The Australian Treasurer issued a press release following the G20 meeting on 16 and 17 April indicating potential collaboration with the UK to combat profit shifting. The UK government introduced a Diverted Profits Tax with effect from 1 April 2015.

Australia’s government will announce its budget proposals on 12 May and may be about to announce the introduction of its own Diverted Profits Tax. This would contain provisions similar to the part of the UK Diverted Profits Tax that deals with the artificial avoidance of a permanent establishment.

A joint working group of senior officials is to be established to consider and develop initiatives to deal with attempts by multinational enterprises to divert profits. This group will build on the experience of the UK with the implementation of its Diverted Profits Tax.

The press release points out that the UK and Australia have introduced competitive business tax regimes to encourage enterprise and investment but the intention is that the tax due should be paid and should not be avoided through artificial structures that divert profits.

The initiatives proposed by the joint working group would be consistent with the OECD action plan on base erosion and profit shifting and the international standards on the automatic exchange of tax information.

The future of the collaboration between the two governments is dependent on the result of the UK general election coming up on 7 May 2015 and the joint working group would be established after that date.