Views on specific schedules
The chapter considers the views raised by stakeholders on each of the
schedules of the bill. The majority of concerns were raised in relation to the
multinational anti-avoidance law and Country-by-Country reporting.
Schedule 1: Significant global entities
A number of issues were raised by stakeholders in relation to the
definition of a significant global entity.
Threshold for determining a
significant global entity
Some stakeholders submitted that the proposed threshold of $1 billion
was too high and could be set at a lower level.
For example, the Tax Justice Network Australia proposed that the threshold
should be lowered to $250 million, consistent with the ATO definition of a
In addition, Greenpeace Australia Pacific questioned whether limiting
the definition of a significant global entity to $1 billion may limit the
ability of the ATO to investigate multinational companies with revenues below
Guidance provided by the G20/OECD indicates that there should be
exemptions from general filing requirements for multinational groups with
annual consolidated revenue of less than €750 million
or a near equivalent in domestic currency (which has been set at $1 billion
for Australia). The G20/OECD considers that this revenue threshold will exclude
approximately 85 to 90 per cent of multinational groups from filing
requirements but will nevertheless capture those multinational groups
controlling approximately 90 per cent of corporate revenues. According to the
The prescribed exemption threshold therefore represents an
appropriate balance of reporting burden and benefit to tax administrators.
Exchange rate fluctuations
The Tax Institute noted that consolidated income for accounting purposes
includes 100 per cent of the financial attributes (including income) of any majority‑owned
subsidiary. As a result, the consolidated income of a group may be inflated by
the inclusion of income that is attributable to non-group owners of minority
stakes. While this is consistent with accounting practice, the Tax Institute is
concerned that this treatment will capture more groups than would be the case
if only economic interests were used as the basis for determining group income.
It is unclear how many additional multinational groups would be captured
by either differences in thresholds arising from exchange rates or the
inclusion of only economic interests in determining group income.
Total annual income
KPMG was concerned that defining a significant global entity by
reference to total annual income in section 960–565 of the ITAA 1997 would
introduce uncertainty as this latter term does not appear in the Australian
Financial Reporting Standards and, as such, has no defined meaning itself. 
However, section 960–570 of the ITAA 1997 refers to accounting principles and
auditing principles in the preparation of 'global financial statements' from
which annual global income (and, thus total annual income) is determined.
KPMG recommended that a replacement term for 'total annual income'
should be adopted, such as 'consolidated revenue', which can be referenced to
financial and accounting standards. Further, it was noted that additional
guidance is needed for multinationals headquartered in other jurisdictions
which prepare consolidated accounts using foreign accounting standards.
To reduce the compliance burden on affected businesses, GSK submitted
that it would be important for the ATO to publish relevant average exchange
rates regularly to enable taxpayers to comply with the proposed law.
The committee is satisfied that the annual income threshold of $1 billion
is an appropriate near equivalent amount in domestic currency for the purposes
of defining a significant global entity. The government considers that this is an
appropriate threshold as the former Treasurer, in his second reading speech,
With over 1000 multinational entities operating in Australia
with revenues greater than $1 billion globally, this means these rules
will have a far‑reaching effect and ensure that multinationals do not
inappropriately slip through our tax net.
The committee also notes that while the total population may be
1000 companies, for many companies the legislation will have no effect.
Subject to implementation in other jurisdictions, the consolidated
income for accounting purposes should continue to include 100 per cent
financial attribution as is consistent with accounting practice.
The committee considers the ATO could provide further guidance in
relation to how companies should calculate global annual income, including
publishing relevant average exchange rates.
