Evolution of the multinational tax framework
Over the course of this inquiry, Australia's tax framework has been progressively
amended to address concerns about the level of tax being paid by multinational
corporations. This chapter explores both Australia's involvement in, and implementation
of, the G20 and OECD initiatives to address multinational tax avoidance
globally and the unilateral measures designed to strengthen the integrity of
Australia's tax system.
International initiatives to address base erosion and profit shifting
Over the last 5 years, there have been a number of significant
international initiatives that have developed proposals and recommendations designed
to support a collaborative approach to reduce multinational tax avoidance. The
most notable of these is the OECD Base Erosion and Profit Shifting (BEPS) project.
The BEPS project represents an unparalleled effort by OECD and G20
countries to restore confidence in the international tax system. More than 60
countries worked together to deliver a comprehensive package of action items in
just two years which represents the first substantial renovation of the
international tax standards in almost a century.
The project sought to reduce opportunities for base erosion and profit
shifting by multinational enterprises and ensure that profits are taxed where
economic activities take place and value is created. This work was driven by a
number of goals:
- to restore the trust of ordinary people in the fairness of their
- to level the playing field among businesses; and
- to provide governments with more efficient tools to ensure the
effectiveness of their sovereign tax policies.
On 5 October 2015, the final BEPS reports were released with a
commitment by countries involved to the consistent implementation of agreed
measures. In some areas, minimum standards were agreed to tackle specific
issues where a failure to act by some countries would have created negative
spill overs (including adverse impacts on competitiveness) on other countries. A summary of the BEPS Action Plan items and the Australian Government's
response is listed at Appendix 1.
Following the release of the final report, the Treasurer commented that:
The intricate and sensitive nature of international taxation
demands precise and targeted responses to policy challenges, responses that are
developed with our international partners to maximise their effectiveness.
The OECD emphasised the importance of countries working together to
consistently implement and apply the BEPS recommendations:
...BEPS by its nature requires coordinated responses,
particularly in the area of domestic law measures; it is therefore expected
that they [countries] will implement their commitments, and that they will seek
consistency and convergence when deciding upon the implementation of these
An important ongoing aspect of the BEPS project is a focus on monitoring
the implementation and effectiveness of the measures adopted by individual
countries as well as the impact on both compliance by taxpayers and proper
implementation by tax administrators. Monitoring will consist of reports on
what countries have done to implement the BEPS recommendations and also involve
some form of peer review. The proposed monitoring process will also have
broader benefits through reducing misunderstandings and disputes between
governments, and provide better data and analysis to support an ongoing
evaluation of the quantitative impact of BEPS, as well as the impact of the
countermeasures developed by the project.
Progress on the implementation of the BEPS recommendations has been
ongoing with the OECD Secretary-General Report to G20 Leaders noting
2017 is the year of implementation: implementation of the
Common Reporting Standard with the first automatic exchanges of financial
information to take place in September 2017; and, implementation of the measures
to address base erosion and profit shifting (BEPS), with the OECD/G20 Inclusive
Framework on BEPS implementation now fully operational.
Looking ahead, support on implementation across all areas of
the G20’s tax agenda will continue. In the Inclusive Framework, technical
discussions amongst its members continue, in particular on a number of
important issues relating to transfer pricing, and with a growing sense of
urgency among many governments for the development of policy options to be
advanced in relation to taxation of the digital economy, we will publish an
interim report in the first half of 2018.
Reforms to the Australian corporate tax system to address avoidance
Since the referral of this inquiry in October 2014, the Australian
Government has announced a number of significant measures to address
multinational tax avoidance in four successive budgets from 2015–16 through to
2018–19. Such a continued emphasis reflects the importance to the government to
address, and be seen to address, this issue which has become increasingly
important to the wider community.
