Treasury has now released a discussion paper months after Treasurer-turned-Prime Minister Scott Morrison announced that the government would be looking towards the digital economy to strengthen its tax base in his federal budget address.
The paper outlines legislative proposals put forward by the European Commission in March this year, including a proposed digital services tax of 3 per cent levied on revenue from digital services, such as digital advertising, for example.
The other proposal includes a change to existing nexus rules that would allow taxing rights over digitalised businesses that have a ‘significant digital footprint’, but lack a physical presence, in a country.
In effect, this could impact global and digital-first companies, like Google and Facebook.
Speaking to Accountants Daily, the Tax Institute’s senior tax counsel, Professor Robert Deutsch said both measures brought issues, but noted that Australia would move ahead with such interim measures before waiting for a multilateral solution.
“My suspicion is that the government, subject to the upcoming federal election, is going to look to take some unilateral action and that will be something that is likely to happen before the end of next year unless there is some serious and fairly rapid progress made by the OECD in offering more multilateral solutions but without that, we'll be going down the unilateral path,” said Professor Deutsch.
“I think the prospect for a multilateral response is fairly slim so I think if we do introduce one of the so-called stop-gap measures, it will be there for a considerable period of time.”
However, Professor Deutsch highlighted the potential trap in implementing any unilateral measure in the face of resistance from the United States, including a possibility of a trade war.
“The problem with that is the United States, which is obviously a big and important player in this space, is not keen on anything to do with taxing the digital economy so it becomes more problematic for there to be a multilateral solution,” said Professor Deutsch.
“The digital services tax is viewed as a bit of a blunt instrument and it may lead to retaliatory action from the likes of the United States and we know they are not adverse to imposing tariffs and we've been spared that to date but that might change if we try to impose some form of digital tax.
“The US is the real fly in the ointment here but I wouldn’t say the whole thing hinges on them because lots has happened without the United States but the problem is if you come up with a solution that leaves them out, it’s a very big hole and that’s a problem in its own way.”
You can read the discussion paper in full here: https://treasury.gov.au/consultation/c2018-t306182/