Australia won’t lose tax revenue to China: Frydenberg
New Assistant Treasurer Josh Frydenberg has dismissed concerns from business and tax experts that changing the international tax rules could result in Australia losing mining tax revenue to nations like China, describing it as a “furphy”.
Mr Frydenberg has also raised Australia’s competitiveness internationally as a concern, saying corporate taxes are too high and need to be looked at. His comments come as the Abbott government looks to reveal in coming weeks ideas that will feed into the tax white paper process. It is expected an options paper will be launched before the tax white paper, which will signal where the government wants to go with tax reform.
At the same time, the government is seeking to claw back revenue from multinationals. Some business leaders, including Wesfarmers chief executive Richard Goyder, have raised concerns about the global crackdown on multinationals, saying there’s a possibility of the Australian government losing revenue from the big miners like BHP and Rio Tinto, which are exporting to China.
“This is a furphy,” Mr Frydenberg said. “Because these multinational tax companies involved in profit shifting are not paying tax anywhere. Some companies may pay a lot of tax in their host country on domestic sales. But in terms of international sales, which includes Australia, they pay very little tax.”
The economic value of mining was created in Australia, not China, he said. “When you look at Rio Tinto, their major economic activity is digging it [minerals] out of the ground here in Australia and exporting it. The point of sale might be overseas but the economic activity is wholly derived here in Australia.”
But Mr Goyder said last year Australia risked losing billions in tax revenue from resources sales to Asia if global efforts to stop multinational tax avoidance backfired.
Business Council of Australia chief executive Jennifer Westacott has also warned governments to weigh the impact of changes to international tax rules carefully, given Australia competes in low-tax Asia.
Under existing international tax rules, a company requires a permanent establishment or physical presence in a country for profits to be taxable there. Google, Apple, Amazon and other tech giants have been able to avoid paying tax on large sales and profits by claiming they do not have a physical presence.
Tax experts have long been warning that changes to the rules could result in a war on taxing rights. Asked what happened if the Chinese government took a different view to Australia and claimed it had a right to tax those billion-dollar profits, Mr Frydenberg said: “This debate is not about that.”
“This debate is about multinationals involved in base erosion and profit shifting – they are not paying tax anywhere. That’s why we need greater information sharing.”
At the G20 meeting in Brisbane in November leaders recommitted to a new standard that would require multinationals to give governments detailed information about their tax affairs.
More than 90 jurisdictions will begin automatic exchange of tax information, using a common reporting standard. Australia will have its systems in place by 2018, which will involve banks and other financial institutions setting up systems that will allow them to feed information automatically to government agencies.
Mr Frydenberg said he and Treasurer Joe Hockey were aware that any changes to global tax rules required international co-operation.
“Australia is taking a lead role,” he said. “Information sharing is the way forward. It will ensure global companies operating across many jurisdictions do pay their fair share of tax.
“At the same time you need a tax system and a tax rate and a tax base that provides incentives to invest and work. It’s about getting the balance right.”
