The Australian Government on October 2 launched for public comments a consultation document aimed at creating a fairer and more sustainable corporate tax system for the digitalized economy.
The paper discusses the impact of digitalization on the economy, the overview of Australian corporate tax system and taxation of highly digitalized businesses in Australia, and steps that Australia has taken in view of the base erosion and profit shifting project.
The government has invited input on the following questions:
- Is user participation appropriately recognized by the current international corporate tax system? If not, how should value created by users be quantified and how should it be taxed?
- Is the value of intangible assets including marketing intangibles appropriately recognized by the current international corporate tax system? If not, how should value associated with intangibles be quantified and how should it be taxed?
- Are the current profit attribution rules fit for purpose? If not, how should profits be attributed?
- Should existing nexus rules for determining which countries have the right to tax foreign resident companies be changed? If so, how?
- From a tax perspective, do you consider that the digitalized economy is distinguishable from traditional economy? If yes, are there economic features of the digitalized economy that present special challenges in the context of taxation? How are these features relevant for assessing the costs and benefits of various models of taxation?
- Can and should any changes to the international nexus and profit attribution rules be ring-fenced to apply only to highly digitalized businesses? If so, how?
- Are there changes other than to nexus and profit attribution rules that should be made to the existing international corporate tax framework and/or Australia’s tax mix to address the challenges presented by globalization and digitalization?
- What does the experience of other countries that have introduced interim measures or that are contemplating them mean for Australia?
- Should Australia pursue interim options ahead of an OECD-led, consensus-based solution to address the impacts of the digitalization of the economy on the international tax system?
- What indicators could be used to identify businesses that benefit most from user-created value? Would an interim measure applied to digital advertising and/or intermediation services accurately target that value? How broadly or narrowly should digital advertising and intermediation services be defined?
- The choice of nexus for an interim measure (or a longer-term virtual PE proposal) involves significant trade-offs between ease of administration and the risk of avoidance. Which nexus option strikes the best balance between these considerations?
- What are your views on thresholds for an interim measure, taking into account the need to meet Australia’s international trade obligations?
The deadline for comments closes on November 30, 2018.