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Australian Government Coat of Arms

Budget | 2015-16

Budget 2015-16
Australian Government Coat of Arms, Budget 2015-16

Diverting profits from Australia

The Government is taking action on multinationals that exploit loopholes and artificially structure to avoid paying tax in Australia or elsewhere in the world. This is contrary to the intention of international agreements.

To the extent this erodes Australia’s tax base, this may mean that individuals and other businesses face higher rates of tax in the future, hurting the economy and jobs, if action is not taken.

Example of a diverted profits scheme

A business in Australia, that is part of a large multinational group, employs thousands of highly skilled Australians who undertake significant levels of economic activity to generate profits. The local business is responsible for marketing, customer relations, business support, product awareness and research and development.

Australian customers interact almost exclusively with the local business, but when it comes time to sign the contract, it is signed with a related company in another country and therefore escapes Australia’s tax net.

Not only does it escape Australia’s tax net, but following a series of contrived and artificial arrangements, the Australian income ends up in another related entity in a tax haven, essentially escaping paying tax anywhere.

Profits should be taxed where economic activities deriving the profits are performed and where value is created, not in the tax haven where it is diverted to.

It is unfair and unsustainable for local businesses to pay company tax on their profits, when their competitors do not.

Some multinationals are diverting their Australian income offshore to avoid paying their share of tax

Flowchart - how some multinationals are diverting their Australian income offshore