On 6 August 2015 several further steps were taken in Australia in the move to generate additional tax from multinational corporations.
1. CbC reporting
Exposure draft legislation was released by treasury which will require affected entities to prepare and lodge CbC reports. The proposed amendments will implement the OECD BEPS Action 13 Report (regarding CbC reporting) and will apply to affected taxpayers in respect of income years commencing on and after 1 January 2016.
CbC reporting is required only where the group’s annual global revenue exceeds A$1bn.
The obligation to lodge a CbC report is imposed on the parent company of a multinational group, ie. subsidiaries do not have to lodge, but rather the information provided through the parent’s report is exchanged automatically between revenue authorities.
CbC reports are due for lodgement with the ATO no later than 12 months after the end of the reporting income year. For the standard Australian fiscal year ending 30 June 2017, reports are due by 30 June 2018.
For a group with a tax year ending 31 December 2016, the report would be due for lodgement by 31 December 2017.
The Action 13 Report provides a backup rule that would mandate subsidiaries to provide CbC information direct to their revenue authority, but only if the group parent did not lodge a report, or the parent’s jurisdiction did not exchange the information.
The exposure draft legislation is written in such a way that there is a primary obligation on all companies that lodge Australian tax returns and which are a part of a group with an annual global revenue exceeding A$1bn, to lodge a CbC report with the ATO. But there is an exception determination provision.
Presumably the ATO will 'determine’ that all Australian companies which are subsidiaries of foreign multinational groups will be excepted from lodging a CbC Report, on the assumption the foreign parent will do so. Should the parent not do so, the exception determination would be withdrawn and the Australian subsidiary required to lodge its own CbC report and provide the information directly to the ATO. The question would be whether the Australian subsidiary would have to provide only Australian information, or global information - and if global information, how would it be expected to obtain that information from a non-complying parent?
2. Australia’s ‘diverted profits tax’ - penalty provisions
Australia took a different approach to taxing ‘diverted profits’ than did the UK - rather than introducing a new taxing regime, Australia has proposed amendments to its general anti-avoidance rule (GAAR - Part IVA) which will be applied to ‘schemes that limit a taxable presence in Australia’. (These amendments remain in exposure draft legislative form, and have been heavily criticised - but then again, so was the UK’s exposure draft diverted profits tax, and that did not divert the intention of the UK government.)
Today, exposure draft legislation was released that, when enacted, will double the administrative penalty tax to be imposed on multinational corporations (with annual global revenue in excess of A$1bn) where they seek to artificially avoid Australian tax under the proposed ‘diverted profits tax’ amendments to the GAAR.
The penalty will now be up to 120% of the avoided tax. But the new penalty regime will not apply if the taxpayer has a reasonably arguable position.
3. ATO moves on to attack offshore procurement hubs
Earlier in the year, following revelations through the Senate Economics Committee Review on multinational tax avoidance, the ATO was forced to announce publicly that it was scrutinising multinational corporations offshore marketing hubs.
Today, the ATO has announced it is extending that scrutiny to cover a review of multinational offshore procurement hubs.
OECD/G20 BEPS Action Plan
Australia’s unilateral moves against multinational corporate tax avoidance need to be placed in the context of the multilateral moves being pursued through the OCED and G20 BEPS Action Programme.
The majority of the remaining reports from the BEPS Action Plan are due to be released at the G20 finance ministers meeting scheduled for 4-5 September 2015, in Ankara. The interaction of unilateral national legislative responses, such as those of Australia and the UK, must then be managed alongside the multilateral changes proposed by the BEPS amendments. Further domestic legislation will then be required to implement the BEPS amendments, so some degree of confusion will be unavoidable.
Tax risk management will not be getting easier in the foreseeable future.