New tax laws to prevent MNCs from tax evasion runs risk of going against international tax conventions

A tax expert has warned the introduction of stricter laws by Australia to prevent big multinational companies from evading tax might pose a potential risk of being incoherent with the measures being taken by other developed countries. The findings for the Organisation for Economic Co-operation and Development/G20 are to be presented in October.

"Australia is running ahead of the pack but there is a risk some of the measures could be out of line with the broader agreement," Deloitte's tax insights and policy partner David Watkins told AAP. "Australia should have waited until next month."

Treasurer Joe Hockey on Wednesday introduced comprehensive plans to legislate policies that could reap hundreds of millions of dollars as additional revenues.

Watkins also noted that if there is lack of cohesion with international laws, it could result in the multinational companies paying taxes twice.

Hockey had however claimed that he has been working with the government of the United Kingdom as well as the OECD to bring the new laws into effect from January 2016. The new regulations will require companies that have been caught evading taxes to pay double the amount with additional interest.

The draft legislation will not only bring to effect stronger penalties for big companies trying to avoid taxes, but also implement country-by-country reporting that will allow the authorities to get a clearer visibility of the international structures.

The new law will be applicable to more than 1,000 large multinational companies with annual global revenue of US$1 billion (AU$1.39 billion) or more.

"It is patently unfair for a large multinational with sophisticated structures, not to pay its fair share of tax," Hockey said.

Even though the tax laws in Australia are amongst the toughest in the world, several multinational companies continue to successfully avoid taxes. Watkins said that despite the fact that nothing can be said on how much tax revenue can be raised as a result of these measures, it would certainly induce MNCs to rework their tax structures.

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