The Treasury has admitted it is virtually powerless to stop large multinational companies such as Apple and Google dodging tax, saying Australia needs to focus its efforts on an international crackdown led by the G20 and the OECD.
While Treasury acknowledged that data limitations made it difficult to quantify erosion of Australia's corporate tax base, it said failure of international tax rules to keep apace with changes to the global business environment posed "significant risk" to Australia's tax system if not addressed.
The admission comes despite a strong push by tax advocates for local policies that would force companies to publicly disclose how much tax they pay in Australia and around the world in an effort to deter cheats. In a scoping paper that took into consideration the views of a Treasury-appointed taskforce, the Treasury said Australia should endorse the OECD's plan on profit shifting and explore further options for working with tax authorities overseas for the exchange of greater information.
But while it committed to expanding the public release of tax statistics to include the international dealings of multinational enterprises, it said its ability to prevent companies shifting profits overseas was limited.
"There are some actions Australia can and has taken unilaterally; these are primarily focused on improvements than can be made without significant divergence from international tax settings," it said.
"But the key focus of Australia's efforts should be working multilaterally through international organisations to modernise international tax rules."
The Treasury's paper comes amid a global push by cash-strapped governments around the world to claw back tax dollars from multinational companies that use complex ownership structures to avoid paying tax.
Last year it was revealed Google's Australian arm paid just $74,000 in tax in 2011, despite an estimated $2 billion in revenue from Australian ads. This would mean a tax rate of .000037 per cent.
In May, Fairfax Media revealed that all but one of Australia's top 20 companies listed on the stock exchange had subsidiaries in low-tax or tax-free jurisdictions, including Hong Kong and Singapore. This included Australia's biggest company, the Commonwealth Bank.
A report released by the Uniting Church's justice and international mission unit found two-thirds of the top 100 listed companies held subsidiaries in "secrecy jurisdictions" that have been targeted by tax authorities for lax standards.
Last month, the government passed measures to allow the Australian Tax Office to publish the taxable income and tax paid of companies with revenue over $100 million.
But Mark Zirnsak, director of the justice unit and a member of the Treasury's taskforce, said the government could do more to improve transparency in the tax system.
"If Google was required by Australian law to disclose - on a country by country basis - what it reports, then you would find out where it had shifted profits.
"If a company is shifting money off to a tax haven somewhere, this doesn't do anything at all."
"If you know you are doing something that's dodgy, and it's exposed, then it's going to act as a deterrent."
Robert Jeremenko, a senior tax counsel at the Tax Institute, warned a "naming and shaming" approach would require the government to explain the corporate tax system to the public.
"A company doesn't always pay the top corporate tax rate on every cent it earns."
The paper said many of the risks posed by multinational profit shifting were being driven by "deeply entrenched features of Australia's corporate tax system and policy developments beyond Australia's borders and/or control."
In Moscow on the weekend finance ministers from G20 economies backed the OECD's 15-point plan to fix loopholes in the international tax system. It calls on governments to investigate how corporate tax systems are coping with the growth of a digital economy which has allowed technology companies that operate across multiple jurisdictions to take advantage of favourable tax environments.