Responses on consultation questions
- On 3 May an issues paper Implications of the modern global economy for the taxation of Multinational Enterprises was released for consultation and 28 submissions were received. The purpose of the paper was to seek views from stakeholders and the community more broadly to ensure the analysis in the Scoping paper captured and addresses the key issues.
- The paper outlined the challenges that changes in the global economy pose to the international tax system. A key issue is whether tax concepts developed for the industrial age are still applicable in the era of the digital economy.
- This summary seeks to capture the themes that emerged from the submissions in relation to the key questions posed. It also summarises other issues raised.
Q1: Should another country not exercising its right to tax concern Australia?
- Submissions from industry groups and the practitioner community generally considered Australia should not be concerned if other countries do not exercise their taxing rights (or be concerned about the non-taxation of stateless income) as it is the right of these countries to choose what they tax.
- Industry and the professions stated differential treatments under the international tax system can be unavoidable and don't necessarily indicate abuse but rather conscious policy decisions.
- Civil society groups considered Australia should be concerned about whether other countries enforce their taxing rights. Pointing to the international benefits of assisting developing countries establish sustainable tax bases. These submitters pointed to the lack of enforcement of a country's taxing rights sometimes being the result of capacity constraints and reduced levels of government accountability.
Q2: Evidence of Base Erosion and Profit Shifting in Australia?
- The consultation question relating to the evidence of base erosion and profit shifting in Australia also sought comments on the limitations on establishing evidence and the potential costs and benefits of collecting further information.
- Submissions from Industry and tax professionals commented that there was a lack of evidence that base erosion and profit shifting activities are currently impacting Australia. Further they commented that in addition to there being a lack of evidence they did not consider base erosion was occurring. That is, they considered that under Australia's current legal framework profits that fall within Australia's tax base are being taxed accordingly. These submitters pointed to the Australia's robust tax laws and administration in support of this point (transfer pricing rules and Australia's general anti-avoidance rules were pointed to as examples).
- Some qualifying comments were made acknowledging that inadequacies in the current international tax framework have led to some erosion of the traditional corporate tax base. There was general recognition that the rise of the digital economy and intangibles does raise some issues (but these issues need to be considered on a multilateral basis). There was general acknowledgment that historical basis for allocation of taxing rights may not be wholly suited to the digital economy.
- Civil society submitters responded quite differently. They considered that there was significant evidence that base erosion and profit shifting was occurring and that the difficulty in arriving at an agreed aggregate level of the activity should not preclude action. Further these submitters discussed the important role that transparency measures could play in providing better information on which to assess the level and drivers of base erosion and profit shifting.
Q3: Did the OECD properly identify key pressure areas?
- All submitters commented that the rise of the digital economy and intangibles present challenges that traditional tax settings may not adequately address. These comments were made in relation to both a jurisdiction's right to tax and broader allocation concepts.
- While acknowledging the arbitrage opportunities of inconsistencies in global tax setting submitters pointed to the significant practical difficulties in resolving these issues comprehensively. This point was given emphasis by submitters who pointed out that differential treatment may also be a deliberate policy setting designed to attract mobile capital to their jurisdiction.
- Civil society groups highlighted a need for increased use of transparency and disclosure measures and improved standards and a means of increasing awareness of pressure areas. For the extractive and resource industries, in particular, support was expressed for public disclosure of taxes paid (both on a country by country basis and a project by project basis).
- Civil society groups also emphasised the importance of effective exchange of information arrangements as a means of combatting profit shifting.
- There was a general consistency in comments that progressing solutions to these issues is best taken forward on a multilateral basis.
- The submissions from business and the practitioner community commented that when addressing any integrity concerns with the corporate tax system the Government must also consider potential impacts solutions may have on Australia's continued ability to attract foreign investment.
Single entity taxation
- Civil society groups suggest that single entity taxation of multinational enterprises could address some Base erosion and profit shifting activities including the use of secrecy jurisdictions.