E-commerce Cited as Threat to Australia’s Tax Base

Australia’s Treasury has admitted that it can do little to combat tax loopholes exploited by multinational corporations (MNCs) and the country should focus its efforts on an international crackdown led by the G20 group of major economies and the Organisation for Economic Co-operation and Development (OECD).

In a scoping paper, it said that many of the risks posed by profit shifting by MNCs were underpinned by “deeply entrenched features of Australia’s corporate tax system and policy developments” beyond the country’s borders or control. Global economic changes, particularly in electronic commerce (e-commerce), posed a threat to Australia’s corporate tax base.

The Treasury paper examines the risks to the sustainability of Australia’s corporate tax base, suggests possible unilateral responses to those risks, including more regular reviews of tax treaties and regular reporting on the health of the business tax system, as well as a particular emphasis on the need for a coordinated international response.

Assistant treasurer, David Bradbury said that the paper represented an important piece of analysis, “framing the challenges to Australia’s corporate tax system both in terms of our own history and in the broader international context” and outlined actions taken to close loopholes.

The generally strong compliance culture in Australian business and the effectiveness of the Australian Taxation Office (ATO) had all helped to maintain the integrity of Australia’s corporate tax base over time, Bradbury added.

However the paper found the rapid and dramatic shifts in global economic activity, driven largely by e-commerce, posed very real and significant risks to Australia’s corporate tax base and the tax bases of countries right around the world. “The international tax rules are not keeping up with the changes of the digital age,” he said.

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