On 4 June 2015 the Australian Treasurer published certain reports on international tax issues for comment. These cover potential areas of tax reform including the following:
- The advantages of adopting the authorized OECD approach (AOA) in relation to the attribution of profits to permanent establishments;
- Possibility of an arm’s length debt test and whether this should be incorporated into the existing thin capitalization provisions;
- Changes to the rules on debt and equity, including the introduction of new rules for entities regulated by the Australian Prudential Regulation Authority (APRA);
- New tax rules for a range of collective investment vehicles; and
- Changes to the rules dealing with loans by private companies to their shareholders.
The reforms outlined in these reports would be in addition to the tax reforms already announced in the May 2015 budget on which further detail was published after the budget. Those tax reforms include the following measures:
Multinational anti-avoidance provision
After the budget proposals were announced in May 2015 an Exposure Draft was published in respect of multinational anti-avoidance provisions proposed to be implemented with effect from 1 January 2016. The Exposure Draft on Tax Integrity: Multinational Anti Avoidance Law released on 12 May 2015 will affect large multinational enterprises setting up structures that result in a foreign resident from a low or nil tax jurisdiction avoiding permanent establishment status in Australia. This would also involve increased penalties relating to the anti-avoidance provision and for transfer pricing adjustments for large companies where a reasonably arguable position has not been established.
The anti avoidance provision aims to combat the problem of profits from sales in Australia passing to foreign low tax jurisdictions without being subject to Australian taxation. The test applied will be based on whether the arrangements are commercially driven or if they were made principally with tax considerations in mind.
GST and Digital Products
An Exposure Draft issued after the May 2015 budget on Tax Integrity: GST and Digital Products proposes a 10% GST on intangibles and services supplied to end users in Australia.
Country by Country Reporting
Legislation is proposed to implement a country by country reporting requirement along the lines of the proposals put forward as part of the OECD/ G20 action plan on base erosion and profit shifting (BEPS). A process is also to be established for considering the issue of hybrid mismatches, which is also one of the action points in the BEPS action plan.
Tax transparency
A consultation process is to be established for achieving greater transparency for the tax position of large companies. The government would also look at the possibility of including rules on tax treaty abuse into the provisions of tax treaties.
