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Australia targets tax avoidance with new tax

Under fire: energy giant Chevron will one of the targets of Australia's imminent diverted profits tax

Australia is to hit multinational giants with a new diverted profits tax to crack down on tax avoidance using jurisdictions like Bermuda.

The new tax — to be introduced next year — will slap big companies with a 40 per cent tax on profits shifted offshore.

A spokeswoman for the Australian Tax Office said the new tax would give government “greater powers to deal with multinationals who transfer profits, assets or risks to offshore-related parties using artificial or contrived arrangements to avoid Australian tax and who do not co-operate with the ATO”.

The new tax will affect firms who move money abroad with the result that less than 80 per cent tax is paid than would otherwise have been paid in Australia.

The move follows an Australian Senate committee hearing into the tax affairs of large companies last year.

Major oil producer Chevron came under fire after the committee heard that the firm had 200 companies registered in Bermuda and a further 200 registered in the low-tax US state Delaware.

Chevron, the company behind Australia’s biggest liquefied natural gas project, also told senators that Chevron Australia Transport, a Chevron subsidiary with a stake in a shipping firm, is owned by Chevron Australia Transport Bermuda.

But Chevron executives insisted the company had “open and transparent” dealings with the Australian tax authorities and that the firm had done nothing illegal or taken part in tax avoidance.

Labour senator Sam Dastyari, however, said that Chevron was “Australia’s biggest tax dodger.”

And he described Chevron’s tax arrangements as “a rort” — Australian slang for taking unfair advantage.

Chevron was last year hit with a $269 million bill for unpaid Australian taxes between 2004 and 2008 after a federal-court case. The firm said it would appeal the decision to the Australian High Court.

The ATO spokeswoman said: “By imposing a penalty rate of tax, requiring the diverted profits tax to be paid on assessment and broadening the ATO reconstruction powers, the diverted profits tax will encourage greater openness with the ATO, address information asymmetries and allow for speedier resolution of disputes including under our transfer pricing rules.”

The consultation period for the framework for the new tax closes next month.

The Australian Senate committee also quizzed executives from Google, Apple and Microsoft.

Google came under fire last year for funnelling billions of dollars to Bermuda after it revealed it had sent nearly $12 million to the island to avoid paying tax on its profits.

Google’s tax arrangements — although legal — were condemned in the UK and Europe and prompted an international crackdown on corporate profit shifting.

Britain was the first country to introduce a tax on the diverted profits of international business in 2015. The UK tax is charged at 25 per cent where a foreign company “exploits the permanent establishment rules” or where a UK company with a UK taxable presence creates a tax advantage but using transactions or subsidiaries that “lack economic substance”.

Australia’s corporate tax rate is 30 per cent, which means that large businesses who transfer profits to jurisdictions with a tax rate of less than 24 per cent would be caught by the penalty charge.

The 40 per cent diverted profits tax will apply to transfers to low-tax jurisdictions where “it is reasonable to conclude that the arrangement is designed to secure a tax reduction and lacks economic substance”.

It will not apply to firms that otherwise meet the revenue test if their annual turnover is Australia is less that $18.4 million unless the company is “artificially booking revenue offshore”.