Australia’s upcoming global minimum tax is intended to stop offshore tax evasion. There are doubts it will work

Next year, Australia will introduce a global minimum tax aimed at preventing multinationals based within its borders from evading tax.

As announced in the last federal budget, the new tax will include an additional levy charged to these companies, who have an annual global revenue of at least $1.2 billion.

Treasurer Jim Chalmers holds a copy of the 2023-24 federal budget strategy and outlook book in front of the media

Australia’s planned inclusion of a global minimum tax was announced at the 2023-24 federal budget.(ABC News: Matt Roberts)

Australia was one of the 130 OECD countries and jurisdictions that pledged in 2021 to introduce a 15 per cent global minimum tax, which it intends to implement from January 2024.

The intention is to prevent multinational companies from evading domestic taxes through offshore subsidiaries, a long-term problem across the world. It’s estimated to raise $330 billion annually in revenue.

According to the Australian Tax Office (ATO), around one third of large public companies in Australia paid no tax in the 2021 financial year. 

“[A global minimum tax is] designed to address the really aggressive tax shifting strategies that multinational entities do”, Kerrie Sadiq, professor of taxation at the Queensland University of Technology’s business school, tells ABC RN’s The Money.

She says a tax like this would mean that “putting money into tax havens where there’s zero tax rate will have no effect anymore”.

But while an initiative to close tax loopholes is considered by many to be a positive move, some experts say a global minimum tax may not prevent corporate tax avoidance.

“I’m a supporter of the global minimum tax,” Professor Sadiq says.

An older woman with shoulder-length hair and glasses looks at the camera.

Professor Sadiq says it’s not clear whether this tax will have its desired effects.(Supplied)

“And I’m very much a supporter of global initiatives. I think it’s a very small step in addressing the underlying problem of multinational entities avoiding tax through legal means.

“But it doesn’t address the fundamental problem.”

Worldwide problem of tax loopholes

The idea of a global minimum tax has been promoted by renowned economist Joseph Stiglitz as well as political leaders in Australia and abroad.