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Australia closing tax loopholes, ready to grab millions of dollars from tech giants

OECD initiative and audits of some of the world’s biggest technology firms prompted the tax clampdown, outlined in a budget statement

Multinational tech giants will soon have to pay substantially more tax in Australia, thanks to budget moves by the government which are expected to net it hundreds of millions of dollars a year.

In line with the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) initiative, Australia is closing loopholes which have allowed multinationals to arbitrage different countries’ tax systems.

So as a general rule of thumb from now on, if it’s earned in Australia then tax will be paid in Australia.

The government is also introducing a diverted profits tax, to come into effect on 1 July 2017. It is expected to net A$650m over the next four years from the measure.

The moves also follow a 2015 tax audit and investigation of 12 major technology companies, including Apple, Google and Microsoft, by the Australian Taxation Office.

More tax cuts coming

The funds raised from a co-ordinated tax crackdown on multinationals, private companies and high net worth individuals will help pay for a lower corporate tax rate.

Initially, only small companies, with turnover of up to A$10m, will benefit from the lower 27.5% rate. However, to support growing businesses, the tax cuts will gradually be applied to larger companies year after year.

In 10 years’ time, Australia’s tax rate will be a flat 25%. This is still higher than many other nations, but much lower than the current rate, with corporate tax in Australia the seventh highest in the OECD.

Help for startups on the way

Almost immediately after revealing the new budget, Australia’s senate also passed legislation aimed at offering more funding options for startups. From July 2016, the Tax Incentive for Early Stage Investors will give tax concessions to eligible early stage investors who give money to qualifying companies.

Meanwhile, new arrangements for venture capital partnerships are designed to encourage a better flow of money and funding.

Growing interest in Australia’s fintech

One area where the Australian authorities are particularly keen to see investment is in financial technology (fintech). 

Recent Frost & Sullivan research suggests the local fintech sector will grow by more than 76% a year until 2020, at which point it will be worth worth A$4.2bn, a billion of which will be completely new added value for the economy.

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While the government’s budget set aside just A$200,000 to fund a marketing programme to alert the rest of the world to Australia’s fintech capabilities, it also announced a handful of other fintech measures.

For example, Data 61 – the information technology research arm of Commonwealth Scientific and Industrial Research Organisation (CSIRO) – will run a nine-month blockchain project to assess the technology’s importance to business and government.

No more Bitcoin double taxing

The government has also pledged to overturn a previous controversial tax office decision which treated digital currencies as goods rather than money, which led to consumers being double taxed when they bought goods or services using currencies such as Bitcoin, for example.

Meanwhile, the Australian Securities and Investments Commission (ASIC) will set up and operate a regulatory “sandbox”, allowing fintech companies to test their innovation even before regulatory approval is achieved.

ASIC set up its innovation hub in 2015, and in June 2016 it will release a consultation paper regarding the operation of its sandbox. It is expected to explore what ASIC needs to do to ensure consumers are protected without stifling opportunity to innovate.

Australia’s prime minister is likely to call a dissolution of both houses of parliament in May 2016, prior to a widely anticipated July 2016 election. 

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