While there is debate as to whether some measures represent unilateral
action outside the BEPS project, the Australian Government considers that all
of its actions to address multinational tax avoidance are consistent with the
It is worth noting that many of these tax measures apply only to
significant global entities, defined as either a 'global parent entity' or a
member of a group of entities (consolidated for tax purposes as a single group)
with an annual global income of AUD$1 billion or more.
Multinational Anti-Avoidance Law
The Multinational Anti-Avoidance Law (MAAL) is a unilateral measure that
applied from 1 January 2016 to significant global entities. It is designed to
counter complex, contrived and artificial schemes intended to avoid paying
Australian tax. Instead of prescribing specific actions, the MAAL makes it
possible for the ATO to collect tax where a foreign entity has set up a scheme
to obtain a tax benefit—that is, to avoid paying tax on profit is has made in
The MAAL targets multinational entities that avoid a taxable presence by
booking their revenue offshore despite undertaking significant work in
Australia with direct connection to Australian sales. Penalties associated with tax avoidance schemes were also increased as part of
the MAAL enabling legislation (see below).
The MAAL is intended to encourage multinationals to restructure their
operations by creating permanent tax establishments in Australia and
subsequently be part of the mainstream tax system. As the Commissioner of
Part IVA [the anti-avoidance provision] is often referred to
as the provision of last resort. You would seek to apply other provisions first
before you would ever go to Part IVA. The MAAL...is an amendment to Part IVA. So
generally we would not necessarily have that as the first provision that we
would bring out.
It is a safety net provision.
The 2017–18 Budget proposed further strengthening of the MAAL
legislation to negate attempts to use foreign trusts and partnerships in
corporate structures to circumvent the MAAL. The amendments, which came into
effect from 1 January 2016, when the MAAL came into effect, apply to:
- corporate structures that involve the interposition of
partnerships that have any foreign resident partners;
- trusts that have any foreign resident trustees; and
- foreign trusts that temporarily have their central management and
control in Australia.
Diverted Profits Tax
The Diverted Profits Tax (DPT) applies from 1 July 2017 to significant
global entities and is aimed at those which have arrangements with offshore
related parties that lack economic substance in order to divert Australian
profits to lower tax countries and avoid paying Australian tax. The DPT would
apply to any scheme that is assessed to provide a tax benefit to the
multinational. Under a DPT assessment, tax would be payable on the amount of
diverted profits at a penalty rate of 40 per cent. Similarly to the MAAL, the DPT is a provision of last resort under Part IVA of
the Income Tax Assessment Act 1936.
The Government considers that the DPT is consistent with the global
approach to tax avoidance as it supports the OECD BEPS transfer pricing reforms
by encouraging greater cooperation, and provides an additional power for the
Commissioner of Taxation to address arrangements that divert profits offshore
and lack economic substance. The DPT is also not in conflict with tax treaties
as it is not subject to Australia's bilateral treaties because it is an
GST on digital goods and services
Goods and Services Tax (GST) was announced to apply to cross border
supplies of goods and services imported by consumers from 1 July 2017. This
measure is intended to restore the integrity of the consumption tax regime so
that GST applies to non-exempt products and services, including digital
supplies purchased from overseas and from Australia. A registration threshold
of A$75 000 per annum, equivalent to the threshold for domestic
businesses, has been set for those overseas businesses that supply imported
services or digital goods.
The measure reflects Australia's early adoption of guidelines for
business-to-consumer supplies of digital products being developed by the OECD
as part of the BEPS project (see BEPS Action 1 in Appendix 1).
The introduction of GST on low value imported goods (valued at less than
$1000) by consumers will come into effect from 1 July 2018.
In addition, the 2018–19 Budget announced the government's intention to
ensure that offshore sellers of hotel accommodation in Australia calculate GST
turnover in the same way as local sellers from 1 July 2019.
Amendments to the transfer pricing
Australian transfer pricing guidelines were updated in 2017 to reflect
changes to the OECD Transfer Pricing Guidelines for Multinational Enterprises
and Tax Administrators that were approved by the OECD Council on 23 May 2016.
