Nick Xenophon calls for blanket “turnover tax” for tech giants Google and Facebook, but experts warn it’s “not feasible”

South Australian independent senator Nick Xenophon has used the government’s major bank levy to call for a “turnover tax” on international tech companies such as Google or Facebook.

Xenophon told The Australian international tech giants are causing a “haemorrhaging” of local media companies, and referred to recent analysis done by The Australian, which revealed Google paid 1.5% of its revenue in tax expenses, and Facebook paid 1% in 2016.

Read more: Australian government’s “Google tax” brings wake-up call to multinationals making over $1 billion a year

Xenophon said he would support a “turnover tax” for these tech businesses, floating the idea of a “default” tax rate of 5% on a company’s entire revenue. He believes governments should consider taxing large multinationals on turnover instead of profits, given the prevalence of multinational tax avoidance and profit shifting.

“We will look at a default turnover tax for tech businesses which would be a departure from the current approach,” Xenophon told The Australian.

“Because they are such ephemeral operations you need to think laterally how you tackle this.

“It could be that there was a default rate of at least 5 per cent which would still be three to five times what they’re paying now.”

The government committed to a number of additional measures to combat multinational tax avoidance in its most recent budget, extending the existing Multinational Anti-Avoidance Law to cover corporate structures using foreign partnerships and trusts.

Multinational financial companies are also in the crosshairs, with rules proposed that would prevent exploitation of different country’s tax arrangements.

While Xenophon noted the budget measures as “progress”, he maintained the government should implement further measures to combat tax avoidance, using the proposed $6 billion bank tax as an example.

“If there’s a very good case for a bank levy, and I think there is, then there’s an irresistible case for a multinational tech companies levy,” Xenophon told The Australian.

Turnover tax “not feasible”

However, Kathrin Bain, a lecturer at the School of Taxation and Business Law at the University of New South Wales, told SmartCompany the idea of a ‘turnover tax’ is “not feasible”.

Bain agrees that a turnover tax would be less likely to be subject to artificial minimisation, but says a blanket approach could have widespread implications.

“We don’t tax turnover, we tax taxable incomes,” she says.

“If we pursue a turnover tax against companies like Facebook and Google, it becomes a broader issue. Should all businesses be subject to a turnover tax?”

“I don’t think it’s good tax policy, as it doesn’t differentiate between businesses with legitimate expenses, or businesses with a high turnover but a low amount of expenses. And then do we have to tax different industries at different rates? It just makes a simple tax more complicated.”

Implementing such a tax would require an “entire change of our tax system” says Bain, who believes multinationals would still be able to find ways to circumvent a turnover tax. She believes Australia’s tax avoidance laws are already quite strong, and a focus should be put on bolstering them.

“Australia has quite strong tax avoidance laws, so if the case is people strongly believe these companies are not being taxed their fair share, then we need to address how they’re doing that, and why our current laws aren’t working,” she says.

Xenophon calls for levy to fall on foreign banks

Xenophon has pledged to back the government’s bank levy, but only if it applies to foreign banks, telling ABC’s Insiders on the weekend it is “important” foreign-owned banks are dealt the levy as well.

“I also think it’s important that the foreign-owned banks that have a big presence here in this country also be hit with this levy,” Xenophon said.

“That could raise about $750-800 million over the forward estimates and that itself could fund a last resort compensation scheme for the many tens of thousands of victims of financial mismanagement and fraud in this country.”

Xenophon supports the “broad principles” of the 0.06% tax on the country’s largest banking institutions, especially because it could provide a “leg up” for regional banks, which he believes have been at a “competitive disadvantage” since the global financial crisis.

SmartCompany contacted Google, Facebook and Nick Xenophon but did not receive a response prior to publication.

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