Federal Politics

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Tony Abbott to chase big business over tax lurks

Prime Minister Tony Abbott has fired a shot across the bow of big business, saying Australia will use its leadership of this year's G20 meeting to push for a co-ordinated international crackdown on tax-avoidance strategies favoured by global corporations.

The approach may have implications for IT companies such as Google and Apple and more traditional firms such as those in the resources sector.

Mr Abbott raised the issue of transfer pricing in his keynote speech at the Davos World Economic Forum, using the elite platform to warn it will be a focus of the G20 leaders' summit in Brisbane in November.

Arguing that cross-border agreement on fairer taxes would be ''a big step forward'', he told the gathering of selected global business and political leaders that Australia would press from the G20 for nations to confront frankly the issue of businesses shifting profits overseas.

Governments have long complained that multinational corporations have deliberately configured their operations to register their highest costs in higher taxation jurisdictions such as Australia, while transferring profits to arms of their operations based in low- and, in some cases, no-tax jurisdictions.

However, Mr Abbott was careful not to sound hostile to new investment, emphasising that Australia was ''open for business'' as he broke with convention to criticise his domestic political opponents' handling of the global financial crisis.


Mr Abbott's move against tax minimisation comes as the Paris-based OECD gave an update on recommendations to governments on Thursday in its latest round of plans to crack down on global profit shifting by large multinationals.

The group of governments is working on a plan to overhaul the international tax system to prevent companies from deliberately moving their taxable profits overseas.

A digital economy taskforce will meet in February, with a series of draft recommendations due in March.

Mr Abbott said national tax arrangements had often not kept up with the rise of services and the pervasiveness of digital technologies, and that the G20 would confront the issue of businesses artificially generating profits to chase tax opportunities.

''One of the side effects of globalisation is more ability to take advantage of different countries' tax regimes,'' he said. ''Different national tax arrangements have not always kept up with the rise of services and the pervasiveness of digital technologies.

''So, the G20 will continue to tackle businesses artificially generating profits to chase tax opportunities rather than market ones.''

He said he hoped to have a ''really frank leaders-only discussion'' in Brisbane about digitalisation and its implications for tax, trade and global integration''.

''Because taxes need to be fair, as well as low, in order to preserve the legitimacy of free markets,'' Mr Abbott said.

''The essential principle is that you should normally pay tax in the country where you've earned the revenue.

''For the leaders of the countries generating 85 per cent of the world's GDP merely to agree on the principles needed for taxation to be fair in a globalised economy would be a big step forward.''

Doubts were raised this week about global efforts to tackle tax avoidance by the world's biggest corporations, with experts saying Australia would be better off terminating unfavourable tax treaties.

Observers said recommendations to crack down on profit-shifting would go nowhere without a willingness from countries, particularly the US, to implement the new rules, and called on countries such as Australia to consider abolishing its treaty arrangements with Ireland and other low-tax jurisdictions.

Mr Abbott believes the task ahead of governments given the increasing sophistication and adaptability of the digital economy is to view it more as an organism than as a machine.

''The challenge for authorities is to keep abreast of developments, not to lag behind them as they did pre-crisis, and to maintain the public's trust,'' he said.

''On trade, tax, infrastructure, employment and banking, we owe it to our citizens, on whose behalf we attend international conferences, to maximise the specific outcomes from this year's G20. A strong economy is far less likely to be one responding to central control than one spontaneously generating its own growth.''

Tim Costello, a critic of unrestrained market capitalism, is chair of the lobby group C20. He has called for a greater focus on the contribution and value of civil society, but he also backs tighter rules for corporations.

''Australia's C20 is on the same page with the Australian government when it comes to the G20's great potential to improve tax transparency,'' he said.

''Plugging tax leakage goes to the legitimacy of any revenue-raising system and it also builds the capacity of government to meet the legitimate needs of their people, therefore striking at the heart of inequality.

''Getting this stuff wrong, or succumbing to policy drift, ultimately benefits those who don't play by the rules, and can hold back entire countries seeking to move along the economic development continuum.''