'Potentially dangerous': Ex-US official warns against tax on Amazon, Google
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'Potentially dangerous': Ex-US official warns against tax on Amazon, Google

A former senior US Treasury official has warned the Turnbull government against introducing a 3 per cent turnover-based tax on digital players like Facebook and Google, saying it would discriminate against American companies and is bad policy based on politics rather than economics.

Bob Stack was formerly deputy assistant secretary for international tax affairs at the US Department of Treasury under the Obama administration. He left when Donald Trump was inaugurated and is now managing director in Deloitte’s Washington office of its international tax services group.

Treasurer Scott Morrison has signalled a tax on big digital companies, saying earlier this year that “the new economy shouldn't be some sort of a tax-free environment”.

In an exclusive interview with Fairfax Media, Mr Stack, who is in Australia meeting with Treasury officials and local companies, said Australia would be wrong to move unilaterally and such a tax is “potentially dangerous for any countries exporting companies into other market jurisdictions".

Bob Stack was formerly US Treasury deputy assistant secretary for international tax affairs.

Bob Stack was formerly US Treasury deputy assistant secretary for international tax affairs.

Photo: Jason South

Treasury is considering how it may tax billions in advertising revenue of digital giants like Facebook and Google, and one model under consideration is a European Union proposed flat 3 per cent tax on turnover on companies with revenue over €750,000 ($1.15 million).

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“To be one of the first actors against US multinationals is something that Australia wants to consider whether it wants to be in that position,” Mr Stack said.

He also signalled that it could result in America retaliating with higher taxes on Aussie companies.

“I think it’s naive to think that increasing market taxation in the digital space can be restricted to just digital companies in the long term,” he said.

Treasurer Scott Morrison has signalled a tax on big digital companies, saying earlier this year that “the new economy shouldn't be some sort of a tax-free environment”.

Treasurer Scott Morrison has signalled a tax on big digital companies, saying earlier this year that “the new economy shouldn't be some sort of a tax-free environment”.

Photo: AAP

An interim 3 per cent tax lacks economic sense, he said. Revenue-based taxes are disconnected from the actual profits that a company earns and may result in companies with low margins (that is less than the 3 per cent) being taxed. It could also result in double taxation, he said.

Mr Stack, who often speaks to policymakers in his home country and around the world, said people at Treasury and the Australian Taxation Office “understand the different nuances of this".

"But, of course, one of the things I learned in my [former] job is the political pressures here and in Europe is very strong.”

He said while multinationals should not be able to avoid paying tax, a digital-based tax will never have multilateral consensus.

“The US position is and will remain that the discussion has got to take place in the context larger than just digital companies and or US national champions,” he said.

“I’m dubious we will be able to find solutions that countries can agree on that will avoid double taxation.”

Mr Stack was heavily involved in the OECD’s Base Erosion and Profit Shifting project which aims to find a global solution to corporate tax avoidance.

This project would lower the incidence of “non-taxation” and was already resulting in less misuse of transfer pricing rules by companies looking to produce stateless income.

But the United Kingdom’s Diverted Profits Tax – or Google tax, which Australia has its own version of – and the European Commission's recent decision to back-tax Apple were policies that had created tax uncertainty and global instability.

He did not think that governments around the world hamstrung by deficits would give up their right to tax. But “when they assert their right to tax they need be asking themselves, what if other countries do this to our multinationals around the world- will we be net winners or losers?”

Mr Stack said Donald Trump’s recent tax reform package was largely based on ideas that had bipartisan consensus under the former Obama administration, including the decision to cut the US company tax rate.

Where there might have not been as much consensus, he said, is should the rate have dropped that far - from 35 per cent to 21 per cent - at the cost of increasing US deficits.

Mr Stack would not comment Amazon's decision to geoblock its Australian customers, as the company is a Deloitte client.