Tax Changes To Target the Digital Economy
In recent times the government has proposed a number of reforms to bring the tax system in line with the way businesses now conduct operations and provide services to consumers as part of the digital economy. As a result a number of changes to law have been enacted, with new rules to come into effect in 2017.
A key measure of this reform is the Diverted Profits Tax, also dubbed the “Google Tax”, which is due to commence with effect from 1 July 2017. The tax will impose a 40% tax charge on large multinational entities that artificially divert profits from Australia (a deliberately higher rate than the standard corporate tax rate of 30%). It will apply to companies with global revenue in excess of $1 billion and is set to target companies shifting profits offshore through related party transactions.
This new anti-avoidance tax follows the multinational anti-avoidance law introduced last year, which targeted multinational enterprises (again with a global group turnover in excess of $1 billion) seeking to avoid the attribution of business profits to a taxable presence within Australia.
Another digital reform will be the introduction of the “Netflix Tax”, which is also due to commence from 1 July 2017. This changes the current GST rules to impose GST on offshore sales of digital content and intangibles to Australian consumers at the standard rate of 10%. This will require overseas venders to account for GST on sales if they have turnover of $75,000 or more.
The low-value threshold for GST on otherwise taxable importations to Australia will also be abolished from 1 July 2017. This will expand Australia’s GST to include overseas online transactions of goods under $1,000. The changes are purported to put local and overseas businesses on equalised footing.
In early 2017, Treasurer Scott Morrison has suggested plans for a wider digital tax reform agenda. This would primarily focus on moving government services online and away from the use of cash and cheques, as a way of increasing the integrity of Australia’s tax system.
New financial technology has the potential to make the tax system smarter and more efficient, with the ability of online transactions to be verified in real-time and an increased difficulty in hiding transactions from the ATO. The digital tax agenda is expected to form part of this year’s Federal Budget.
Together, these changes represent the government’s first move to a more efficient and higher integrity tax system within the digital economy. Offshore suppliers and multinational entities will need to consider how these changes might impact their ongoing business operations.
Australia’s tax landscape is constantly evolving and overseas companies need to stay updated on their compliance obligations. Should you have any questions in relation to these changes, or Australia’s tax laws in general, please contact us or speak to your ESV Engagement Partner on +61 9283 1666.