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Australia: Digital tax and stapled structures

29 May 2018

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The Australian Treasurer Scott Morrison delivered the 2018/19 federal budget on Tuesday, May 8 2018. He highlighted first, the commitment to extend the Australian tax net to the digital economy; second, better targeting of the research and development (R&D) concession; third, he reaffirmed the streamlining of eligible stapled structures; and fourth, mentioned various initiatives to pursue and counter the 'black economy'.

Other important initiatives were announced to:

  • Update and expand the list of exchange of information countries for managed investment trust withholding tax purposes;
  • Expand the definition of 'significant global entities' for the purposes of various international tax integrity measures, e.g. the Multinational Anti-Avoidance Law, diverted profits tax, country-by-country reporting and tax administrative penalties; and
  • Tighten the asset valuation and related tax consolidation rules for thin capitalisation purposes.

Digital economy initiative

Australia has been closely following developments in the UK, EU and other countries to determine its approach to the taxation of the digital economy. Very few details were included in the budget however, it is expected that Australia will pursue either the deemed digital permanent establishment (PE)/expanded PE definition approach or introduce a specific digital services tax similar to those approaches being pursued globally.

Further, the Australian government will likely consider introducing some form of royalty withholding tax similar to that proposed in the UK where, for example, Australian-based customers or users access an offshore social media platform for which royalties are paid to a low tax jurisdiction/tax haven.

Proposed stapled structures reform

The Australian government reaffirmed its intention to streamline the use of stapled structures frequently used to invest in larger economic infrastructure (e.g. toll roads) and commercial and industrial property in Australia. Stapled structures have been utilised in Australia for decades and recent privatisations of economic infrastructure (e.g. electricity distribution and transmission assets) have been structured in stapled groups.

Eligible foreign investors have been able to access the managed investment trust concessional withholding tax (15%) on income distributions via stapled structures as opposed to the corporate tax rate of 30% and other concessional arrangements regarding foreign pension funds and sovereign wealth funds.

The proposed reforms will redefine eligible investments/activities to be held in stapled structures and will also provide generous transition rules (seven or 15 years) to allow investors to restructure or exit their investments in a commercial manner.

Eligible exchange of information countries

The list of eligible exchange of information countries for concessional managed investment trust withholding tax purposes was updated for 56 countries that have signed tax information exchange agreements with Australia, including most particularly Luxembourg, Israel and Switzerland. This will mean that investors in these jurisdictions will more readily be able to access the reduced withholding tax rate of 15% as opposed to the standard rate of 30%.

Jock McCormack

Jock McCormack (
DLA Piper Australia
Tel: +61 2 9286 8253
Fax: +61 2 9286 8007

International Correspondents