Australia's Multinational Anti-Avoidance law and other tax transparency measures

Australia's Multinational Anti-Avoidance law 2015

UPDATE: The Federal Budget released on 3 May 2016 contains a number of new tax integrity measures focused on international business. For detailed analysis of these measures, see our Federal Budget Brief 2016.

Related content

Reflection of clouds on glass window while businessman
  • The multinational anti-avoidance rule (i.e. Australia's 'de facto' diverted profits tax regime) has now been passed by Parliament.
  • The Country-by-Country reporting regime has now been passed by Parliament.
  • Tax laws governing the Australian Taxation Office (ATO) public disclosures of tax return data have been amended to now include Australian owned private companies with annual income of A$200 million or more.
  • Australian businesses of multinational corporations with global income of A$1 billion or more will now be required to prepare general purpose financial reports for years commencing on or after 1 July 2016.

Multinational anti-avoidance and country by country reporting

Multinational Tax Avoidance Bill passes Senate with amendments

On 3 December 2015, the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 passed the Senate with amendments. The amendments were as follows:

  • require the Australian businesses of multinational corporations with global income of A$1billion or more to prepare general purpose financial statements, rather than special purpose financial statements from 1 July 2016
  • end an exemption for Australian owned private companies with annual income of $200 million or more from the ATO’s public disclosures of tax return data (see below for further analysis of these amendments).

The Bill returned to the House of Representatives, which agreed to the Senate amendments. The Bill now awaits Royal Assent.

By way of background, the Bill passed the House of Representatives on 19 October 2015.

On 11 November 2015, the Bill passed the Senate but with amendments.

On 12 November 2015, the House of Representatives voted to reject these original amendments, and return the Bill to the Senate for consideration.

The final amendments were the outcome of negotiations between the Government and members of the Senate. The main provisions of the Bill contain the following measures:

 

Significant Global Entity Include a standard set of concepts that can be used to determine whether an entity is a significant global entity (SGE) (i.e. part of a group with global income of A$1 billion or more).
Multinational anti-avoidance law Amends the general anti-avoidance provisions in the Income Tax Assessment Act 1936 to introduce the multinational anti-avoidance rule, which is designed to counter certain SGEs using artificial arrangements to avoid the attribution of business profits to Australia.
Stronger Penalties Doubles the penalties imposed on SGEs that enter into tax avoidance or profit shifting schemes. The amendments will not apply to taxpayers that adopt a tax position that is reasonably arguable.
Country-by-country reporting The Bill implements into Australian domestic law Action 13 of the G20 and Organisation for Economic Co-operation and Development (OECD) Action Plan on Base Erosion and Profit Shifting (BEPS), which concerns SGE transfer pricing documentation and Country-by-Country (CbC) reporting.

The ATO has subsequently released various guidance material on MAAL and CbC reporting.

Significant Global Entity Include a standard set of concepts that can be used to determine whether an entity is a significant global entity (SGE) (i.e. part of a group with global income of A$1 billion or more).
Multinational anti-avoidance law Amends the general anti-avoidance provisions in the Income Tax Assessment Act 1936 to introduce the multinational anti-avoidance rule, which is designed to counter certain SGEs using artificial arrangements to avoid the attribution of business profits to Australia.
Stronger Penalties Doubles the penalties imposed on SGEs that enter into tax avoidance or profit shifting schemes. The amendments will not apply to taxpayers that adopt a tax position that is reasonably arguable.
Country-by-country reporting The Bill implements into Australian domestic law Action 13 of the G20 and Organisation for Economic Co-operation and Development (OECD) Action Plan on Base Erosion and Profit Shifting (BEPS), which concerns SGE transfer pricing documentation and Country-by-Country (CbC) reporting.
Significant Global Entity Include a standard set of concepts that can be used to determine whether an entity is a significant global entity (SGE) (i.e. part of a group with global income of A$1 billion or more).
Multinational anti-avoidance law Amends the general anti-avoidance provisions in the Income Tax Assessment Act 1936 to introduce the multinational anti-avoidance rule, which is designed to counter certain SGEs using artificial arrangements to avoid the attribution of business profits to Australia.
Stronger Penalties Doubles the penalties imposed on SGEs that enter into tax avoidance or profit shifting schemes. The amendments will not apply to taxpayers that adopt a tax position that is reasonably arguable.
Country-by-country reporting The Bill implements into Australian domestic law Action 13 of the G20 and Organisation for Economic Co-operation and Development (OECD) Action Plan on Base Erosion and Profit Shifting (BEPS), which concerns SGE transfer pricing documentation and Country-by-Country (CbC) reporting.

Reference

Tax transparency measures

Changes to the ATO public website disclosures

The end of the ATO public disclosure exemption for Australian owned private companies with total annual income of A$200 million or more, applies from the 2013-14 income year. The ATO published the first round of disclosures for the 2013-14 income year in December 2015, and the second round in March 2016.

Changes relating to general purpose financial statements

Whilst this amendment has less immediate effect (i.e. it only applies to income years commencing on or after 1 July 2016) it potentially has wide ramifications. Moreover, the amendments themselves are not entirely clear.

This amendment is directed towards the financial reporting by entities of SGE groups that are corporate tax entities (which would usually, but not exclusively, be companies). Thus, broadly speaking, if a company (even a small sized company):

  • is part of a SGE group
  • is an Australian tax resident or a foreign resident but has an Australian permanent establishment
  • does not lodge general purpose financial statements with the Australian Securities and Investment Commission (ASIC),

then the company must, on or before the tax return lodgment date give the ATO a set of general purpose financial statements (GPFSs). The ATO in turn, must give a copy of those GPFSs to ASIC.

It would appear the intention is that only one set of consolidated GPFSs need to be prepared if the above-mentioned company is a member of an Australian accounting consolidated group, thus reducing some of the compliance burden.

However, during the Senate debate a number of questions were raised about the amendments which will require clarification. These include:

  • how the A$1 billion income test is actually calculated? (NB this issue had previously been flagged to the ATO in earlier consultation)
  • potential misalignment of existing financial statement filing dates with ASIC as compared to the new filing date with the ATO
  • there are two types of GPFSs, namely Tier 1 and Tier 2 and is either type of GPFS acceptable?
  • do the GPFSs lodged with the ATO need to be audited?

Further guidance from the ATO on the scope of this amendment is expected in October 2016.

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