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Biggest move on multinational taxation in a generation

The Turnbull Government has instigated one of the most important changes to the taxation of multinationals in a generation.

After opposing our earlier crackdown on international tax avoidance – the Multinational Anti Avoidance Law (MAAL) – Labor refuses to acknowledge the new Diverted Profits Tax (DPT), which comes into force tomorrow.

The Turnbull Government’s Diverted Profit Tax (DPT ) will mean large multinationals that artificially shift profits overseas will now be penalised with a tax of 40 per cent on the diverted Australian profits.

In simple terms, if a multinational company does business in Australia, it will pay tax in Australia.

However, Labor’s tax spokesman Andrew Leigh does not appear to be aware of the statement by the Commissioner of Taxation that this new tax together with the MAAL is the impetus for these global giants coming to the Tax Office to make sure their tax structures are complying with Australia’s tax laws.

Instead Dr Leigh is proposing a range of measures, some of which the Government is already taking action on, such as whistleblower legislation and changes to the laws on beneficial ownership. However, most of his proposed measures relate to more transparency but will have no material impact on forcing multinationals to pay more tax.

For example, Dr Leigh is proposing appointing a community sector representative to the Board of Taxation but he doesn’t even seem to be aware the Board of Taxation has long had members with community sector backgrounds.

Dr Leigh also wants to dupe Australians into believing Labor can tighten debt?deduction loopholes to boost revenue from multinational companies by $4.6 billion over 10 years.

And how do they intend to do it? By reheating their previous announcement to amend the thin capitalisation rules to rely solely on a worldwide gearing test, meaning the removal of the current safe harbour and arm’s length debt tests. Such an approach is not supported by the OECD’s final recommendations on interest deductibility.

Meanwhile, the Government’s new DPT will apply to multinationals with an annual global income of $1 billion or more and an Australian income of more than $25 million per year. It is expected to raise $100 million each year from 2018-19, but more importantly will force companies to change their behaviour in terms of their tax arrangements in Australia leading to more tax being paid on income earned in Australia.

The DPT follows the introduction of the MAAL, which prevents multinationals from artificially avoiding a taxable presence in Australia. Around 30 companies have restructured or are intending to restructure their tax affairs to comply with the MAAL.

To help the ATO do this vital compliance and enforcement work, the Government last year committed to additional funding of $679 million over four years for the ATO’s new Tax Avoidance Taskforce.

The additional money boosts the ATO’s capacity for enhanced compliance activities and audits that target multinationals, large public and private groups, and high wealth individuals.

In 2016-17 the ATO raised assessments of $4 billion on large public groups and multinationals.  $3 billion of that was raised against seven large multinational companies

As a result of the Turnbull Government’s efforts around multinational tax avoidance, more money will be invested here, benefiting Australian communities and the economy.

Forcing multinationals to pay their fair share of tax should be a bipartisan issue and Dr Leigh should support the Government’s efforts, not carp from the sidelines.