Australia crackdown on Google taxes seen holding investment risks

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Australia has announced a crackdown on tax practices that big firms use, legally, to shift income to countries with low tax rates such as Ireland and the Netherlands. (Reuters) Australia has announced a crackdown on tax practices that big firms use, legally, to shift income to countries with low tax rates such as Ireland and the Netherlands. (Reuters)
SummaryAustralia has announced a crackdown on tax practices that big firms use, legally, to shift income to countries with low tax rates such as Ireland and the Netherlands.

Australia faces an uphill battle to capture a greater share of tax revenue from multinationals such as Google and needs to work with its trading partners to avoid scaring away investors with an image as a high tax nation, tax lawyers and specialists say.

Australia has announced a crackdown on tax practices that big firms use, legally, to shift income to countries with low tax rates such as Ireland and the Netherlands.

Britain and Germany are also looking at ways to make sure multinational companies pay what they view as a fairer share of taxes and they are urging the G20 group of developed nations to work together to protect tax revenues.

Some tax specialists argue that Australia's proposed measures, which follow several major changes in Australian tax regulation over the past 18 months, may discourage foreign companies from investing in the country.

"What is starting to happen is that Australia is being increasingly seen as a high sovereign risk country on taxes," said Paul Stacey, tax counsel at the Institute of Chartered Accountants.

The government has drafted proposals that include rules to prevent profit shifting, as well as setting up a think-tank to review the strategies that multinationals use to reduce their tax bills.

"This review will only increase that perception," Stacey said.

Revisions of the proposals will go to parliament early next year after a consultation period.

They follow a series of tax changes including the doubling of withholding tax for non-residents, a ruling to tax a greater share of private equity firms' profits, and a 30 percent tax on mining profits that was watered down by the government after fierce opposition from the mining industry. Similar concerns about Australia's reputation surrounded the Australian Taxation Office's chase of tax dollars from offshore private equity firms, which was sparked by U.S.-based TPG Capital Management LP's profit on the $2.4 billion public sale of retailer Myer Holdings.

Although private equity investment in Australia has slowed with the economy, it has not stalled as critics had warned.

Total investment in Australia's $30.5 billion buyout industry fell 24 percent in the year to June, according to industry lobby group the Australian Private Equity and Venture Capital Association.

"While some investors will not be happy with tax changes in Australia, what may appeal to them is the economic climate of the country," said Niv Tadmore, partner at Clayton Utz. While the economy is expected to slow as Chinese demand for resources eases, it remains

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