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The incoming government’s tax policy aims to make global companies pay their fair share, says RSM Australia.
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Labor multinationals policy ‘aligns with global agenda’
25 May 2022
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The ALP’s tax policy wasn’t trumpeted in the lead-up to the 2022 Australian federal election, like it has been previously, something that RSM Australia’s national tax technical director Liam Telford, believes is due to a “more populist tax agenda.”
Mr Telford said that this new agenda would mean multinational tax avoidance was now within the ALP’s crosshairs, rather than the refundability of franking credits or halving of the capital gains tax discount.
“This is consistent with the coordinated efforts currently underway on a global basis to address tax avoidance by multinational corporations,” he said.
The ALP outlined how it will achieve this policy through implementing seven strategies:
- Implement the OECD’s global Two-Pillar Plan
The OECD’s (Organisation for Economic Cooperation and Development) Two-Pillar Plan is something that the previous Australian government had already agreed to, however the Labor Party has confirmed it will continue to implement it.
Mr Telford said this included a global minimum tax proposal that ensured multinationals pay an effective tax rate of at least 15 per cent on profits they make around the world, and also a fairer distribution of profits by multinationals, in particular digital firms. The OECD was expecting these arrangements to begin in 2023.
- Limiting debt-related deductions by multinationals
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One of the key ways multinationals are able to minimise their profits in higher tax countries while maximising income in lower tax countries is by creating artificial debts and repayment arrangements within the entities.
Labor has stated they will adapt Australia’s rules on deducting interest to fit with the OECD’s recommended approach to limit net interest expenses to 30 per cent of EBITDA (earnings before interest, taxes, depreciation, and amortisation) from 1 July 2023.
Mr Telford said despite the ostensible simplicity of the reforms, it was likely that it would result in an additional compliance burden for taxpayers, at least in the near term.
“It is also foreseeable that more disputes will arise in this area, as certain taxpayers are required to rely on less objective debt tests,” he said.
“Fortunately, the ALP have stated that the implementation of any reforms will be preceded by industry consultation.”
- Crackdown on tax havens
The ALP intends to deny multinationals any tax deduction for payments for the use of intellectual property when they are paid in a jurisdiction where they don’t pay sufficient tax. This would bring Australia in line with the UK and US that have similar measures in place.
- Public reporting of tax information on a country-by-country basis
The incoming government will require the public release on how much tax large multinational firms pay in the jurisdictions they operate in as well as how many employees work there.
Mr Telford said the ALP had indicated that this requirement would apply only to “large multinational firms”, which presumably referred to as significant global entities (SGE).
Accordingly, the additional compliance burden would seem justified, given the resources of such organisations.
- Public registry of ultimate beneficial ownership
This is to ensure transparency over who actually owns a company, reducing the Australian system’s vulnerability to money laundering and tax evasion.
Mr Telford said this registry would show who owns, controls or receives profits from a company or legal vehicle.
“While likely of limited application to the multinationals that are within the crosshairs of the ALP’s policy, this is a nonetheless welcome proposal following years of inertia by the incumbent government,” Mr Telford said.
- Mandatory reporting of tax haven exposure to shareholders
This would require companies to disclose to shareholders as a “Material Tax Risk” if the company is doing business in a jurisdiction with a tax rate below the global minimum of 15 per cent.
- Tax transparency requirement for government tenderers
The ALP is calling this a Fair Go Procurement Framework that would require those that gain government contracts to pay their fair share of tax.
This would mean all firms tendering for Australian government contracts worth more than $200,000 would state their country of domicile for tax purposes.
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