Assistant Treasurer David Bradbury has today released a Treasury scoping paper examining the risks to the sustainability of Australia's corporate tax base.
"I commissioned this report in November 2012, in response to the emerging challenges of multinational profit shifting and the erosion of Australia's tax base," said the Assistant Treasurer.
"This paper represents an important piece of analysis, framing the challenges to Australia's corporate tax system both in terms of our own history and in the broader international context."
The paper sets out possible unilateral responses to these risks, including more regular reviews of tax treaties and regular reporting on the health of the business tax system, but particularly emphasises the need for a coordinated international response.
A principal recommendation of the paper and a key plank in global cooperation to tackle base erosion and profit shifting is the endorsement of the recently released OECD Action Plan. This Plan was strongly supported at the recent G20 Finance Ministers meeting
As outlined in the paper, actions taken by Government to close loopholes such as those in the 2013-14 Budget, the generally strong compliance culture in Australian business and the effectiveness of the Australian Taxation Office (ATO) have all helped to maintain the integrity of Australia's corporate tax base over time.
However, the paper finds that the rapid and dramatic shifts in global economic activity, driven largely by e-commerce, pose very real and significant risks to Australia's corporate tax base and the tax bases of countries right around the world.
"The international tax rules are not keeping up with the changes of the digital age," said Mr Bradbury. "This report signals the need for multilateral cooperation to re-examine the out‑dated international tax settings which govern many aspects of the international tax system."
"If multinational corporations do not pay their fair share, households and other businesses will have to take on a higher tax burden in the future. Aggressive tax planning behaviour can also distort economic activity, providing multinational enterprises with an unfair advantage over Australian-based business."
The release of the paper follows the significant efforts of the Government to strengthen Australia's corporate tax system. This includes modernising Australia's transfer pricing rules, strengthening the general anti-avoidance rule and a suite of measures announced in the 2013-14 Budget designed to crack down on corporate tax loopholes.
The Government also secured passage of historic legislation that will, for the first time, require the ATO to publish the tax payable of large corporate taxpayers, ensuring that the community has better access to information on the tax affairs of such entities.
The public release of the paper also follows the Treasurer's recent announcement that Australia would be joining a pilot scheme for multilateral exchange of information. In that announcement, the Treasurer also confirmed that Australia will use its presidency of the G20 in 2014 to take a leading role in progressing the global agenda to combat tax avoidance and evasion.
Treasury undertook consultation in May on an issues paper outlining the challenges that changes in the global economy pose to the international tax system. Work on the paper has also been assisted by a Specialist Reference Group made up of business representatives, tax professionals, academics and the community sector selected by virtue of their expertise and breadth of experience.
"I would like to thank the Specialist Reference Group, as well as those that provided submissions to the Issues Paper, for their contribution," said Mr Bradbury. "Given the leading role that Australia will play in relation to these issues going forward, it is important that the view that Australia puts forward is informed by all groups in Australia that have an interest in these issues."
Attachment: Recommendations and responses
The Government supports efforts to enhance public awareness of taxation issues and has a strong record in this area. The Government has improved the transparency of the tax payable by large corporate entities to inform debate and discourage aggressive tax minimisation practices. In June, when launching the Tax and Transfer Policy Institute, the Assistant Treasurer announced that the ATO would release more de-identified data into the public domain, which will contribute to a richer understanding of Australia's tax and transfer system.
Each of Australia's bilateral tax treaties should be reviewed at least once a decade, in order to ensure that they continue to be in the national interest.
The Government will consider this recommendation having regard to existing treaty policies and practices.
Australia should consider exploring options to further improve the way tax authorities work together including through expanded and more timely exchange of information for tax purposes.
The Government has been a strong supporter of strengthening exchange of information networks. Most recently, the Treasurer announced the Government will join a pilot for the multilateral automatic exchange of taxpayer information, which will help Australia and other countries fight international tax evasion.
Australia should endorse the Action Plan which establishes a joint OECD and G20 project with a comprehensive work program to address the key drivers of base erosion and profit shifting.
The Government supports multilateral efforts to address base erosion and profit shifting and notes that the OECD Action Plan was supported at the recent G20 Finance Minister's meeting in Moscow.