State and territory treasurers agree in principle to support so-called integrity measures under which overseas retailers of ‘intangibles’ will have to charge GST

Australian consumers could soon be charged goods and service tax (GST) for music, movies and games downloaded from overseas service providers, the treasurer, Joe Hockey, has announced.



State and territory treasurers met with Hockey in Canberra on Thursday and agreed in principle to support the so-called “integrity measures”.

He was not able to provide a definite figure on how much revenue charging GST on “intangibles” would raise, but said it would be worth billions. It is likely to capture services such as Netflix.

“There are a number of those companies that are prepared to charge the GST on the services that they are putting into Australia, but they want to know that they are not at a competitive disadvantage. Now, the states agreed in principle that we should move in that regard,” Hockey said.

“I see those things as integrity measures for the tax base, not a broadening of the GST or an increase of the GST.”

The government wants the legislation drafted as soon as possible, and measures related to the taxation of intangibles can be expected in this year’s budget.

The confirmation of forthcoming action coincides with hearings of a Senate inquiry into corporate tax avoidance which heard evidence from multinationals about their complex business structures.

Hockey is also continuing his push to charge GST on online purchases worth less than $1000.

Arguing that there are fewer major providers exporting to Australia now than a few years ago, Hockey said that charging for smaller items would mean “competitive neutrality” between overseas businesses and Australian ones.

“There is no doubt that there would be an increase in overall revenue if the GST were to applied right across the board to the delivery of information and licensing and so on over the internet, as if it were delivered domestically. There would be an increase in the GST and, you know, it comes back into the tax net,” he said.

Tony Abbott signalled earlier on Thursday that the budget would include measures to crack down on multinationals.

The prime minister said people had raised legitimate concerns “that some companies, particularly multinational companies through the device of transfer pricing are minimising their tax in jurisdictions such as Australia and maximising it in other jurisdictions that have different tax laws and different tax rates”.

Hockey remained tight-lipped about the prospect of a UK-style diverted profits tax known colloquially as a “Google tax”. The British government has introduced a tax of 25% on large multinationals that entered into “contrived” arrangements to divert profits from the UK.

When asked directly about the prospect of a “Google tax” in Australia and the revenues it could raise, Hockey reaffirmed the principle that a business, wherever it was located, should pay tax in the jurisdiction where it earned the income.

“There has to be a fairness about the taxation system. Obviously, a small retailer, or a corner shop operator, or a small business that I grew up in, is unable to use sophisticated taxation arrangements in the way that some larger multinationals do. That’s desperately unfair.”

The shadow treasurer, Chris Bowen, said the government had been “dragged kicking and screaming” to take action on multinational tax avoidance and was engaging in “policy on the run”.

Bowen said Labor had considered a diverted profits tax but rejected it because it would breach international tax agreements.

Treasury officials appeared before the Senate inquiry on Thursday and said they could not quantify the revenue lost in Australia to multinational tax avoidance.

Rob Heferen, deputy secretary of Treasury’s revenue group, said Australia had “such a high dependence on corporate tax this problem matters more to us than almost any other country”.

Heferen also provided general commentary about the UK’s diverted profits tax.

“They’re arguably sending a message to say to the particular firms that are doing those things, we don’t like you doing that, in fact, we’re going to hit you with a penalty tax of 25%,” he said.

“That’s one element, saying ‘well, actually we don’t want you to get into this world and so don’t do it. In one sense if it didn’t raise a pound you might say it is successful because people have changed their behaviour.

“They [the British government] have factored in raising some money and so what they would probably be assuming that there will be a range of activities that firms would undertake and even with an extra tax impost, it is still worth their while doing it.

“If Australia ever got to that situation, I think there would be this very vexed issue about, well, would we have any reason to believe – any sound basis for an assumption like that and at this point I just don’t know.”

In his broad opening remarks to the inquiry, Heferen warned that tax was “a challenging policy area” and any changes needed to be considered carefully because there were high risks of overreach.

“Australia simply does not have the luxury of enacting laws that, on the face of them, attempt to deal with tax avoidance but in substance prevent legitimate value-creating activity from taking place,” he said.