Intent:
Income derived from goods and services provided in Australia are taxed in Australia.
How:
1. Company tax is either (choice is made by the Company) paid on revenue (at a low rate, say 1%) or profit (at a higher rate, say 30%).
2. Deductions are only allowed for domestic goods or services.
Impact:
1. Foreign companies will create domestic companies (“Domestic Shells”) to service other domestic companies so that those domestic companies can get a deduction (otherwise the domestic companies wouldn’t buy the good or service).
2. The Domestic Shells would pay tax on revenue because without a deduction (there is no deduction because they are sourcing the good or service from a foreign source) their profit would equal their revenue, and as such, they would pay less tax (1% compared to 30%).
3. Domestic Companies using domestic goods and services would still pay the normal tax on profits.
Cons:
1. Individuals purchasing goods or services from foreign companies would not be captured. But, this is the case today - "If you are from a country that does not have a tax treaty with Australia, income from an Australian source is generally taxable in Australia"