Australian Google Tax to hit profit shifting to US if Trump tax plan proceeds

An Australian tax expert has warned that Australian-based entities of multinationals would be caught by the country's proposed Diverted Profits Tax (DPT) should American President-elect Donald Trump get his tax proposals through Congress.

Under the draft legislation released by Australian Treasurer Scott Morrison on Tuesday, qualifying businesses that declare profits in jurisdictions with a tax rate of less than 80 percent of Australia's company tax rate would see a penalty tax rate of 40 percent imposed.

Trump took to the American election a plan to cut the country's company tax rate from the current 35 percent to 15 percent. The current Australian company tax rate sits at 30 percent.

Mark Molesworth, tax partner at consultants BDO, said the new laws put a "figurative gun-to-the-head" of Australian subsidiaries of multinationals and are a wake-up call for all those potentially affected.

"At present, this means that a majority of the OECD countries will be low tax, as will the USA if President-elect Trump succeeds in reducing the corporate rate of tax," Molesworth told AAP.

"The new ATO powers effectively mean that a company can be forced to participate in a review and they cannot challenge the ATO findings based on new evidence not shared with the ATO.

"They need to have their transfer pricing policies and documentation ready in advance of any ATO contact."

In order for a business to be impacted by the proposed Diverted Profits Tax, its related global entity needs to have an annual turnover of more than AU$1 billion, with total Australian turnover of more than AU$25 million.

"The Turnbull government is determined to ensure that all companies that operate in Australia pay the right amount of tax here," Morrison said in a statement.

"Under our new law, where they use complex global structures to avoid tax on Australian earnings, they will pay even more."

First announced in the Australian 2016-17 Budget in May, the Diverted Profits Tax is modelled on the United Kingdom's DPT, also known as the Google Tax.

Following the introduction of a DPT in the UK, Google agreed to pay the UK government £130 million in back taxes.

Google has said it will be looking to book more of its Australian revenue in Australia, instead of Singapore, in the coming years.

Morrison said on Tuesday the DPT will commence on July 1, 2017 and would raise AU$200 million in revenue over the forward estimates.

Shadow Assistant Treasurer Andrew Leigh criticised Morrison for not introducing the DPT before the end of the parliamentary sitting year.

"By failing to introduce into Parliament its Diverted Profits Tax legislation by the end of this year, Treasurer Scott Morrison has broken yet another Turnbull government promise," Leigh said.

"The delay matters because the treasurer is still promising his diverted profits tax will commence on 1 July, 2017. It will be a huge and complicated impost for businesses to prepare in the short time between its passage through Parliament -- if it ever gets there -- and its implementation."