There is growing concern – in Australia and globally – that many of the key rules of international taxation may not have kept pace with the evolution of the global economy. International tax reform is increasingly on the agenda of G20 Finance Ministers and Leaders.
Last year the Government asked the Treasury to develop a Scoping Paper to examine the risks to the sustainability of Australia's corporate tax base from the way current international tax rules are able to be used to minimise or escape taxation. This analysis is being informed by a specialist reference group, made up of business representatives, tax professionals, academics and the community sector.
The purpose of this Issues Paper is to seek views of stakeholders and the community more broadly to ensure the analysis in the Scoping paper captures and addresses the key issues. The Issues Paper outlines the challenges that changes in the global economy pose to the international tax system.
These issues are being considered in the context of broader geopolitical changes. The global economy continues to experience dramatic shifts from the rise of Asia and growing concerns over the fiscal position of some advanced economies following the global financial crisis. A key discussion in the Issues Paper is the quality and availability of evidence of base erosion and profit shifting in Australia, and what additional data might be needed to reach definitive conclusions on the extent and nature of the problem.
Explanation of Chart 1
Chart 1 shows that in the US the growth of intangible investments has far surpassed the growth of tangible investments, as a proportion of GDP, since 1947. In 1947 US intangible investment was less than 4 per cent of GDP and has grown to be about 11 per cent in 2007. In 1947 US tangible investment was about 9 per cent of GDP and has shrunk to be about 7 per cent in 2007. The point at which intangible investment began to surpass tangible investment was the mid-1990s.
Explanation of Chart 2
Chart 2 shows the changes in the relative shares of global economic output of advanced economies, China and India, and emerging and developing economies, from 1950 to the present day and projected up to 2030. It can be seen that advanced economies began the period with about 70 per cent of global output which has fallen to about 50 per cent today and is projected to fall to 35 per cent by 2030. China and India, combined, began with a global share of 5 per cent, currently have about 25 per cent and are projected to increase their share to 35 per cent by 2030. Emerging and developing economies began with about 30 per cent of global output, rising to about 55 per cent today and projected to increase to around 65 per cent by 2030.
Explanation of Chart 3
Chart 3 contains two graphs. The first compares the projected company tax receipts from the 2008-09 Budget for the period from 2007-08 to 2011-12 to the actual figures contained in the 2012-13 MYEFO. It shows that while actual receipts were lower than the projections for a period they have since recovered to surpass the original projections.
The seconds graph makes the same comparison but instead of looking at company tax receipts, compares projected versus actual Gross Operating Surplus. It shows that the actual surplus fell far below than that projected in the 2008-09 Budget and has failed to recover to the projection.
Explanation of Chart 4
Chart 4 compares the statutory company tax rate to the average tax rate (the ratio of company tax to net operating surplus) for the period 1991-92 to 2001-12. In the period from 1991-92 to 1999-00, the average company tax rate was consistently below the statutory rate. In the period 2000-01 to 2007-08, the average company tax rate was broadly stable around the corporate tax rate. The average corporate tax rate fell significantly in 2008-09, and remains around three percentage points lower than the statutory rate.
Explanation of Chart 5
Chart 5 compares the Gross Royalty Amount paid to non-residents, derived from the annual non-resident interest, dividend and royalty form as a proportion of Australia's GDP to Intellectual Property Charges paid by Australians to non-residents as a proportion of GDP for the period 2001-02 to 2001-12. It shows that the gross royalty mount derived from tax data has risen steadily from around 0.35 per cent of GDP in 2001-02 to around 0.42 per cent of GDP in 2011-12. In contrast, the ABS measure of intellectual property charges has been broadly stable at just above 0.25 per cent of GDP.