Global Tax Adviser, May 10, 2016. Australia's 2016 budget, which was announced on May 3, 2016, proposes to introduce a new diverted profits tax and other tax integrity measures. It also introduces plans to reduce the country's corporate tax rate to 25% over the course of 11 years, impose new disclosure and transparency measures, and adopt the OECD's transfer pricing guidelines.
For CFOs and tax directors wanting to address the budget's tax changes that are relevant to them, KPMG Australia has put together a helpful checklist of possible considerations (page 21 of Federal Budget 2016: A Review of the Budget's Major Business Implications).
Australia's budget introduces significant anti-avoidance measures, including:
Australia will introduce a new diverted profits tax for certain large entities that will affect taxation years beginning on or after July 1, 2017, and is modeled off of a similar tax in the UK. The measure will impose a penalty tax rate of 40% on the diverted profits, and any underpayment of tax will be payable upfront. Interest charges will apply to the underpayment.
This diverted profits tax is aimed at arrangements involving transactions with overseas related parties which are subject to a tax rate which is less than 80% of the tax rate applied in Australia, where the arrangement lacks economic substance. The diverted profits tax will only apply to Australian resident entities or to the Australian permanent establishments of foreign entities (if the multinational group has an annual income of $1 billion or more). However, the tax will not apply if the Australian resident entity has revenue of less than $25 million, subject to some exceptions.
This measure is aimed at multinational corporations that exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions. This measure targets instances where tax is either deferred or not paid at all. It will apply broadly to related parties, members of a control group and structured arrangements. This measure will apply from the later of January 1, 2018 or six months after the date of the enabling legislation's Royal Assent.
According to the budget, Australia will gradually reduce its corporate tax rate, for all companies, to 25% over the course of 11 years, beginning July 1, 2016. Previously, the Australian corporate tax rate for small businesses was 28.5% and 30% for other entities. The phase-in schedule is based on corporate revenue thresholds. Some large corporations may not get a corporate tax reduction until 2023.
Australia will begin consultations regarding Mandatory Disclosure Rules, primarily for tax advisors. The rules would apply to tax arrangements considered to be "aggressive" based on pre-determined parameters.
The country will also implement a voluntary Tax Transparency Code, intended for companies with revenue in excess of $100 million. The code will require tax payable to be reconciled with accounting profit, among other things.
The budget states that Australia will introduce regulations to adopt the new OECD Guidelines for transfer pricing, starting July 1, 2016.
For details, see KPMG Australia's "Federal Budget 2016 - Rolling coverage", "Australia: Tax provisions in federal budget 2016" or the 2015 Budget Brief.
For more information, contact your KPMG adviser.
Information is current to May 10, 2016. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500