‘Google tax’ to be effective in Australia starting July 1

The Turnbull government is planning to enforce a 40 percent penalty on profits artificially diverted from Australia by multinational companies. This will be made possible through a so-called “diverted profits tax,” which is more popularly known as “Google tax.” It will be effective starting July 1.

The Google tax will work alongside the Multinational Anti-Avoidance Law (MAAL). The latter came into effect in Jan.1.

Google tax will focus on entities that have a yearly income of $1 billion or more that shift profits to offshore associates through related-party transactions with insufficient economic substance. These are the same entities that lessen tax paid on profits generated in the country by more than 20 percent.

An exposure of the bill was released by the government in November, which was welcomed by the Tax Justice Network (TJN). According to the TJN, the mere way to effectively end many of the tax-minimising strategies of multinational enterprises is to look at them as unitary firms, rather than separate entities.

The MAAL, on the other hand, focuses on company tax structures that intend to avoid having a taxable presence in the country. Offering a wider scope than the MAAL, the Google tax is expected to be a more powerful tool to combat tax avoidance by multinationals. Some of the largest companies operating in the land down under were criticised by the public for their profit-shifting behaviour and Google tax could potentially resolve this issue.

Last year, senior executives from Google, Apple and Microsoft utilised a senate inquiry to defend these corporate entities. It allowed the majority of the revenue from their operations in the country to be taxed in a lower cost offshore jurisdiction.

Australia is the second country in the world to introduce Google tax. The first was the United Kingdom in April 2015. “It would reinforce Australia’s position as having amongst the toughest laws in the world to combat corporate tax avoidance,” Federal Treasurer Scott Morrison said.