International tax changes | Budget 2015

As expected, multinationals are in the firing line whilst working holidaymakers and FIFO workers can expect some changes.

Anti-avoidance and multinationals

While the Government has decided to apply GST to all digital downloads by customers in Australia, the so-called "Google Tax" will not go ahead.

The Google Tax had been touted to emulate the UK-style diverted profits tax or any other additional tax structures to prevent the so called "Double Irish Dutch Sandwich" arrangements to prevent multinationals from moving profits to low taxing environments.

Instead, legislation introduced on Budget night strengthens the existing anti-avoidance provisions in Part IVA. The new law will target approximately 30 companies where:

The activities of an Australian company or other entity are integral to an Australian customer's decision to enter into a contract;
The contract is formally entered into with a foreign related party to that entity; and
The profit from the Australian sales is booked overseas and subject to no or low global tax.

The measures apply only to large multinationals that meet the specific thresholds.

The Tax Commissioner will have the power to recover unpaid taxes and issue a fine or "compensating adjustment" of an additional 100% of unpaid taxes plus interest.

Transfer pricing documentation for large multinationals

Date of effect: 1 January 2016

The OECD's new transfer pricing documentation standards will now be implemented for large global multinationals with global revenues of $1bn or more. Under the new documentation standards, the ATO will receive the following information on large companies that operate in Australia:

Country-by-Country Report showing information on the global activities of the multinational, including the location of its income and taxes paid;
A master file containing an overview of the multinational's global business, its organisational structure and its transfer pricing policies; and
A local file that provides detailed information about the local taxpayer's intercompany transactions.

Working holiday makers lose tax-free threshold

Date of effect: 1 July 2016

Foreigners who are on working holiday visas will now pay tax from the first dollar they earn, as the Budget. Currently a working holiday maker can be treated as resident for tax purposes if they have been in Australia for more than six months.

Tax residency rules will change so that most people in Australia as temporary residents for a working holiday will be treated as non-residents for tax purposes, regardless of how long they are here.

What this means is that people on working holidays will no longer have access to the tax-free threshold, low income offsets or lower tax rates. Instead, they will pay 32.5 cents in tax per dollar they earn.

For some regions in Australia who rely on transient staff for some of their farm or other seasonal work, the move are concerns about how this will affect their ability to attract and retain seasonal workers. However the measure comes as concerns have been raised by the ABC's Four Corners program that many workers were being exploited.

Higher Education Loan recovery from overseas debtors

Date of effect: 1 July 2017

The Higher Education Loan Programme (HELP) repayment framework will be extended to debtors residing overseas.

From 2016/2017, HELP debtors residing overseas for 6 months or more will be required to make repayments of their HELP debt if their worldwide income exceeds the minimum repayment threshold at the same repayment rates as debtors in Australia. The change is expected to recover $26m over 4 years.

This change was previously announced on 2 May 2015.

Investment review fees & penalties introduced

Date of effect: 1 July 2017

As previously announced, the Government is introducing application fees on all real estate, business and agricultural foreign investment proposals – expecting to raise $735m over 4 years.

Increased criminal penalties and a new civil pecuniary penalties regime will also be introduced for breaches of the Foreign Acquisitions and Takeovers Act 1975.

A reduced penalty period for foreign investors that have previously breached the foreign investment rules in relation to residential real estate has been provided until 30 November 2015.

These investors may avoid prosecution, but will be required to divest the property.