Global corporate giants Google and Apple, which are accused of using complex structures to shift profits from Australia to lower tax countries, have triggered an offensive by the Australian government to overhaul the outdated tax system.
Cash-strapped state governments have called on the federal government to rule out changing a loophole on the Mining Resource Rent Tax (MRRT) that allows them to easily increase royalties on mining companies.
The federal government has released a proposed legislation aimed at ensuring multi-national companies pay their fair share of tax on profits made in Australia.
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Releasing an exposure draft of proposed amendments to reform transfer pricing laws on Thursday, Assistant Treasurer David Bradbury said these will help protect Australia's tax base.
"Australia's transfer pricing rules play an important role to ensure that multi-national firms pay their fair share of tax on profits in Australia based on an amount of income which reflects the economic activity attributable to Australia," Mr Bradbury told a conference in Sydney.
He said these reforms will align domestic law with international best practice, while improving the integrity and efficiency of the tax system.
"If enormous multi-national corporations aren't paying their fair share of tax on economic activity in Australia, then that's not fair game," Mr Bradbury told the Institute of Chartered Accountants Australia national tax conference.
Mr Bradbury gave a few examples where big companies make big profits, including in Australia, but pay relatively little tax.
Google Australia paid just over $781,000 in tax, when it has been estimated its annual advertising revenue from Australia is more than $1 billion-a-year, with Australian firms buying their advertising from an Irish subsidiary of Google.
"I am not suggesting that these companies are in breach of the law as it stands," Mr Bradbury said.
Tax counsel at the institute, Paul Stacey, said ensuring Australia's transfer pricing rules accord with current best practice is part of the answer to meeting the nation's increasing expenditure needs.
While welcoming what is the second tranche of the transfer pricing reforms, Stacey noted that Australia will need the buy-in of international trading partners for the changes to work.
"If Australia is going to revise our approach to taxing multi-nationals, we need the buy-in of our international trading partners. Going alone is not the answer," he said in a statement.
Submissions on the exposure draft legislation close on December 20.
