Australia has joined several leading economies around the world in considering taxation to lift some of the excessive profits of tech giants that pay little taxes in the countries that they operate in, despite their massive turnovers.
With the last couple of decades seeing a huge shift in power to some of the newer tech players, some say that governments worldwide have yet to effectively decide how these companies should pay and deliver their fair share of tax.
The Australian government initially plans to deliver an interim tax to claim back some receipts before it implements a permanent taxation plan further down the line. It has also launched a public consultation on the matter, which began on Tuesday.
Many tech giants should fall under the tax banner, as it will center around those companies that operate services in Australia while housing their headquarters and managing their tax dealings elsewhere. These include a range of companies, including Facebook, Uber, and Airbnb.
Part of the argument for increasing the tax that Australia receives from these tech companies is that the digital platform has clearly expanded and the benefits delivered to customers based in the country have increased. As well as offering smarter platforms and a wider range of services, these companies are also seeing greater profits, and much of these are not working their way to the Australian treasury.
Treasurer Josh Frydenberg said that he appreciates the “significant benefits” that these companies are delivering through digitalization, but he added that “the government remains concerned that some very profitable, highly digitalized companies pay very little tax” in places where they do business.
Australia is not the only country mulling this taxation strategy, as the UK government’s leading party announced at its party conference that the time has come to raise funds through a tax on some of the tech giants.
However, these decisions may come at a cost to relationships with the US, as some analysts predict a retaliation of some kind from the Trump administration.
EY Tax Leader Alf Capito said that he would expect “the possibility of retaliation” to be in the pipeline if Australia goes down this route, adding that the interim tax plan may mean that Australia’s “steel-tariff exemption could be put in jeopardy.”
Capito also believes that the response from these tech companies would simply be to redirect their costs onto consumers, which is often a threat that businesses level when they need to pay more tax. He said that “there’s a chance” of this happening before adding: “Why wouldn’t they?”
The situation could have several outcomes, depending on public opinion of both the companies in question and the government that delivers the tax plan. The Australian government may hope that the initial public consultation will elicit enough positive support for increasing taxes on tech companies to deliver better public services without further taxing the average household.
However, given that these companies could also pass their burden on in the form of higher costs, it may be a case of which entity moves first. If consumers side with the government over the issue, then this may result in tech companies’ public images becoming somewhat tarnished. Should this occur, shareholders may choose to shoulder some of the reduced profit margin.