Accountants have been urged to keep a lookout for significant changes to the tax environment as the government considers options for taxing the digital economy.
In Treasurer Scott Morrison’s budget address, he noted how the government’s crackdown on multinationals had brought $7 billion a year in sales revenue and would now be looking towards the digital economy as part of its initiatives to strengthen its tax base.
“The next big challenge is to ensure big multinational digital and tech companies pay their fair share of tax,” said Mr Morrison.
“Over the past year I have been working with counterparts at the G20 to bring the digital economy into the global tax net.
“In a few weeks’ time I will release a discussion paper that will explore options for taxing digital business in Australia.”
Thomson Reuters tax consultant Terry Hayes believes taxing digital business in Australia will continue to be a difficult and contentious issue and suggested that Mr Morrison was looking to Europe for ideas.
“Europe has been taking a lead in measures to tax the digital economy,” said Mr Hayes.
“In March this year, the European Commission proposed to introduce a digital services tax aimed at addressing the tax challenges of the digital economy in the European Union. Companies such as Google and Facebook would clearly be impacted.”
Mr Hayes believes the upcoming discussion paper announced by Mr Morrison might shadow two distinct legislative proposals put forward by the European Commission in March this year.
The proposed long-term solution would allow EU member states to tax profits that are generated in their territory, even if a company does not have a physical presence there. Profits would be registered and taxed where businesses have significant interaction with users through digital channels.
The second option, would be for an interim digital tax, roughly 3 per cent, to cover the main digital activities that currently escape tax altogether. This interim tax would apply to revenues created from activities where users play a major role in value creation.
“However, it is understood there may be some wavering on the proposals as concerns rise among European countries of possible US retaliation over the measures,” said Mr Hayes.