On 13 July 2022, the Australian Taxation Office (ATO) issued updated guidance on the application of Diverted profits tax. The diverted profits tax (DPT) achieves the following outcomes:

  • Aims to ensure that the tax paid by significant global entities (SGEs) properly reflects the economic substance of their activities in Australia.
  • Aims to prevent the diversion of profits offshore through arrangements involving related parties.
  • Encourages SGEs to provide sufficient information to the ATO to allow for the timely resolution of tax disputes.

Entities to which the DPT can apply

The DPT only applies to SGEs. An entity is an SGE for an income year if it is either:

  • a global parent entity with an annual global income of A$1 billion or more.
  • a member of a group of entities (consolidated for accounting purposes) where the global parent entity has an annual global income of A$1 billion or more.

For the purposes of the DPT, this definition includes both:

  • Australian-headquartered entities with foreign operations.
  • the local operations of foreign headquartered multinationals.

If global financial statements have not been prepared for the global parent entity, the Commissioner of Taxation may make a determination. This determines that based on the information available, it is reasonably believed that the annual global income of the entity would be A$1 billion or more for the period, and therefore the entity is an SGE.