20 March 2019

Government response to digital economy consultation

The Coalition Government is committed to strengthening our tax rules, ensuring Australia's tax integrity laws are among the strongest in the world and delivering a tax system that is internationally competitive.

The growth of the digitalised economy in recent years has prompted international debate about whether the existing international corporate tax framework remains fit for purpose.

The Government firmly believes that digital firms, like all firms, must pay their fair share of tax.

Australia is actively engaged on digital taxation working constructively and productively with other countries, through the G20 and the Organisation for Economic Co-operation and Development (OECD) in exploring a multilateral response to the tax challenges presented by the digitalisation of the economy.

To this end, the OECD recently released a public consultation document on possible solutions to the tax challenges arising from the digitalisation of the economy. In response, the OECD received over 200 written submissions.

Australia will join other members of the OECD's Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in May to discuss responses to the consultation document and progress towards a final report due in 2020 aimed at providing a consensus-based multilateral solution to the tax challenges presented by the digitalisation of the economy.

At the same time, in October last year, the Government released a discussion paper, The digital economy and Australia's corporate tax system, seeking views on the merits and implications of pursuing an interim and unilateral approach to these challenges.

In response, stakeholders overwhelmingly supported Australia continuing to engage in the ongoing multilateral process led by the OECD and the G20. Thirty-eight submissions are now available on the Treasury website.

Many stakeholders raised significant concerns about the potential impact of an Australian interim measure across a wide range of Australian businesses and consumers, including discouraging innovation and competition, adversely affecting start-ups and low-margin businesses, and the potential for double taxation.

Given this feedback and recent international developments, the Government has decided to continue to focus our efforts on engaging in a multilateral process and not to proceed with an interim measure, such as a digital services tax, at this time.

Australia's ongoing commitment to the multilateral process complements the strong action we have taken to strengthen the integrity of Australia's corporate tax system and prevent multinational tax avoidance. This action includes Australia's broad adoption of the G20/OECD BEPS recommendations, as well as additional Australian measures that have strengthened the integrity of Australia's tax system. We have implemented more than a dozen measures to address corporate and multinational tax avoidance, including the Multinational Anti-avoidance Law; the Diverted Profits Tax; increased tax penalties for large entities; and establishing a Tax Avoidance Taskforce within the ATO.

Since 1 July 2016, the ATO has raised more than $12 billion in tax liabilities against large public groups, multinational corporations, wealthy individuals and associated groups. To date this has generated cash collections of almost $7 billion.