Foreign holidaymakers have launched legal action against the Turnbull government's controversial backpacker tax, arguing it breaches Australia's international tax treaties.
US-based tax accounting firm Taxback - acting on behalf of individual clients from the US, Britain and Germany - lodged the challenge with the Queensland Federal Court on Monday.
The company argues that the tax - announced by the Abbott government but implemented at the start of this year - contravenes non-discrimination clauses built into tax treaties Australia has signed with eight countries: Britain, the US, Germany, Finland, Chile, Japan, Norway and Turkey.
The legal action seeks "declaratory relief" from the tax for all citizens of those eight nations - in effect rendering them exempt from the tax.
Visitors from those countries account for approximately 50 per cent of all visitors who come to Australia on the relevant 417 or 462 working holiday visas.
That means that a successful challenge would slash the revenue the government collects through the tax, currently estimated at about $150 million a year.
International tax treaties signed by Australia override domestic law. The relevant clauses prohibit unequal tax treatment of any citizens from these countries.
Taxback, which provides global tax refund and tax return services, has also agreed to enter negotiations with the government in an effort to resolve the issue outside court.
Taxback commercial director Eileen Devereux said the action was an important step to protect foreign workers and Australia's reputation as a working holiday destination.
"Our starting point is that by discriminating against foreign workers the tax is fatally flawed. The tax unfairly targets working holidaymakers. It runs in direct conflict with Australia's obligations under multiple international tax agreements. In doing so, it also harms the reputation of Australia's tourism sector," she said.
The backpacker tax was passed by Federal Parliament a year ago. It imposes a higher rate of tax on foreigners who enter Australia and earn income on the 417 or 462 working holiday visas.
Under the law, backpackers' incomes are taxed at 15 per cent on earnings up to $37,000. The rate was originally planned to be 32 per cent but the government was forced to compromise after a rebellion from the Nationals, who raised concerns about the impost causing labor shortages for the agriculture and tourism industries.
It is budgeted to raise $640 million over four years.
Australia has tax treaties in place with all its major trading partners.
Article 25 of the tax treaty between Australia and Britain, for example, states: "Nationals of a contracting state shall not be subjected in the other contracting state to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected."
Treasurer Scott Morrison's office declined to comment on the legal challenge.
Backpackers contribute an estimated $3.5 billion to the Australian economy every year.
The story Turnbull government's backpacker tax under legal doubt first appeared on The Land.