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Tax Laws Amendment (Countering Tax Avoidance and
Multinational Profit Shifting) Bill 2013
Introduced into the
House of Representatives on 13 February 2013
Portfolio: Treasury
Summary of
committee view
1.1
The
committee seeks clarification as to whether the penalties imposed by this bill and any other penalties
to which a person may be liable between 16 November 2012 and the
commencement of this legislation may be characterised as criminal for the
purposes of articles 14 and 15 of the International Covenant on Civil and
Political Rights (ICCPR).
Overview
1.2
This bill amends various income tax laws with the aim of
protecting the integrity and sustainability of the tax system:
- Schedule
1 introduces amendments to remedy identified deficiencies in the operation of
income tax general anti-avoidance provisions in the Income Tax Assessment
Act 1936. The amendments apply retrospectively.
- Schedule
2 introduces amendments to modernise Australia’s domestic transfer pricing
rules, including the application of the arm’s length principle in transfer
pricing rules aligning with international transfer pricing standards.
Compatibility
with human rights
1.3
This
bill is accompanied by self-contained statements of compatibility in relation
to each of the two schedules to the bill.[1]
In each case the statement of compatibility concludes that the relevant
schedule does not engage any human rights.
Possible
retrospective application of ‘criminal’ penalties (article 15, ICCPR)
1.4
Schedule 1 makes
changes to the general anti-avoidance provisions of the Part IVA of the Income
Tax Assessment Act 1936 in order to respond to a number of recent court
cases. The statement of compatibility notes:
1.132
Part IVA is the income tax law’s general anti-avoidance rule that operates to
protect the integrity of the tax law from contrived or artificial arrangements
designed to obtain a tax advantage. ...
1.135 The amendments apply from
16 November 2012; that is, from a date before the amendments become law. 16
November 2012 was the date on which a draft of the amendments was released for
public comment. Applying it from that date is necessary to ensure that
taxpayers are not able to benefit from artificial or contrived tax avoidance
schemes entered into in the period between that date and the date of Royal
Assent. Application from that date does not affect the operation of any
criminal law.
1.5
Neither the
explanatory memorandum nor the statement of compatibility explain whether the
amendments to the anti-avoidance provisions expose persons from 16 November
2012 to the possibility of liability not just for additional tax but to administrative
penalties or other penalties as well. As noted below, even though penalties may
be described as ‘administrative’ under Australian law, this is not
determinative of the question of whether they may nonetheless be ‘criminal’
penalties for the purposes of articles 14 and 15 of the ICCPR. If they are so
classified and the effect of the amendments is to impose ‘criminal’ liability
for actions between 16 November 2013 and the commencement of the bill, issues
under article 15 of the ICCPR (prohibition of retrospective criminal penalties)
may arise, as well as possibly under article 14 of the ICCPR (right to a fair
hearing).
1.6
Schedule 2 to
the bill makes amendments to the Income Tax Assessment Act 1997 and
the Taxation Administration Act 1953 which are designed to modernise the
transfer pricing rules contained in Australia’s domestic rules. Schedule 2 to
the bill makes amendments to the Taxation Administration Act 1953 by
inserting new sections in Division 284 of that Act, which deals with the
imposition of penalties. Proposed new section 284-145(2B) provides for the
imposition of administrative penalties where the Commissioner adjusts a
person’s tax assessment and, as a result, the person is liable to pay an
additional amount of income tax or withholding tax. The explanatory
memorandum summarises the changes:
6.8 The relevant actions of the
Commissioner are the amendment of an assessment in an income year in respect of
a liability to additional income tax, or the serving of one or more notices that
additional withholding tax is payable. [Schedule 2, item 3,
subparagraphs 284-145(2B)(a)(i) and (ii) in Schedule 1 to the TAA 1953]
6.9 As such, if the Commissioner determines
that a taxpayer has not correctly self-assessed their tax position under Subdivision
815-B or 815-C and amends an assessment or issues a notice in respect of
withholding tax, the taxpayer is liable to an administrative penalty.
1.7
Proposed new
section 284-60 sets out in a complex provision the amount of the penalty that
may be imposed; this ranges from 10% to 50% of the scheme shortfall amount. The
‘scheme shortfall amount’ for a scheme to which subsection 284-145(2B)
applies is defined as ‘the total amount of additional income tax and
withholding tax you are liable to pay as mentioned in that subsection.’[2] In other words, the administrative
penalty that may be imposed ranges from 10% to 50% of the additional tax, and
is payable in addition to that tax. The highest level of penalty is applicable
in cases in which the sole or dominant purpose of the arrangement in question
has been to obtain particular benefits (transfer pricing benefits).
1.8
This gives rise
to the issue of whether the imposition of such a penalty, even though described
as an ‘administrative penalty’ for the purposes of Australian taxation
legislation, is nonetheless ‘criminal’ for the purposes of the ICCPR.
1.9
The committee
has previously noted that international human rights jurisprudence has
established that in deciding whether a penalty is ‘criminal’ for the purposes
of article 14 and 15 of the ICCPR the
following factors are to be taken into account: the classification of the act
in domestic law, the nature of the offence, the purpose of the penalty, and the
nature and the severity of the penalty. Classification as ‘civil’ under
Australian law is not determinative. Where a prohibition is general in
application, where the penalty is punitive and intended to deter (rather than
award compensation for loss), and any financial penalty is significant, it may
well be classified as involving a criminal charge and penalty for the purposes
of article 14 of the ICCPR.
1.10
These principles
have been applied in the context of taxation legislation. International human rights bodies
have held that penalties imposed for failures to pay the proper tax may
constitute ‘criminal’ penalties for the purposes of fair trial guarantees and
non-retrospectivity guarantees.[3] Where a penalty or surcharge is imposed by general legal
provisions applying to taxpayers generally, and is not intended as pecuniary
compensation for damage but as a punishment to deter reoffending, this has been
enough to qualify a penalty or surcharge as ‘criminal’, even if the amount of
the penalty or surcharge is not substantial. [4]
1.11
Before
forming a view on the compatibility of the bill with human rights, the
committee intends to write to the Treasurer to seek clarification of:
- the nature of
any additional penalties to which a person may become liable during the period
from 16 November 2012 and the commencement of the legislation as a result of
the amendments proposed by Schedule 1 to the bill; and
- whether the
penalties that may be imposed as a result of the amendments proposed by
Schedules 1 and 2 be may be characterised as ‘criminal’ for the purposes of
articles 14 and 15 of the ICCPR.
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