New laws to give Tax Office fresh ammunition to fight avoidance
After the mining tax's failure to hit its revenue forecasts, the government will on Wednesday introduce retrospective changes to the anti-avoidance rules, which are frequently used by the Australian Tax Office in cases against big business.
The changes, which follow a series of losses by the ATO in the courts, are set to protect $1 billion a year in revenue and come as governments globally tighten the screws on multinationals. Separate laws targeting profit-shifting by multinationals are also set to be unveiled, in a move also intended to shore up more than $1 billion in revenue.
With governments around the world targeting big business in a bid to strengthen their budgets, Assistant Treasurer David Bradbury described the changes as "key weapons in the fight against base erosion and profit-shifting".
"These reforms will help to protect the integrity of Australia's income tax system and make sure that large taxpayers pay their fair share," Mr Bradbury said.
The push to strengthen the corporate tax system came as a new report from the Organisation for Economic Co-operation and Development urged governments to take "urgent" action to protect their coffers from profit-shifting and aggressive tax planning by multinational companies.
In a report published on Monday night, the OECD said tax policies needed to be overhauled in response to deep-seated changes in the world economy.
It said many countries' budget positions were under "serious" threat from profit-shifting by multinationals, many of which were able to use the internet to pay the bulk of their taxes in low-taxing nations away from their customer base.
"What is at stake is the integrity of corporate income tax," the report said. "There is an urgent need to deal with this issue and the OECD is committed to provide an innovative and timely response to it."
To prevent further erosion in tax bases, it vowed to develop a "comprehensive action plan" within the next six months, paving the way for concrete policy changes in member nations such as Australia. "The main purpose of that plan would be to provide countries with instruments, domestic and international, aiming at better aligning rights to tax with real economic activity," the report said.
With tax revenue growth slumping after the global financial crisis, many governments face an uphill battle collecting corporate taxes from some of the world's largest companies, accused of using tax havens to dodge their responsibilities. In Australia, Mr Bradbury has taken the rare step of naming Google and referring to a technique known as the "Double Irish Dutch Sandwich" - in which firms divert income through low-tax regimes such as Ireland and the Netherlands.
While the OECD stressed there was no "magic formula" that would solve the problem, it said countries should work together on ensuring there was a level playing field for multinationals and domestic firms.
Frequently Asked Questions about this Article…
The government has introduced retrospective changes to Australia's anti-avoidance rules to strengthen the Australian Taxation Office (ATO)'s ability to challenge aggressive tax arrangements. Separate laws targeting profit-shifting by multinationals are also planned — all intended to shore up corporate tax revenue and make it harder for large businesses to dodge tax.
Australia is responding to lost revenue and international pressure: the government wants to protect billions in corporate tax receipts after shortfalls and court losses for the ATO. The move follows an OECD report urging urgent action to stop profit‑shifting and aggressive tax planning by multinationals so countries retain tax revenue tied to real economic activity.
The government says changes to anti‑avoidance rules could protect about $1 billion a year in revenue, and separate laws aimed at multinational profit‑shifting are intended to shore up more than $1 billion in additional revenue.
The reforms are designed to make sure large taxpayers pay their fair share, which could lead to higher tax bills for some companies. For investors, that may translate to changes in company profits, dividends or valuations — so firms with significant international tax planning could face increased tax risk as rules tighten.
The 'Double Irish Dutch Sandwich' is a tax strategy where companies route income through low‑tax jurisdictions such as Ireland and the Netherlands to reduce tax paid in higher‑tax countries. Assistant Treasurer David Bradbury explicitly named Google when discussing this technique as an example of the kinds of multinational arrangements the government wants to curb.
The OECD warned that profit‑shifting threatens national budgets and called for an urgent overhaul of tax policy. It pledged to develop a comprehensive action plan within six months to provide countries with instruments — domestic and international — to better align tax rights with real economic activity.
Yes — the article says the government will introduce retrospective changes to anti‑avoidance rules. Retrospective measures can allow the ATO to challenge past arrangements, which may increase uncertainty around historical tax positions and could affect companies that previously relied on certain tax structures.
Investors should watch company disclosures about tax exposures, ATO rulings and investigations, changes to multinational tax arrangements, and broader policy updates from the government and OECD. Monitoring these signals can help assess potential impacts on corporate profits, dividend policies and valuation risk.
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