Increased scrutiny of Multinational businesses
A number of measures were announced to reduce (tax) base erosion and profit shifting amongst multinational businesses. These measures include: –
- Introduction of legislation to strengthen the anti-avoidance provision currently in place. This legislation intends to target contrived arrangements identified as a scheme where: –
- A non-resident entity derives income from supplying goods or services to Australian customers while utilising support services supplied in Australia; and
- The non-resident avoids attributing the income from this supply to a permanent establishment in Australia.
For these proposed provisions to apply, the scheme must have been entered into with a main purpose of obtaining a tax benefit either in Australia or overseas. If these provisions are applied, the Commissioner will have the power to “look through” the scheme and apply tax rules as if the non-resident had made the supply through a permanent establishment, thereby raising a tax obligation for the non-resident.
It is proposed that these provisions would apply to tax benefits obtained from 1 January 2016.
- Implementation of transfer pricing documentation standard requirements from 1 January 2016 for large companies (global revenue over $1 billion). Under these standards, these companies will need to provide the Tax Office with: –
- A country-by-country report on global activities including a breakdown of income and taxes paid by location.
- A master file containing an overview of the business, the organisational structure and its transfer pricing policies, and
- A local file providing detailed information about the intercompany transactions involving Australian entities.
- Doubling the administrative penalties from 1 July 2015 that can be applied by the Commissioner to large companies entering into tax avoidance and profit shifting schemes.
- Developing a voluntary corporate disclosure code. This initiative aims to encourage companies to disclose to the public the tax being paid. It is thought that disclosing this information will discourage companies from engaging in aggressing tax avoidance strategies, and therefore paying an appropriate “share” of tax.
- The government intends to incorporate recommendations by the Organisation for Economic Co-operation and Development tackling the abuse of treaties with other tax jurisdictions. This initiative is again aimed at reducing erosion of the Australian tax base.