Following its announcement in May, the Australian Government has now released a discussion paper, raising a debate on whether Australia should introduce a new interim digital tax (Discussion Paper).
The Discussion Paper refers to digital businesses with a significant “digital footprint” in Australia that may not necessary have a physical (or tax) presence in Australia. These include: news and information providers (search engines and targeted digital advertising), social media services, e-retail platforms, digital communication services (messaging services), digital streaming/sharing services, accommodation platforms, ride sharing/booking platforms and other digital platforms.
The Discussion Paper recognises that Australian and international tax laws currently tax digital businesses based on their physical presence (e.g. assets, employees), and do not effectively address where value is created by their users or digital networks. Considerations for reform include taxing digital businesses based on:
- the location and number of users, based on the arguments that digital businesses derive value from user data that create highly targeted online advertisements, user generated content i.e. reviews, ratings, photos that build credibility and trust, and user-participation that make digital marketplaces/online platforms attractive to businesses/consumers;
- the location and values of ‘marketing intangibles’ (trade names and brand names), based on arguments that marketing represents the source of value; and
- attribution of profits based on pre-determined industry-specific percentages.
How digital businesses are taxed – both in Australia or internationally – is likely to change. It is unclear what this will look like in Australia at this stage. However, a number of European countries have already introduced or imposed interim taxes on digital advertising services based on the location of users, and user created value and the sale of data from user engagement with digital interfaces.
If a similar tax is implemented in Australia, non-resident businesses would need to consider the impact on their value chains and the costs of having a digital presence in Australia. This would be in addition to Australia’s existing GST on digital goods and services and anti-avoidance tax rules against multinationals, which already capture a number of these digital businesses.
The Discussion Paper and instructions for making a submission can be found at this link.