Tax system weaker in digital age
The Treasury document comes a day after the body representing companies including Apple, Google and Microsoft hit out at the government's efforts to bolster disclosure of the amount of tax they pay here. The issues paper was released by a government-appointed taskforce to advise Treasury on the risks of tax erosion. It said the shift towards knowledge-based goods and services, such as online advertising, had left Australia's tax system unsustainable.
"The global reach of multinational enterprises, along with the developments in information and communication technology ... provides them with a high degree of flexibility in how to structure their affairs."
It said the impact of the global financial crisis on government tax revenues around the world had triggered greater attention on elaborate tax minimisation strategies, such as the "Double Irish Dutch Sandwich", which companies such as Apple use to avoid corporate tax rates in Australia.
However, it admitted it had insufficient data to measure the scope of tax avoidance committed by multinational firms, which are able to exploit gaps in the international tax system through complex ownership structures. "These developments raise serious concerns about the efficiency, equity and sustainability of the income tax system." It called on submissions that addressed possible solutions to tax erosion and any data that would assist the Tax Office identify profit shifting.
The report comes after a Senate hearing on Tuesday into the tax avoidance and multinational profit-shifting bill, expected to be introduced imminently. Both are part of a push by the federal government to clamp down on multinational tax avoidance, which also includes a bill that would force companies to disclose how much tax they pay.
The Australian Information Industry Association said the government's efforts would result in a "naming and shaming" of companies and could prompt some to pull out of the local market, leading to job losses.
But Assistant Treasurer David Bradbury said the moves would tighten loopholes and protect more than $10 billion of revenue over the next four years. "We need to make sure we are doing everything possible through our domestic laws to keep up with the changing nature of global commerce in the information age."
Frequently Asked Questions about this Article…
The Treasury issues paper warned there is serious concern Australia’s tax system is struggling in the digital economy, as global technology companies shift profits into low‑tax jurisdictions. It said the shift to knowledge‑based goods and services (like online advertising) and advances in information and communication technology have left the income tax system inefficient, inequitable and potentially unsustainable.
The article specifically names Apple, Google and Microsoft. It also notes a body representing companies including those firms criticised the government’s efforts to boost disclosure of how much tax they pay in Australia.
The ‘Double Irish Dutch Sandwich’ is cited in the Treasury paper as an example of an elaborate tax minimisation strategy used by some multinationals (the article names Apple) to reduce corporate tax rates in countries like Australia. The paper raised such schemes as a driver of concern about multinational profit shifting.
Treasury admitted it has insufficient data to measure how widespread tax avoidance by multinationals is. The paper said complex ownership structures and gaps in the international tax system make it hard to identify profit‑shifting without better information, and it called for submissions and data to help the Tax Office detect it.
The article says the federal government is preparing measures including a multinational profit‑shifting bill expected to be introduced imminently, and a separate bill that would force companies to disclose how much tax they pay in Australia. Both are part of a broader push to clamp down on tax avoidance.
The Australian Information Industry Association warned the proposed disclosure steps could amount to ‘naming and shaming’ and said some companies might pull out of the Australian market, potentially leading to job losses. Industry groups representing firms such as Apple, Google and Microsoft have criticised the government’s approach.
Assistant Treasurer David Bradbury is quoted saying the proposed changes would tighten loopholes and protect more than $10 billion of revenue over the next four years. He framed the reforms as necessary to keep domestic laws aligned with the changing nature of global commerce in the information age.
Everyday investors should watch for key developments the article highlights: Treasury submissions and data requests, Senate hearings on tax avoidance, the imminent profit‑shifting and tax‑disclosure bills, and company responses (including public disclosures). These developments could affect corporate operations, market presence in Australia and public revenue outcomes discussed in the paper.
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