The Australian Labor Party launched its ‘fair share’ campaign this month, in a bid to tackle the $300 billion loss in revenue due to existing legislative loopholes. Labor’s proposal to close these costly loopholes are the following proposed policy measures:-
Worldwide Gearing Ratio
Tax deductions will be based on a company’s entire global operations, not just what they do in Australia.
Labor is proposing to amend the current thin capitalisation rules to reduce the amount of debt that multinational companies can claim deductions for in Australia. Companies will no longer be able to claim up to a 60 per cent debt-to-equity ratio for their Australian operations. Instead, deductions will be assessed on the debt-to-equity ratio of a company’s entire global operations. This means that if a company has an average 30 per cent debt-to-equity ratio across its different subsidiaries, it will only be able to claim tax deductions up to that level.
Standardising our tax law with other countries so that companies can’t ‘double-dip’.
Labor is proposing to better align Australia’s rules on hybrid entities and instruments with tax laws in other countries. These are often classified differently around the world, with some jurisdictions treating their assets as equity, and others as debt. Standardising the rules will reduce opportunities for companies to ‘double-dip’ by claiming tax exemptions in one country and tax deductions in another.
Increased ATO Compliance
Improving compliance with the ATO by providing effective funding.
Labor is proposing that the Australian Tax Office has the resources it needs to properly investigate and pursue multinational profit shifting. Additional funding provided to the ATO under the previous Labor Government will expire shortly and it is important to continue to support this capacity. Evidence in Senate estimates, and from the Australian Tax Commissioner himself, showed additional compliance from the tax office is yielding greater revenue from multinationals.
3rd Party Data Matching – Early Start Date
Starting 3rd party reporting and data matching early to improve compliance.
Labor is proposing to bring forward the start date on improved compliance through third party reporting and data matching that has been delayed by the Government. This measure was previously announced by Labor in the 2013-14 Budget. Improving data matching will improve compliance outcomes and reduce opportunities for tax minimisation in Australia and abroad. The Government delayed this measure to 1 July 2016, this package of measures proposes that the reforms commence from 1 July 2015.
Labor is urging Australians to sign up to their campaign which will be rolled out over the coming months. For more information about Labor’s ‘fair share’ campaign, please visit http://bitly.com/1BA9NAC