Australia’s new Multinational Anti-avoidance Law moves ahead of OECD consensus

I am indebted to Allens in Australia for their recent summary of the new Aussie Diverted Profits Tax which informs this blog.

“It is aimed at 30 identified multinationals with Australian sales agency arrangements that the Government claims may artificially avoid having a taxable presence in Australia – and will seek to subject them to income tax, withholding tax and penalties as if they did have such a presence.”

What is interesting about this is that, like the UK, Australia has moved to protect its own position ahead of the BEPS finalisation. This is not surprising for anyone familiar with the way the Australian Treasury and ATO operate and they clearly believe they have some specific targets they need to attack.

This is, in part, the result of the ostrich like approach of some in the business community. It was pretty obvious this would come if some of the “avoidance” issues weren’t sorted out. Denial isn’t a long term option. So instead we get unilateral action by countries which may result in double taxation (you can’t claim treaty protection from anti avoidance legislation which is what this is).

The technical provisions are :

  • “A non-resident makes a supply to an unrelated Australian resident;
  • Income the non-resident derives from the supply is not attributable to an Australian permanent establishment of the non-resident;
  • Activities are undertaken in Australia in connection with the supply, some or all of which are undertaken by an Australian resident, or through the Australian permanent establishment of another entity that is an associate of, or commercially dependent on, the non-resident;
  • It would be reasonable to conclude (having regard to certain objective factors2) that the scheme was designed to avoid the non-resident deriving income from supplies that would be attributable to an Australian permanent establishment of the non-resident;
  • It would be concluded (having regard to the same objective factors) that the person or one of the persons who entered into or carried out the scheme or any part of it did so for a ‘principal purpose’, or for more than one principal purpose that includes a purpose, of enabling a taxpayer to obtain a tax benefit or to both obtain a tax benefit and reduce one or more foreign tax liabilities or Australian tax liabilities other than income tax (or to enable the relevant taxpayer and another taxpayer or taxpayers to obtain the same).
  • The non-resident’s, or its group’s, annual global revenue in relation to the relevant income year exceeds $1 billion (in Australian dollars).
  • The non-resident is connected with a no or low tax jurisdiction, in that activities of the non-resident or a member of its global group (ie with which it is consolidated for accounting purposes) give rise to income that is subject to no or low tax in a foreign country.”“The definition of ‘supply’ in s9-10 of the A New Tax System (Goods And Services Tax) Act 1999 (Cth) is adopted for the purpose of identifying supplies to Australian residents, capturing a potentially broad range of activity.”Business really needs to think about where it wants this whole process to go? The denial approach isn’t going to lead to a good result, it may put off the evil day but it won’t control how evil it will be.

 

I have said for some time that a synthesisation between income tax and indirect tax definitions was likely, particularly where fiscs identify holes in income tax legislation. Using the differences to obtain lower tax outcomes has provoked this.

What is interesting is that this legislation uses Indirect tax definitions:

“The definition of ‘supply’ in s9-10 of the A New Tax System (Goods And Services Tax) Act 1999 (Cth) is adopted for the purpose of identifying supplies to Australian residents, capturing a potentially broad range of activity.”

I have said for some time that a synthesisation between income tax and indirect tax definitions was likely, particularly where fiscs identify holes in income tax legislation. Using the differences to obtain lower tax outcomes has provoked this.

Business really needs to think about where it wants this whole process to go? The denial approach isn’t going to lead to a good result, it may put off the evil day but it won’t control how evil it will be.

 

 

© Chris Lenon and www.green-tax.co.uk  2014-2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and www.green-tax.co.uk with appropriate and specific direction to the original content.

 

 

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