The amendments also introduced Country-by-Country (CbC) reporting, which
requires significant global entities to provide certain information to tax
authorities to assess transfer pricing risks, and, when necessary, assist in
commencing and targeting audit enquiries. CbC reporting obligations require entities to provide each of the following
- a master file providing an overview of the multinational
enterprise group business, including the nature of its global business
operations, its overall transfer pricing policies, and its allocation of income
and economic activity;
- a local file focusing on specific transactions between the
reporting entity and its associated enterprises in other countries, as well as
the amounts involved in those transactions, and the entity's analysis of
transfer pricing determinations it has made; and
- a CbC report containing certain information relating to the
global allocation of the multinational enterprise's income and taxes paid
together with certain indicators of the location of economic activity within
the multinational enterprise group.
CbC reporting statements are required to be filed within 12 months after
the end of the period to which they relate. As CbC reporting requirements were introduced for income years starting on or
after 1 January 2016, the first CbC reporting statements were lodged late in
2017. As of 14 March 2018, the ATO had received 42 CbC reports.
In addition to the measures outlined above, the Australian Government
has introduced stronger penalties to ensure more economic activity is accounted
for in Australia, and to encourage multinationals (and all corporate taxpayers
in general) to provide relevant information to tax administrators in a timely
fashion. Maximum penalties were doubled for significant global entities that
enter into tax avoidance or profit shifting schemes and do not have a
reasonably arguable position.
Increased administrative penalties are intended to encourage significant
global entities to comply with their taxation obligations, including lodging
tax documents on time and taking reasonable care when making statements. The
increased penalties apply to all lodgements required in the approved form,
which includes income tax returns, activity statements, CbC reports and general
purpose financial statements. Where a significant global entity fails to lodge
on time, the base penalty amount is multiplied by 500, which is 100 times
larger than for a 'large entity'.  This means that the maximum administrative penalty could be up to $525 000
for failing to lodge tax documents on time.
Relaxed transparency measures for
In October 2015, the Australian Parliament changed income tax
transparency laws to remove the reporting requirements for Australian-owned
private companies with total annual income of more than $100 million.
Reporting requirements were retained for public companies and foreign owned
companies with total annual income of more than $100 million. Subsequently, in November 2015, the income tax transparency laws were amended
again to impose reporting requirements for Australian-owned private companies
with total annual income of more than $200 million.
Voluntary Tax Transparency Code
The Voluntary Tax Transparency Code (TTC) is a set of principles and
minimum standards to guide medium and large businesses on public disclosure of
tax information. The TTC was developed by the Board of Taxation and endorsed by
the Australian Government in the 2016–17 Budget. It is designed to encourage
greater transparency within the corporate sector, particularly by multinationals,
and to enhance the community's understanding of the corporate sector's
compliance with Australia's tax laws.
TTC reporting requirements differ depending on the size of the business.
For medium sized businesses with Australian turnover of between $100 and $500
million, the TTC report should contain a reconciliation of accounting profit to
tax expense and to income tax paid or payable; identification of material
temporary and non-temporary differences; and accounting effective company tax
rates for Australian and global operations (pursuant to Australian Accounting
Standards Board guidelines). In addition to content required for medium
businesses, TTC reports for large businesses with Australian turnover of
greater than $500 million should contain an approach to tax strategy and
governance; a tax contribution summary of corporate taxes paid; and,
information about international third party related dealings.
Businesses may elect to satisfy the minimum standards of the TTC by
publishing improved disclosures of tax information in their general purpose
financial statements, a Taxes Paid Report or another document. There is no
prescribed template or format for TTC content.
As of 9 May 2018, 56 TTC reports were available for 2015–16, 52 reports
were available for 2016–17, and 26 reports were available for 2017–18. The ATO reports that, in total, 101 corporates have published at least one
report and a further 25 have signalled an intention to adopt the code by
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