Schedule 2: Multinational anti-avoidance law
The multinational anti-avoidance law (MAAL) provision of the bill
attracted the most comments from stakeholders. Many of the concerns raised in
submissions reflected changes as a result of the exposure draft consultation
Scope of the multinational
Stakeholders raised a number issues in relation to the scope of the
MAAL, particularly in relation to how it would interact with existing tax
avoidance measures and the effect of not having a 'low or no tax jurisdiction
The Australian Financial Markets Association submitted that the
legislation needs to be clearer:
...where the foreign supplier has permanent establishment in
Australia through which activities in relation to the supply are undertaken,
then the proposed measures in the Bill do not apply and any determination as to
the appropriateness of the income taxed in Australia is determined through
existing transfer pricing rules.
In response, the Commissioner of Taxation explained that:
Part IVA [the anti-avoidance provision] is often referred to
as a provision of last resort. You would seek to apply other provisions first
before you would ever go to Part IVA. The MAAL, multinational anti-avoidance
legislation, 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
The Corporate Tax Association was concerned
that Australian headquartered multinationals may be inadvertently captured by
the MAAL and proposed that a 'carve out' for these groups could be introduced
to ensure that the MAAL does not apply.
However, it is unlikely that Australian headquartered multinationals would be
captured by the MAAL unless they were engaging in egregious tax avoidance and
would most likely be captured by other tax avoidance provisions, such as
controlled foreign company rules and/or transfer pricing provisions, before the
application of the MAAL would be contemplated.
Stakeholders were also critical that the 'low or no tax jurisdiction'
condition was removed from the exposure draft of the bill. EY advised that this
condition was originally inserted to address the issue of 'stateless income'
and meet the intended aim of the MAAL to address the avoidance of permanent
establishment. By removing the condition, however, they contended that there is
the potential to introduce significant uncertainty or override double tax
agreements in situations where there is little or no risk of 'stateless
income'. EY also noted that submissions to the exposure draft did not advocate
for its removal but recommended clarification in a definitional sense.
The Australian Financial Markets Association contended that:
...the removal of the need for the existence of an entity,
without substantial activity, located in a 'low or no tax jurisdiction,' as was
required in the Exposure Draft, potentially expands the ambit of the proposed
In relation to the removal of the 'low or no tax jurisdiction
condition', the Treasury indicated that:
Through the consultation process, it became apparent that the
expression 'no or low tax' caused a lot of concern—that is, people were saying,
'What if it's just a straightforward business being done in Singapore and
Singapore has a tax rate of 18 per cent, would that be low tax?' Certainly
compared to 30 per cent it is low but it did not really get at the issue of
putting it into basically a zero-tax country. So that was dropped.
Some stakeholders have noted that the removal of the condition broadened
the number of companies affected from 30 to closer to 100.
While these companies may incur compliance costs of reviewing their
arrangements to make sure they comply with the law, the Treasury considers that
this change strengthens the proposed measure.
Principal purpose test
A number of stakeholders expressed concerns about the introduction of a
'principal purpose' test for the MAAL which will operate alongside the existing
'sole or dominant purpose' threshold for Australia's general anti-avoidance
KPMG put forward two arguments against introducing a 'principal purpose'
test. First, introducing a new threshold will increase complexity and
uncertainty, and interpretations of the new concept may take many years to
conclusively determine. Second, the introduction of a new test is unnecessary
to achieve the MAAL's stated aim, particularly so when foreign tax benefits
will be considered.
On the first point, the Australian Financial Markets Association noted
that the 'precise meaning of the term lacks clarity, and particularly judicial
KPMG also put forward two arguments for adopting the new threshold.
First, this threshold is currently used in some treaties and is a recommended
test for Action 6 of the BEPS Action Plan (Treaty Abuse). Second, it is
understood that the ATO believes that this lower threshold will make it easier
for them to apply the MAAL.
The CPSU indicated that its members were supportive of the introduction
of a principal purpose test but cautioned that proving it may be problematic where
the necessary information is kept offshore.
