Budget 2016: International Tax
The Budget introduced a number of international tax measures that target multinational companies with a presence within Australia, including a UK-Style diverted profits tax.
Date of effect: 1 July 2017 and applies whether or not a relevant transaction (or series of transactions) was entered into before that date
Australia intends to introduce a UK-styled "Google Tax" – or diverted profits tax (DPT) – to apply to multinationals with global revenues of $1 billion or an entity that is a member of a group of entities which have been consolidated for accounting purposes and a global income of $1 billion or more.
The DPT will:
- Impose a penalty tax rate of 40% on profits transferred offshore through related party transactions with insufficient economic substance that reduce the tax paid on the profits generated in Australia by more than 20%;
- Apply where it is reasonable to conclude based on the information available at the time to the ATO that the arrangement is designed to secure a tax reduction;
- Provide the ATO with more options to reconstruct the alternative arrangement on which to assess the diverted profits where a related party transaction is assessed to be artificial or contrived;
- Impose a liability when an assessment is issued by the ATO (that is, it will not operate on a self-assessment basis);
- Require upfront payment of any DPT liability, which can only be adjusted following a successful review of the assessment; and
- Put the onus on taxpayers to provide relevant and timely information on offshore related party transactions to the ATO to prove why the DPT should not apply.
The Australian DPT will not apply to multinationals with an Australian turnover of less than $25 million unless they are artificially booking their revenue offshore.
The DPT is part of a broader suite of measures including:
- Eliminating hybrid mismatch arrangements where corporates take advantage of differences in the tax treatment of financial instruments or entities in different countries to avoid paying tax;
- Implementing the OECD's recently updated Transfer Pricing Guidelines to ensure that Australia continues to have best practice transfer pricing rules to help prevent multinationals from using excessive related party payments to shift profits overseas;
- Introducing a new disclosure regime which would require tax and financial advisers to report aggressive tax planning schemes;
- Increased protection measures for people who disclose information about tax misconduct to the ATO; and
- Establishing a new Tax Avoidance Taskforce within the ATO to enhance its audit activity for large corporates and high wealth individuals.
Date of effect: 1 July 2016
The Government will adopt the OECD transfer pricing recommendations in Aligning Transfer Pricing Outcomes with Value Creation.
The guidelines enhance guidance on intellectual property and hard-to-value intangibles, and ensure that transfer pricing analysis reflects the economic substance of the transaction.
For more information about the 2016 Federal Budget and how it impacts international tax or cross border strategy, contact us on 02 9957 4033.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.