The Senate Economics Committee Inquiry will soon commence public hearings into 'potential tax avoidance and aggressive minimisation by corporations registered in Australia and multinational corporations operating in Australia'.
Australia is renowned for having one of the most complex and robust tax systems in the world. As members are well aware, this complexity creates great difficulty for taxpayers navigating their way through the system to determine their obligations under the law. However, the robustness of our tax system serves to markedly reduce the opportunity for a taxpayer to not comply with their obligations.
Our dividend imputation system incentivises corporations to pay company tax in Australia. In addition, Australia has recently seen a further tightening of laws to target tax avoidance directly and indirectly. This has included changes to the general anti-avoidance provision and in respect of international dealings, a tightening of the thin capitalisation rules and new transfer pricing rules.
Media reports have suggested that large corporations (whether Australian or multinational) are not paying their 'fair share of tax'. We believe this view is largely incorrect and based on a great deal of inaccurate and misleading information published during the past year. We do recognise that there may be some instances where inappropriate tax outcomes are obtained. Generally this arises where the interaction between the tax rules of different countries leaves opportunities for income to remain untaxed.
Currently, there are co-ordinated efforts by the OECD countries to address base erosion and profit shifting (BEPS). We support Australia's involvement in this work and in particular, the work in the area of the digital economy to address the gaps that exist that allow for double non-taxation. Australia should be involved in the outcome of the OECD's work in this area to ensure that income derived by multinational corporations in particular is subject to an appropriate level of taxation.
This is not an issue that Australia can nor should address alone.
Robert Jeremenko CTA is Senior Tax Counsel of The Tax Institute.
The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.