In terms of the bill as drafted, EY submitted that section 177DA(1)(b)
should have the word 'principal' inserted such that the provision reads '...or
for more than one principal purpose that includes a principal purpose
of...' (insertion in bold). This insertion would provide clarity and
unambiguously achieve the result alluded to in paragraphs 3.57 and 3.61 of the
Explanatory Memorandum which indicates an intention to apply the MAAL when
there is a principal purpose of enabling a taxpayer to obtain a tax benefit or
to obtain a tax benefit and to reduce a foreign tax liability.
Interactions with double tax
A number of stakeholders were particularly concerned about how the MAAL
would interact with double tax agreements and treaties. For example, EY
contended that the MAAL will undermine confidence in the integrity of the
Australia's double tax agreements and create uncertainty for foreign investment
The Law Council of Australia submitted that:
...broadening of the scope of the MAAL in the CMTA [Combating
Multinational Tax Avoidance] Bill and the early start for the MAAL of
1 January 2016 means that the potential for double taxation becomes even
more of an issue that needs to be resolved before the measure is introduced.
The Tax Institute also raised the potential for double taxation where
the ultimate recipient of the profits generated from sales to Australian sales
is resident in another jurisdiction.
Despite these concerns, no submissions to the inquiry provided any
tangible examples of multinationals that would be subject to double taxation as
a result of the introduction of the MAAL.
Shell Australia was concerned that the bill did not resolve how the
deemed profit of permanent establishment would be calculated where the MAAL
applies. They submitted that urgent guidance was required to provide sufficient
certainty for affected multinationals with imminent reporting obligations in
relation to the tax risks generated by the legislation.
Stakeholders also identified a number of terms and phrases in Schedule 2
that they considered required further clarification. EY contended that:
...it is vitally important that the provisions, from the start,
are drafted with as much clarity as possible and that key terms and phrases are
The terms that stakeholders identified as ambiguous were:
'directly in connection';
'reasonable commercial grounds';
'activities undertaken in Australia'.
While the committee appreciates the concerns of stakeholders, it is
satisfied that the provisions of the MAAL will operate in harmony with existing
tax avoidance measures and will not place undue compliance burdens on the
significant global entities affected. It is also satisfied that concerns about
the operation of the MAAL with tax agreements and treaties will be resolved
with the development of a multilateral instrument on tax treaty measures to
tackle BEPS (Action 15).
The committee agrees with the former Treasurer that:
By removing the 'no-tax or low-tax' condition and relying
solely on a 'principal purpose' test, we are sending a clear message that, if
you deliberately and artificially avoid paying tax in Australia, this is not
In addition to providing greater guidance about the operation and
implementation of the MAAL, the committee believes that the government should
give consideration to more clearly defining key terms in the schedule.
Schedule 3: Scheme penalties for significant global entities
Some stakeholders were supportive of increased penalties for tax
avoidance. For example, GSK Australia indicated that, in principle, it:
...welcomes and supports the implementation of a stricter
penalty regime for those taxpayers found to have contravened Australia's
anti-avoidance provisions. However, increasing penalties makes it even more
important that these rules are clear in their scope and application...
However, the Law Council of Australia was concerned that increased
penalties will have a wider application than just the MAAL. The Council noted
that increased penalties will apply in relation to any successful application
of an adjustment provision that results in the imposition of administrative
penalties under Subdivision 284-C of Schedule 1 of the Tax Administration
Act 1953 on a significant global entity that does not have a reasonably
arguable position. The Council submitted that the 100 per cent penalty in
Schedule 3 of this bill should be limited to circumstances in which the MAAL
applies and where the entity does not have a reasonably arguable position.
Multinational tax avoidance, particularly by large multinationals, is a
very serious issue that has the potential to undermine the integrity of the tax
system. As such, the committee considers that this measure to increase the
penalties is appropriate for any significant global entity that does not have a
reasonably arguable position.
Schedule 4: Country-by-Country reporting
Chartered Accountants Australia and New Zealand supported the proposed
approach to allow administrative flexibility in the implementation of CbC
reporting obligations, including the ability to adapt to changes as the new CbC
reporting framework across jurisdictions evolves.
