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Australia to introduce its own 'Google tax'

Google tax

Multinational companies found to be moving profits offshore in an effort to avoid paying tax will now be penalised by authorities in Australia amid new measures introduced by the country's government.

Under the new rules, companies found to be shifting profits will be taxed at a penalty rate of 40 per cent, rather than the usual 30 per cent.

Reports suggest the measures, introduced as part of treasurer Scott Morrison's first budget, are aimed at raising extra revenue in order to fund tax cuts and have already been compared to the so-called ""Google tax"" introduced in the UK last month.

It also comes on against the backdrop of Australia's transition away from the dependence placed on its mining industry.

Cracking down on tax avoidance

As well as ensuring companies guilty of moving profits pay extra, the crackdown on tax avoidance in Australia has been stepped up further by the government's "Anti-Hybrid Rules", which are aimed at closing the various loopholes that allegedly allow multinational companies to exploit difference between the tax treatment of entities and instruments across different countries.

Other moves include the tightening of rules allowing companies to use excessive related party payments to shift profits overseas while cutting the tax they pay in Australia.

According to the budget papers, the government hopes to raise as much as A$3.9 billion from the measures, with the issue of tax avoidance becoming one of the most hotly-debated political issues in Australia.

The problem of tax avoidance has been widely cited as a key driver slowing the economy in recent years, which has been compounded by dwindling mining investment and a fall in commodity prices.

How the new measures will affect the economy remains to be seen, but the government itself seems to only have a minimal level of optimism.

The budget has even cut growth forecasts for the 2016 to 2017 period from 2.75 per cent to 2.5 per cent, a decision that comes hails back to a series of growth downgrades in recent years.

American opposition

The government introduced a wave of tough anti-avoidance measures last year, which included incorporating tax officials within the structure of some of the biggest multinational companies, including US search engine Google.

As well as having an impact on the economy, the measures could well be at the forefront of voters' minds ahead of the country's general election in July.

Nevertheless there are still some issues that will need to be resolved, most notably the opposition from US companies, who claim they are being unfairly targeted.

Niels Marquardt, chief executive of the American Chamber of Commerce in Australia told the Financial Times: “We are also concerned about retrospective impacts that can undermine the value of foreign investments already attracted to Australia under more favourable rules.

“Australia has long been a very attractive destination for foreign investment, especially from the US. So AmCham is alert to any regulatory or tax changes that could kill the goose that has laid so many golden eggs for so many investors.”​