Australian Corporate Tax Cuts Looking Unlikely
The Australia Institute recently urged the Government to resist partaking in the ”race to the bottom” on corporate tax rates. Instead, it recommended that Australia tackle tax loopholes and avoidance schemes, arguing that the priority is to ensure enough revenue is raised to fund public services and infrastructure. But if you look around the world, you’ll find that parliaments are voting through tax reforms that do both – cut corporate tax while shoring up the corporate tax base.
It’s no coincidence that in recent times a succession of governments have announced, are legislating for, or have completed, tax reforms which reduce the rate of corporate tax while restricting interest deductions and strengthening controlled foreign company regimes, among other anti-avoidance measures. These moves are largely a response to base erosion and profit shifting (BEPS), but they also show that tax competition is far from dead.
Nevertheless, it is wrong to assert that most governments are doing nothing, or very little, to tackle tax avoidance. On balance, anti-avoidance and other revenue-raising measures have considerably outnumbered tax cuts over the course of time. And the gap has likely widened since the BEPS project came about. Perhaps it is the case that on the relatively rare occasions that corporate tax cuts are made, they can be quite spectacular in magnitude, as in the UK (30 to 19 percent and falling), and the United States (35 to 21 percent), so perceptions are being skewed.
Where Australia is concerned, it is arguable that the Government is doing more than most in attempting to reduce tax avoidance, particularly by multinational companies. The Government expects the Multinational Anti-Avoidance Law (MAAL), in place since January 2016, to raise an additional AUD7bn (USD5.4bn) in tax each year, and in March, it introduced legislation to increase the MAAL’s scope. Indeed, the Turnbull administration seems to me to be quite tough on tax avoidance, having established a tax avoidance task force with four-year funding of AUD679m and 1,300 ATO staff.
For Australian businesses though, it is the other side of the bargain that the Government isn’t fulfilling – the corporate tax rate cut bit. To be fair, this isn’t a bargain that it is unwilling to fulfil. Because tax cuts on the scale seen all over the developed world recently are simply not possible in Australia for largely fiscal and political reasons, at least for the foreseeable future. The problem is, this legislative stasis is making Australia look more and more like a corporate tax outlier.
For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look