US withdrawal from OECD tax deal to hamper tax avoidance crackdown
Donald Trump’s decision to withdraw the US from the OECD global tax deal may have implications for Australia's efforts to curb multinational tax avoidance.
Last week Donald Trump issued an executive order which effectively pulled the US out of the OECD Global Tax Deal, a decision which could complicate the Australian government’s efforts to crack down on multinational tax avoidance.
In the executive order, the US accused the global tax deal of allowing “extraterritorial jurisdiction over American income,” infringing on the US’ ability to enact tax policies that serve domestic interests.
It clarified that the deal had “no force or effect in the United States.”
This fresh US stance on global tax policy could confound Australia’s efforts to curb tax avoidance, particularly its fledgling public country-by-country (CbC) reporting scheme.
“US multinationals have previously expressed concerns about Australia's public country by country reporting as being too far reaching in terms of disclosures for their tax positions,” Jenny Wong, tax lead for CPA Australia, told Accounting Times.
Multinationals are concerned that the transparency required by the CbC reporting laws “could lead to misinterpretation of data and unwarranted scrutiny and reputation risk,” Wong said.
While it’s unlikely that the CbC policy would be withdrawn in Australia, US-based multinationals may be able to acquire exemptions to avoid transparency laws over concerns regarding the disclosure of competitive or confidential financial information.
“I think it'll be very difficult to just categorically withdraw that policy, but I do see there is a discretion within that measure that allows exemptions to be acquired in certain circumstances, and not disclosing confidential information will be one of them,” Wong said.
The ATO is drafting its advice regarding public country-by-country reporting exemptions, which it set to be available in February.
Exemptions aside, Wong noted that enforcement of the CbC policy on multinational entities is already a challenge for the ATO.
“Enforcement has always been an issue, even before Trump,” she said.
US-based multinationals with a global reach have previously resisted Australian efforts to force them to disclose country-by-country tax information publicly.
“[Multinationals] need to disclose every single bit of tax information on a country by country basis, worldwide, for Australian tax purposes” under the CbC laws, Wong explained, indicating why some US-based multinationals found Australia’s laws overly onerous.
In terms of Trump’s executive orders’ impacts on global tax agreements, Wong said the OECD tax system and US-based GILTI system could co-exist and eventually converge over time.
She also noted a heightened risk of trade and tax disputes following the executive order as the US retaliates against perceived infringements.
“Trade and tax policy is being linked together, and it is really a signal from the US to the rest of the world that it's going to investigate extraterritorial taxes, which sets the stage for potential global trade disputes.”
The US could retaliate against Australia by raising the taxes on Australian expats living in America, and Australian businesses operating in America.
Despite these evolving risks, Treasury is confident Australia can effectively navigate trade relations with the USA.
“When there’s a new administration in the US there are changes in policy and we are confident in our ability to navigate those changes in policy,” Treasurer Jim Chalmers said in a press conference at St George TAFE last week.
“When it comes to matters of trade, it’s important to remember that the US maintains a very substantial 2‑to‑one trade surplus with Australia,” he added.