Comprehensive global agreement needed on MNC tax treatment

AUSTRALIA has become the latest country to impose its own version of a punitive tax on multinationals that shift their profits to low-tax jurisdictions. The British were the first to impose a 25 per cent Diverted Profits Tax in 2015. Several other countries are considering introducing similar laws in response to public pressure over multinationals' tax avoidance schemes.

So will the government of Prime Minister Malcolm Turnbull reap its due? The Opposition says it can raise a lot more by simply changing interest deduction rules for companies. But Mr Turnbull seems persuaded that this move will be seen as being tough on global firms and thus will pay political dividends. So from July 1, companies with a global revenue of more than A$1 billion (S$1.06 billion) and Australian revenue of more than A$25 million will now pay a 40 per cent tax on all their Australian profits. Mr Turnbull has also armed the tax authority with special laws aimed at multinationals. The government has put out the word that it hopes to collect up to A$2 billion with this tax in the coming years.

Originally dubbed the "Google Tax" in Britain, this new type of tax was aimed at preventing technology companies - such as Facebook and Google - from using complex tax arrangements to move their British profits to low-tax jurisdictions. The British initiative was the first in line with an OECD plan to end "base erosion and profit shifting" (BEPS), which refers to tax avoidance strategies that exploit interstices in different tax rules to artificially shift profits to low (or zero) tax locations. The OECD says that under its inclusive framework, over 100 countries and jurisdictions are collaborating to tackle BEPS. But as more countries join in the hunt for what each considers its own fair share of revenue, the question arises: Who is entitled to that tax revenue?