1. Introduction

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  1. Corporate income tax is an important part of Australia's tax base. In 2011-12, Australia had corporate tax receipts of $66.6 billion, or 4.5 per cent of Gross Domestic Product (GDP) and 22 per cent of total federal tax receipts. In addition to the revenue it raises directly, corporate income tax plays an important role in maintaining the integrity of the income tax system generally.
  2. Australia collects more corporate tax as a share of GDP than most other OECD countries, despite having a lower statutory tax rate than the OECD weighted average. This reflects the relatively capital intensive nature of the Australian economy, the consistently strong emphasis placed in Australian tax policy and administration on ensuring the integrity of the corporate tax base, and the incentives corporate taxpayers face under Australia's dividend imputation system. However, a relatively small number of companies account for most corporate tax receipts.
  3. This means that Australia has a strong interest in monitoring and, where necessary acting on, developments that pose a risk to the sustainability of its corporate tax base.
  4. For some time public finance theorists have challenged the ability of national governments to sustain their corporate tax base as globalisation increased the mobility of capital.1 This thinking is reflected in Australia's Future Tax System (AFTS).2 More recently, an OECD report Addressing Base Erosion and Profit Shifting concluded that the corporate tax bases of national governments were at serious risk of erosion reflecting, among other things 'the tax practices of some multinational companies' and that 'current international tax standards may not have kept pace with changes in global business practices' (OECD, 2013, p. 6–7).
  5. In this context, last year the Government asked the Treasury 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 has benefited from comments by a specialist reference group, made up of members of business, tax professionals, academics and the community sector.
  6. In May 2013, Treasury released an Issues Paper outlining the challenges that changes in the global economy pose to the international tax system and sought the views of stakeholders and the community more broadly on the extent and nature of these challenges. In total, 28 submissions were received on the Issues Paper, the main themes of which are summarised in

    Appendix C.

  7. The purpose of this Scoping Paper is to set out the Treasury's view of the risks facing Australia's corporate tax system, analyse a broad range of possible policy options to address these risks, and make findings and recommendations.
  8. The Paper first sets out a framework to analyse the risks to the sustainability of Australia's corporate tax base, before outlining the development of Australia's corporate tax system and the approach taken to international tax issues to date. The Paper then analyses both the sources and the levels of risk faced by Australia's corporate tax system and then discuss different approaches to addressing these risks. The Paper sets out the issues for Australia's international engagement on progressing multilateral tax reform before concluding with recommendations.

1 See, for example, (Gordon, 1986), (Gordon, et al., 1994); (Devereux & Sørensen, 2006), (Auerbach, 1982), (Auerbach, 2012), (Sørensen, 2007).

2 This is reflected Recommendation 27 of AFTS.