Treasurer Joe Hockey has promised to direct the Tax Office to target multinational businesses who charge Australians more for technology and ship the profits offshore to avoid tax.
In a pre-G20 speech this morning, Hockey outlined the ways the Government plans to tighten up Australia’s tax structure – particularly highlighting the higher prices paid by Australians for technology hardware and software.
The price discrepancies – or so-called ‘Australia Tax’ – were the subject of a parliamentary inquiry in 2013, which found that Australians pay on average 50 percent more for technology products than their American counterparts.
It recommended the (then-Labor) Government audit the price differences and consider amending copyright legislation to allow parallel imports and circumvention of technological protections and geoblocking.
But Hockey stopped short of endorsing any specific mechanisms, preferring instead to focus on ensuring big business is paying proper tax on the higher Australian margins.
He said he had asked the Commissioner of Taxation to “look at these price differences to ensure that profits earned in Australia are taxed in Australia".
“In such cases, Australia’s transfer pricing rules could apply to determine whether the appropriate amount of profit from Australian sales was booked to Australian operations," Hockey said.
“You should pay tax in the country where you’ve earned a profit. That’s not just an essential tax principle, it is rational and fair."
One of Parliament’s biggest critics of the price discrepancies, and the instigator of last year's IT pricing inquiry, Labor’s Ed Husic, said the Government should now respond to the neglected Australia Tax report as part of its renewed focus.
“As someone who lobbied for Parliament to look further into this issue, I’m glad the federal government has finally asked the ATO to examine the transfer pricing arrangements used by some tech companies selling digital products in Australia," Husic said.
“There's little justification for these high prices. When you think about how reliant we are on IT products, these higher prices load us up with extra cost and lower the competitiveness of our businesses."
Hockey hinted he would also put pressure on the ATO to step up efforts to make sure big business isn’t cheating Australia out of tax revenue through complex international structures.
The Treasury department, under the former Labor Government, last year conducted an investigation into the tax practices of multinational companies operating in Australia, and found many were using complex tax structures to shift income from higher-taxing countries - like Australia - to lower-taxing countries like Ireland.
The investigation led to the introduction of an amendment to tax law which will allow the Tax Office to publish data from the tax filings of companies earning more than $100 million annually from the 2014 financial year.
Former Assistant Treasurer David Bradbury specifically singled out Google and Apple as users of the so-called "double dutch Irish sandwich" method in late 2012.
Hockey did not point the finger at a particular company but called it “patently unfair” that multinational businesses can get away with using these sophisticated loopholes.
“This is unfair on the Australian taxpayer and unfair on local businesses that are doing the right thing,” he said.