No wonder there are no new initiatives targeting multinationals, the Government seems to have run out of steam considering the dozen measures it has recently implemented.
Based on the ATO’s figures, it seems the recent measures may have started to pay off as the ATO has raised $12.9 billion in tax liabilities from large businesses, high net worth individuals and associated groups since 2016. Perhaps encouraged by these collections, the Government has extended the Tax Avoidance Taskforce life span until 2023 as well as boosted its funding by an extra $1 billion. Clearly the increased funding makes sense given the Tax Avoidance Taskforce has collected $5.6 billion in extra tax in just the two years it has been established. The question however is whether the additional increased funding would deliver the expected collection of $3.1 billion over the forward estimates period given the original funding for the taskforce back in 2016 was to the tune of $679 million over four years.
The respite from new initiatives might be seen favourably by most multinationals, however a recap of the most recent measures shows multinationals have more than enough on their plates to deal with:
- Multinational Anti-avoidance Law (MAAL)
- Diverted Profits Tax
- Country-by-country Reporting
- Stronger transfer pricing rules
- Increased penalties for Significant Global Entities (SGEs)
- the Multilateral Instrument
Uncertainty in this space remains high given the number of tax bills that are yet to be actioned such as:
- The proposed introduction of tax on foreign originated digital products and services. The ATO is not alone in this delay, the OECD itself is struggling to meet the 2020 deadline.
- Expanding the reach of the SGEs penalties to a Notional Listed Company Group, which includes groups that are headed by proprietary companies, trusts, partnerships and investment entities.
- For a change, the international tax sphere has not been a key target of Australian Government new initiatives in the Budget.
- The ATO with additional funding and the extension of the Tax Avoidance Taskforce lifespan.
- Multinationals along with big businesses and high net worth individuals as the increased funding to the ATO will mean increased scrutiny of their affairs and a possible increase in their compliance burden.
A policy cloud continues to obscure the Government’s intentions regarding the need for a separate new regime for taxing the digital economy.
A Treasury consultation process closed in November 2018 and this Budget is silent on any new measures on this front.
Some countries have implemented similar regimes and now apply a withholding tax to outbound payments made to foreign businesses, particularly for advertising services beamed back into the country of source (e.g. Google, Facebook, etc). Under current tax settings, such advertising service payments are not subject to source state taxation.
Other countries are talking about introducing something similar. Recently, the EU withdrew a detailed proposal to introduce a Digital Services Tax after it could not reach agreement amongst member states. Some states are still pushing for its introduction.
In the US, following the Wayfair decision, State legislatures are now free to tax out of State trades who have a digital presence in a State. Internet-based traders interstate now have to account for tax on remote sales made to customers resident in those states.
Perhaps Australia feels the international climate is a little too unsettled for the introduction of a digital services tax at this point. However, if there is a change of government at the next election, it is likely Labor would repatriate David Bradbury from his senior role at the OECD, and he would be a perfect champion for the introduction of such a new tax regime.
- Budget silent on any implementation of new digital tax measures.
- Digital businesses operating in Australia.
- Government unable to increase revenues without a digital tax in place.
Treasury Laws Amendment (Making Sure Multinationals Pay their Fair Share of Tax in Australia and Other Measures) Bill 2018 is currently with the House of Representatives, but is expected to lapse when the Parliament dissolves for the May election.
Included in the Bill are several somewhat obscure provisions, which will have the effect of significantly widening the applicability of many of Australia’s draconian tax laws aimed at the very largest global multinationals – the SGEs.
To currently qualify as an SGE, the global group must be headed by a corporate entity. Many large family-controlled groups are not, and therefore avoid being classified as an SGE. However that is proposed to change – large groups not headed by a corporate are going to have to self-assess whether, if they were headed by a corporate, they would be classified as an SGE. If the answer is yes, then they are to be classified as an SGE and subject to all the SGE specific legislation provisions.
Also potentially caught under this proposed change are private equity and venture capital fund groups, aggregating separate financially unrelated investment structures. The current legalisation is based on clear accounting standards, which can be applied objectively and accurately. The proposed changes reverse the onus and require groups to self-assess their status, currently with very limited guidance.
It can be expected that these measures will be reintroduced into the next Parliament, irrespective of which party wins government.
- Widening of the applicability of SGE rules to capture large groups that are not headed by a corporate entity. This will impose greater penalties on these taxpayers and increase compliance costs for some.
- The Government: increased compliance on multinationals provides the ATO with more information to assess a taxpayer’s risk to the Australian tax base.
- More multinationals will be subject increased penalties.