Treasurer Joe Hockey has broken a pledge to impose tough new tax
avoidance rules on multinational companies that shift billions of
dollars in profits between Australia and their international
subsidiaries.
The practice of global corporations loading up subsidiaries with debt and then claiming relief from the Australian tax man on the interest paid gives an "unfair competitive advantage" over local rivals, Treasury said in 2013.
"When some taxpayers avoid or minimise their tax in a sustained way, the tax burden eventually falls more heavily on other taxpayers," a Treasury issues paper found at the time.
The Gillard government announced the abolition of deductions under section 25-90 of the Income Tax Assessment Act 1997 as part of a package to combat tax minimisation by global corporations, at a projected benefit to the taxpayer of $600 million.
In November last year, Mr Hockey and the then Assistant Treasurer, Arthur Sinodinos, announced they would not legislate Labor's package, saying it would impose "unreasonable compliance costs on Australian companies" with subsidiaries offshore.
The current loophole favours the largest Australian companies such as BHP Billiton and Rio Tinto, currently under pressure from diving commodity prices.
Instead, Mr Hockey – who has trumpeted a global tax crackdown on multinationals through the G20 process – and Mr Sinodinos pledged in November to "introduce a targeted anti avoidance provision after detailed consultation with stakeholders".
But in Monday's Mid-Year Economic and Fiscal Outlook, a single line on page 117 revealed: "The government will not proceed with a targeted anti-avoidance provision to address certain conduit arrangements involving foreign multinational enterprises, first announced in the 2013-14 MYEFO."
While companies like IKEA and Apple have been in the news for "offshoring" billions of dollars made in Australia, tax experts told Fairfax Media it was Australia-based global players that will benefit the most from the government's backdown.
Companies with significant operations overseas get a "double bonus" under the existing law, introduced by the Howard government in 2001, because dividends from their international subsidiaries are tax exempt yet the interest on borrowings used to grow overseas operations is tax deductible.
One of the loudest opponents of the plan to abolish deductions was major Liberal Party donor Paul Ramsay, now deceased, who complained it would make it more expensive for his company Ramsay Health Care to use debt to invest in Europe.
On Tuesday, shadow assistant treasurer Andrew Leigh accused Mr Hockey of "sneaking in another giveaway for multinational companies" despite presiding over a near doubling of the deficit in 2014/15.
"Yet again the Treasurer has shown that he is happy to let big companies off the hook while hacking into foreign aid, schools, hospitals and pensions," Mr Leigh said.
Mr Hockey's office referred questions to Finance Minister Mathias Cormann, who took on Mr Sinodinos' portfolio after he stood aside pending upcoming findings by the NSW Independent Commission against Corruption.
This news story is reprinted from www.theage.com.au
Read more details on outsourced accounting services.
The practice of global corporations loading up subsidiaries with debt and then claiming relief from the Australian tax man on the interest paid gives an "unfair competitive advantage" over local rivals, Treasury said in 2013.
"When some taxpayers avoid or minimise their tax in a sustained way, the tax burden eventually falls more heavily on other taxpayers," a Treasury issues paper found at the time.
The Gillard government announced the abolition of deductions under section 25-90 of the Income Tax Assessment Act 1997 as part of a package to combat tax minimisation by global corporations, at a projected benefit to the taxpayer of $600 million.
In November last year, Mr Hockey and the then Assistant Treasurer, Arthur Sinodinos, announced they would not legislate Labor's package, saying it would impose "unreasonable compliance costs on Australian companies" with subsidiaries offshore.
The current loophole favours the largest Australian companies such as BHP Billiton and Rio Tinto, currently under pressure from diving commodity prices.
Instead, Mr Hockey – who has trumpeted a global tax crackdown on multinationals through the G20 process – and Mr Sinodinos pledged in November to "introduce a targeted anti avoidance provision after detailed consultation with stakeholders".
But in Monday's Mid-Year Economic and Fiscal Outlook, a single line on page 117 revealed: "The government will not proceed with a targeted anti-avoidance provision to address certain conduit arrangements involving foreign multinational enterprises, first announced in the 2013-14 MYEFO."
While companies like IKEA and Apple have been in the news for "offshoring" billions of dollars made in Australia, tax experts told Fairfax Media it was Australia-based global players that will benefit the most from the government's backdown.
Companies with significant operations overseas get a "double bonus" under the existing law, introduced by the Howard government in 2001, because dividends from their international subsidiaries are tax exempt yet the interest on borrowings used to grow overseas operations is tax deductible.
One of the loudest opponents of the plan to abolish deductions was major Liberal Party donor Paul Ramsay, now deceased, who complained it would make it more expensive for his company Ramsay Health Care to use debt to invest in Europe.
On Tuesday, shadow assistant treasurer Andrew Leigh accused Mr Hockey of "sneaking in another giveaway for multinational companies" despite presiding over a near doubling of the deficit in 2014/15.
"Yet again the Treasurer has shown that he is happy to let big companies off the hook while hacking into foreign aid, schools, hospitals and pensions," Mr Leigh said.
Mr Hockey's office referred questions to Finance Minister Mathias Cormann, who took on Mr Sinodinos' portfolio after he stood aside pending upcoming findings by the NSW Independent Commission against Corruption.
This news story is reprinted from www.theage.com.au
Read more details on outsourced accounting services.
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