The recently announced 2016/17 Federal Budget has again shone the spotlight on multi-national tax avoidance, otherwise known as “Google Tax”.
The government plans to put in place a number of measures that will help it secure almost $4 billion dollars in “lost tax” from Australia’s top multi-national companies including Google and Apple by July 2020.
As a start, the Australian Tax Office (ATO) is getting $679 million over four years to fund a 1,300 person taskforce to ensure multinationals, private companies and wealthy individuals pay the right amount of tax.
Beginning July 2017, the tax system will also get a new Diverted Profits Tax law. The regulation will impose a penalty rate of tax at 40% on large multinationals that are found to have attempted to shift Australian profits offshore to avoid paying tax. This law is a follow on from the Multinational Anti-Avoidance Law which was passed in December last year.
A similar law was introduced in the UK recently and forced Google to agree to pay the UK government £130 million in back taxes.
In Australia, the issue with Google arises by it booking its advertising revenue from Australia in Singapore where the tax rate is lower, therefore not counting income it earns through advertising locally.
Google has already made progress to rectify this issue. Google’s Australian business restructured at the beginning of January 2016 so that it now recognises revenue from the marketing and selling of certain services and products to Australian based customers.
While for the everyday Australian an extra $4 billion in the coffers is an attractive prospect, what implication will this have for Australian advertisers?
Advertisers and agencies will be keen to see whether the new tax will have an effect on the advertising rates they pay to Google. For example, would Google pass on this cost to advertisers by increasing CPC rates on AdWords campaigns? If the cost is passed on, this is likely to have quite an impact on the marketing budgets of businesses across Australia.
Google says that in 2015 it’s workforce grew to around 1200 people in Australia and the company invested more than $400 million into its Australian operations. If this new tax encouraged Google to shutdown operations and move offshore, it could have dire consequences for Australian advertisers and agencies alike.
So we wait with baited breath for the July 2nd election result to see if these laws will become a reality.