A Shorten Labor Government will extend its comprehensive crackdown on multinationals not paying their fair share.
Today, Labor announces we will stop multinationals from getting a tax deduction when they unfairly funnel royalty payments to arms of their own company that pose a multinational tax risk.
Multinationals can currently ‘treaty shop’ and potentially funnel intangibles like intellectual property royalties into tax havens like the Cayman Islands.
Some transactions incur low-to-no tax rates because they use ‘patent boxes’ – where income from intellectual property is taxed very lightly or not at all. Some big companies can also get a ‘sweetheart deal’ when they are arbitrarily gifted a low tax rate.
The Liberals’ Diverted Profits Tax has not been effective in stopping this method of tax minimisation.
A Shorten Labor Government will deny tax deductions for multinationals who engage in this practice.
Closing this tax loophole for multinationals will improve the budget bottom line by $680 million over the forward estimates and $2.3 billion over the medium term.
We will deny multinationals a tax deduction for royalties when they are paid:
- By a firm with $1 billion or more of global turnover (“significant global entity” in tax law).
- To a related party.
- In a transaction that is subject to the ‘sufficient foreign tax test’ aspect of the Diverted Profits Tax, or has a harmful ‘patent box’ regime.
A multinational can still get the tax deduction if the firm can substantiate to the Commissioner of Taxation that the royalty payments are not for the dominant purpose of tax avoidance.
Embedded royalties are an issue the Australian Taxation Office has also been concerned about for some time. Some multinationals allegedly embed royalty-eligible payments within other transactions like “service fees”. Labor will task Treasury to work with the Australian Taxation Office on this issue and determine whether targeted measures are required.
Teachers, nurses and tradies have to pay their fair share of tax. They don’t have the luxury of using special loopholes to minimise their tax. It’s time multinationals paid their fair share too.
Labor started the job in government, and has announced reforms in opposition including our thin capitalisation reforms in 2015 from opposition. The Morrison Government opposes our policies to tackle multinationals and tax havens.
The Liberals have failed to properly crack down on multinational tax minimisation. They are too busy handing out bigger tax loopholes to the top end of town and cutting schools and hospitals.
Labor can pay for better schools and hospitals because we are making multinationals pay their fair share.