That said, a number of submitters indicated that strong, clear and
practical guidance from the ATO is urgently required before the CbC reporting
regime commences on 1 January 2016.
Some stakeholders were concerned that the Australian timeline for
CbC reporting implementation may be in advance of implementation in other
countries. This has the potential to create an additional administrative burden
for Australian entities.
Deloitte raised concerns about the transitional arrangements for the
implementation of CbC reporting in circumstances where the information is not
yet required to be gathered and collated by the parent entity. In its opinion,
such circumstances may impose onerous obligations for an Australian subsidiary
to comply with filing requirements.
Stakeholders argued for a variety of exemptions to CbC reporting
The Tax Institute highlighted that fluctuations in exchange rates may
trigger reporting requirements in Australia for some companies with annual
revenue levels near the threshold that are not required to report in their home
jurisdiction. In such circumstances, the Australian subsidiary may not have
sufficient information to meet the reporting obligations (particularly in
relation to a 'master file'). The Tax Institute called for further clarity
around exemptions, either specifically in the bill or through guidance provided
by the Commissioner at the time of enactment.
Some stakeholders argued for an exemption to CbC reporting requirements
for large domestic groups with small cross-border activities and large
multinationals with very small Australian operations through a de minimis
rule. KPMG recommended consideration of a threshold set at 0.2 per cent of
total annual income for both an inbound and an outbound de minimis rule.
The Tax Institute submitted that:
Whilst there is scope for the Commissioner to
administratively not seek information, a de minimis exemption would
minimise compliance costs for both the ATO and the relevant taxpayers, and
increase certainty in the law...
Other stakeholders proposed that existing transfer pricing rules be
better aligned with CbC reporting requirements to reduce the compliance burden.
GSK Australia proposed exempting companies that have a valid Advanced
Pricing Agreement (APA) from, at the very least, the provision of a local file.
The Corporate Tax Association proposed that current transfer pricing
requirements should be considered local files for the purposes of the
statements required for CbC reporting.
Country-by-Country reports should
be publicly released
A number of stakeholders sought to make the information contained in
CbC reports publicly available as this would increase transparency and
facilitate greater scrutiny of tax affairs.
The Tax Justice Network Australia strongly argued for the public release
of CbC reports as:
Making the country-by-country reports public would ensure
that more sets of eyes, across different stakeholder groups, could help digest
the mass of data filed by companies and flag any indicators of risk to
appropriate tax authorities...
It is also important that the data from country-by-country
reports should be made available for analysis and research purposes...Tax returns
of individuals and legal entities are already made available for research
purposes by tax authorities in a number of countries subject to protections.
Other stakeholders did not share the view that CbC reports should be made
public. For example, Chartered Accountants Australia and New Zealand submitted
...a measured and considered approach to any public disclosures
relating to CbC reporting is warranted. Although we appreciate and accept the
need for increased transparency, it is crucial that multinational groups can be
confident that sensitive business information will not be disclosed publicly.
The committee is comfortable that the proposed CbC reporting
requirements are consistent with those outlined in the G20/OECD BEPS Action
Plan. Indeed, the committee considers that these provisions underscore the
important lead role that Australia can play in implementing the G20/OECD work.
That said, the committee recognises the issues raised by stakeholders
and believes that the ATO should work with affected businesses to provide
clarity and guidance through the implementation period and as CbC reporting is
adopted by other countries. Such guidance should address concerns around
transitional arrangements and exemptions. While some multinationals may be
required to file in Australia that are not required to file overseas due to
fluctuations in exchange rates, the committee notes that the Commissioner can
provide an exemption from reporting requirements and expects that guidance will
be provided as part of the implementation process.
Consistent with the principle that tax affairs should remain
confidential, the committee does not believe that CbC reports should be made
The committee recommends that the Senate should pass the bill.
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