The Bill introducing Australia’s version of the Diverted Profits Tax (DPT) completed its passage through the Parliamentary process on Monday, 27 March 2017, and now awaits Royal Assent before becoming law.
The DPT will commence to operate from 1 July 2017, and will apply to both new and continuing ‘schemes’, i.e. there is no ‘grandfathering’ for existing arrangements.
The DPT will apply only to Significant Global Entities (SGEs) being Australian taxpayers which are part of a global group with a global turnover in excess of $A 1 billion. (There are some other threshold requirements, and exemptions, before taxpayers are subject to the DPT.)
What is the applicable DPT rate?
The applicable DPT rate is 40% rather than Australia’s current corporate tax rate of 30%. The DPT will apply to schemes which ‘divert Australian profits’ away from Australia, to be taxed in other jurisdictions at lower effective tax rates. An assessed DPT liability is payable upfront, with the objection/appeal process to be dealt with subsequently.
The DPT, like the Multinational Anti-Avoidance Law (MAAL), is situated within Australia’s General Anti-Avoidance Rule (GAAR), viz Part IVA. This removes any doubt that both the DPT and MAAL override the international tax obligations to which Australia has committed through its various bilateral double tax agreements.
Australia adopting diverted profit tax
Australia now joins the UK as the two international outliers, having adopted DPTs which are inconsistent with the global community consensus tax positions expressed in the BEPS project reforms. Commentators have suggested, having regard to the timing and publicity attending the introduction of the DPT in both the UK and Australia, that the DPT is as much about domestic political positioning (“get tough on MNC tax avoidance”) as it is about actually collecting additional tax.
Whatever the truth about its genesis, the Australian DPT is now a reality with which affected multinational SGEs must contend. And in this regard, anecdotal indications are that the ATO has been ‘surprised’ by the low response levels (so far) to the DPT, when compared to the much higher early response rate to the MAAL.
For those global SGEs with operations in Australia, and who want a high level assessment of the possible application of the DPT in their circumstances..