Tax laws

Government strengthens tax laws for multinationals

The Labor government cracks down on multinational corporations (MNEs) that avoid tax and transparency.

Last week, Treasurer Jim Chalmers said the government’s priority was to ensure multinational corporations pay a fair share of tax where they make their profits.

“What I hope to do within a day or two is to publish the discussion paper, which is the consultation that we have committed to in relation to the implementation of the multinational tax policies that we have up for election, and they are our priority,” he explained.

On Friday, the government released its multinational tax integrity package which aims to prevent multinationals from adopting increasingly sophisticated tax planning practices.

“Multinational enterprises can take advantage of differences between jurisdictions’ tax systems to minimize their tax paid, typically by shifting the incidence of taxation from a high-tax jurisdiction to a low-tax jurisdiction, or by avoiding a tax altogether. taxable presence in high-tax jurisdictions,” it said.

“Transparency is a key factor that underpins the integrity of the tax system. It can help deter multinationals from entering into agreements to minimize their tax paid and helps build community confidence that multinationals pay their fair share of tax in Australia.”

This discussion paper seeks to amend Australia’s existing thin capitalization rules to limit interest deductions for multinational enterprises in line with the approach recommended by the Organization for Economic Co-operation and Development (OECD) in the part of action 4 of the BEPS program (Base Erosion and Profit Shifting).

It also plans to introduce a new rule limiting the ability of multinational companies to claim tax deductions for payments relating to intangible assets and royalties that result in insufficient tax paid.

In addition to ensuring increased tax transparency by multinational companies, through measures such as the publication of certain tax information country by country; mandatory reporting of significant tax risks to shareholders; and requiring bidders for Australian government contracts to disclose their country of tax residence.

Chalmers added that the crackdown is part of a global movement to stop big business from avoiding tax.

“There is a big agenda around OECD multinational taxes. At the G20 meetings in Indonesia, one of the topics of conversation was how the world can work together on the two pillars of the OECD agenda. OECD and make sure we solve this problem in the global economy and certainly in our economy,” he said.

“Where it’s too easy for multinational corporations to shift their debt or shift their profits around the world in a way that sells countries short and makes it harder for us to finance the things we really care about when it comes to health care and education and all of these federal government programs that we have to fund within the context of all of our other budget constraints.”

The changes contemplated in the published document aim to target activities deliberately designed to minimize taxes, while taking into account the need to attract and retain foreign capital and investment in Australia, limit potential additional compliance costs for businesses and to continue to support genuine commercial activity.

The government has also announced that it will introduce a public register of beneficial owners to improve the transparency of corporate structures, to show who ultimately owns or controls a company or legal vehicle.