was another "thought bubble" from the Treasurer.
The ALP believes the Government could raise $2 billion by adopting its plans to target multinationals' use of debt to avoid tax.
