13 May, 2015
The Australian government will introduce a package of anti-avoidance measures targeting the tax arrangements of "30 identified multinational companies" but will not replicate the UK's diverted profits tax.
Joe Hockey, the Australian treasurer, said that after consultation with the UK, it was "clear" that Australia did not need to "replicate" the controversial UK measures in its latest budget, announcing that the country would instead "strengthen our own anti-avoidance laws to ensure the Taxation Office has the powers to see through" artificial tax arrangements. The changes would be backed with new penalties that would "go further than the UK", he said.
Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com,warned previously that the introduction of the DPT by the UK last month risked retaliation and "destroying the fragile balance of international consensus" driving measures to tackle base erosion and profit shifting (BEPS) by multinational companies.
"Full details of the Australian proposals have not yet emerged, but from the treasurer's announcement it appears as though they will simply look at the substance of companies' commercial arrangements and tax payments where economic activity takes place in Australia," she said. "This could be simpler to legislate for than DPT, but will almost certainly be harder to enforce."
The penalties proposed by Hockey, which would allow for the recovery of unpaid taxes plus an additional fine of 100% of the amount plus interest, were "significant", she said.
The announcement by the Australian government is in response to perceptions that some multinational companies have been "diverting profits earned in Australia away from Australia to no or low tax jurisdictions", according to Hockey. The Australian Taxation Office has since spent "months … embedded in these businesses" to gain a better understanding of their use of "contrived or artificial tax arrangements" to reduce their corporate tax bills.
The UK's DPT was introduced on 1 April 2015 and is aimed at large international businesses that artificially shift their profits offshore. DPT is charged at 25% where a foreign company "exploits the permanent establishment rules", or where a UK company or a foreign company with a UK taxable presence creates a tax advantage by using transactions or entities that "lack economic substance".
The international Organisation for Economic Cooperation and Development (OECD) is currently working on a single set of international tax rules to prevent multinational companies from artificially shifting profits to low-tax jurisdictions. Among the proposals is one which would change the definition of 'permanent establishment' embedded within various international tax treaties to ensure that companies are taxed in the jurisdiction where their economic activity takes place. The OECD is due to complete its BEPS project by the end of this year.
The Australian government intends to introduce its new anti-avoidance rules on 1 January 2016, subject to parliamentary approval. It is also seeking to introduce a 'point of consumption' taxation regime on digital products such as movie downloads, games and e-books, that would ensure offshore suppliers of these products become subject to the same goods and services tax (GST) liability as Australian suppliers. These changes would mirror those introduced to the EU's value added tax (VAT) regime for digital goods and services at the start of this year.
For further information, please contact:
Heather Self, Partner, Pinsent Masons
heather.self@pinsentmasons.com
