Australia: Government’s initial response to BEPS final reports

Australia: Initial response to BEPS final reports

Australia’s Treasurer this week outlined Australia’s response to the release of the Organisation for Economic Cooperation Development (OECD) base erosion and profit shifting (BEPS) final recommendations. In general, the response and actions taken by Australia indicate that the Australian government believes that BEPS represents an important project regarding the protection of the Australia revenue base.

Related content

The Treasurer’s response highlights the significant work done to date in Australia in identifying areas where Australia’s revenue base is exposed. Action has been taken on a number of areas including:

  • Tax challenges of the digital economy—goods and services tax (GST) on digital products and services
  • Interest deductions—changing the thin capitalisation safe harbour
  • Artificial avoidance of permanent establishments—a bill (the Multinational Anti-Avoidance Law) directed at artificial avoidance of permanent establishments is before Parliament
  • Country-by-country reporting—pending legislation is before Parliament

The government has also requested a report from the Board of Taxation on hybrid mismatch arrangements and instruments, to be delivered in March 2016 (so it could be expected that measures on this BEPS action point would be announced by mid-2016).

Potential changes to tax treaties, guidelines

The Treasurer’s press release indicates that apart from the above, significant changes to Australian domestic tax legislation would not be required, but that changes to Australia’s income tax treaties and accompanying guidelines (for example, transfer pricing) would happen.

The impact of changes to Australia’s network of income tax treaties and guidelines remains to be seen, with much depending on the actual changes and how they would be incorporated in the treaties. Some of the changes could significantly affect operations of multinational entities with business operations in Australia, in particular:

  • Action 5—broadening the PE definition could create many more situations when a taxable presence could arise, irrespective of whether a principal purpose of avoidance of permanent establishment (PE) exists.
  • Action 6—concerning rules against treaty shopping, the inclusion of a limitation of benefits (LOB) provision and/or principal purpose of avoidance tests could affect many current investment structures.
  • Action 8-10—concerning transfer pricing, the discussion of returns to “cash box entities” may significantly affect the amount of related-party fees, interest, etc., that can be charged to Australian subsidiaries.

 

Read an October 2015 report prepared by the KPMG member firm in Australia: Australia's position on the BEPS package

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor 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 on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.