Tax plan could backfire, Rio Tinto warns

RIO TINTO has warned that the federal government’s plan to crack down on the tax minimisation strategies used by global companies such as Google and Amazon could ”come back to bite” Australia if other countries started doing the same.

The comments by the mining company came as the federal Assistant Treasurer, David Bradbury, cautioned that Australia’s corporate tax base risked becoming unsustainable if authorities failed to keep pace with dramatic structural changes in the global economy.

Mr Bradbury outlined plans to convene a specialist reference group of business leaders, tax experts, academics and community representatives to examine measures to combat the practice.

He said the digital disruption brought about by the internet and changes in technology had transformed the way economic activity was occurring.

He said these changes were putting pressure on the corporate tax system in Australia.

”Increasingly, governments are discovering the lack of effectiveness in the digital age of international tax concepts created for the industrial age,” Mr Bradbury told an Institute of Chartered Accountants national tax conference.

He proposed that corporate tax should be based on profits that reflect the ”economic activity” attributable to Australia. Currently, corporate tax in Australia is levied on the source of activity.

Company documents filed with Australian, European and Asian authorities show the Australian arms of Apple, Google and eBay are part of complex networks of subsidiaries held by their US parents

through intermediary companies in tax havens.

In April, the Tax Office hit Apple with a $28.5 million bill for back taxes. Google Australia declared a loss of $3.9 million last year and paid just $74,176 in Australian tax, despite generating revenue of more than $1 billion here.

But Rio Tinto’s tax head for the Asia-Pacific region, Ross Lyons, said if the government started tinkering with the source-based tax regime, and instead focused on where income was generated to try to capture companies such as Google, then it could end up costing the government revenue.

Speaking after the event, Mr Lyons said from Rio’s perspective, the big miner did not have any income sourced in China and that’s why Rio pays a very low amount of income tax: because that’s the way a source-based tax system works and the Chinese accept that.

”[But] if the government wants to start unravelling that sort of concept in Australia to try to tax foreign taxpayers on the basis that they should be paying more tax because they’ve got sales in Australia, watch out, [because] other countries might start doing the same to us,” he told BusinessDay.

Mr Lyons said if the Chinese government suddenly said it would start taxing some of the income that Rio Tinto booked in Australia and paid tax on in Australia, then companies like Rio could make use of the double tax agreement between the two countries.

”We could claim credit relief in Australia for the Chinese tax paid, so the loser would be the Australian government at the end of the day, because the tax agreement makes it quite clear that you don’t tax income twice,” he said.

Mr Lyons said the Henry tax review offered a better alternative for what the government was trying to do.

”The Henry review actually said [to] look at a more modern expenditure-based tax that deals with e-commerce and deals with destination as to where the business spends its money.

”I think that kind of idea is what the government needs to start looking at,” he said.

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