The Abbott government’s planned laws to deal with multinational tax avoidance are an opportunistic revenue grab that could be vigorously resisted by the United States, according to Craig Cooper, director at accounting firm, RSM Bird Cameron.
Technology companies that are diverting profits from no-tax or low-tax jurisdictions to reduce the tax they pay in Australia are likely to be hit by the government’s proposed ‘Multinational Anti-Avoidance Law'.
Australia is following the UK in trying to tax profits that are generated by sales of products and services in both countries and diverted offshore to these jurisdictions.
But according to Cooper, taxation is never about where money came from, it’s about where the underlying value is created. He said nothing inside the Apple iPhone, for instance, has been created in Australia.
“I think it’s going to backfire – the Americans were not happy with the concept of the diverted profits tax [in the UK] and I think they are going to be less happy [about the Multinational Anti-Avoidance Law],” he said.
“At least with the diverted profits tax that was an arguably legitimate tax. If it was paid, then the American companies would be entitled to a credit. This one is 100 per cent penalties, which are not going to be creditable back in the US.
“The Americans quite frankly are probably going to say ‘hey buddy, those profits that you are taxing, they are not your profits, they are our profits.’
A large part of the ‘tax mess’ the world is in at the moment is due to the fact that the US taxation system doesn’t work as it should, he said.
“They [US multinationals] should bring those profits back to America and tax them in America. If that happens, there would be no incentive for the Americans to do what they have done.”
“You can work hard to extract profits legitimately from Australia … and those profits go straight back to America and get taxed there at 35 per cent – that’s pretty smart, let’s get them out at 30 per cent and tax them at 35 per cent,” he said.
“The first framework piece is that you’ve got to be able to keep the profits out of America and that’s where the American tax system is flawed,” he said.
Cooper argued that the existing framework for taxation has been developed for the industrial economy and is no longer fit for purpose for the digital economy.
He said it’s ‘rude’ of the government to claim that multinationals are engaged in massive tax avoidance.
“This suggests that the law is clear, and the law is not clear, it’s patently not clear,” he said.
“For Joe [Hockey] to say ‘we are going to hit you with the anti-avoidance provision,’ is rubbish. It’s all done for politics. The [UK government] did the diverted profits tax ahead of the general election and that seemed to work well for [British PM] David Cameron,” he said.