International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Australia: Changes to corporate residency guidelines and other international tax developments

Sponsored by

Sponsored_Firms_piper.png
intl-updates-small.jpg

Australian residency for companies – updated ATO guidelines

On June 21 2018, the Australian Taxation Office (ATO) released updated guidelines on the corporate residency test in Taxation Ruling TR 2018/5 and Draft Practical Compliance Guidelines PCG 2018/D3.

Under Australian income tax law, a company incorporated outside of Australia will be an Australian tax resident where it carries on business in Australia and either:

  • Has its central and management control (CMaC) in Australia; or

  • Has its voting power controlled by shareholders who are Australian residents.

Importantly, in the updated guidelines, the ATO states that a company that has its CMaC in Australia will also be considered to carry on business in Australia. It is not necessary for the actual trading or investment activities of the company to take place in Australia. Thus, the act of management or control in Australia will, of itself, be sufficient for the company to be considered an Australian resident.

The ATO states that CMaC will ordinarily reside with the directors of the company, but this will not always be the case (e.g. where the directors simply 'rubber stamp' the decisions of the real decision maker). Ultimately, the location of the CMaC will be a question of fact, requiring an analysis of the nature of the company's business, its activities and decision-making structure.

Taxation reform of stapled structures – integrity measures for transitional rules

Under the transitional rules in the proposed tax changes to 'stapled structures' (released in May 2018), certain stapled structures are able to continue to access the concessional 15% managed investment trust withholding tax rate in respect of cross-staple rental payments for either 15 years (for approved economic infrastructure projects) or seven years (for other existing projects).

On June 28 2018, the Australian government released a consultation paper on proposed integrity measures for these transitional rules, under which the transitional rules would only be available where:

  • For projects eligible for the seven-year period, the cross-staple rental payments are consistent with the non-arm's length income rule (i.e. market pricing); and

  • For projects eligible for the 15-year period, the cross-staple rent payments either:

  • Are in accordance with existing rent calculation methodology for the project (for existing projects); or

  • Do not result in more than 80% of the taxable income of the project being allocated to the asset entity (for new projects).

Multinational integrity measures – expansion of significant global entity definition

Since 2015, in response to the OECD's BEPS Action Plan, Australia has introduced various integrity measures and reporting obligations for multinationals, such as the Multinational Anti-Avoidance Law, diverted profits tax and country-by-country reporting requirements.

These measures generally only apply to entities that meet the 'significant global entity' (SGE) definition, being:

  • A global parent entity with annual global income of A$1 billion ($738 million) or more; or

  • A member of a group of entities that are consolidated for accounting purposes and the global parent entity of that group has annual global income of A$1 billion or more.

On July 20 2018, the Australian government released draft legislation to extend the definition of the SGE to cover members of groups headed by proprietary companies, trusts, partnerships and investment entities. The existing SGE definition only includes groups headed by listed companies or private companies required to prepare general purpose financial statements.

Accordingly, a wider range of entities could now fall within the definition of a SGE and be subject to the various integrity measures and reporting obligations for multinationals; for example, companies that are majority-owned by large private equity or other investment funds.

These changes are proposed to apply from July 1 2018.

more across site & bottom lb ros

More from across our site

Premier League football clubs are accused of avoiding paying up to £470 million in UK tax, while Malta is poised to overhaul its unique corporate tax system.
Bartosz Doroszuk of MDDP offers insights on Poland’s new tax legislation on shifted profits, as the implementation deadline looms nearer.
Four tax specialists preview the UK’s transfer pricing requirements, which come into effect on April 1.
The rise of the QDMTT will likely change how countries compete on tax and transfer pricing policy, but it may not reverse decades of falling corporate tax rates.
ITR’s latest quarterly PDF is going live today, leading on the EU’s BEFIT initiative and wider tax reforms in the bloc.
COVID-19 and an overworked HMRC may have created the ‘perfect storm’ for reduced prosecutions, according to tax professionals.
Participants in the consultation on the UN secretary-general’s report into international tax cooperation are divided – some believe UN-led structures are the way forward, while others want to improve existing ones. Ralph Cunningham reports.
The German government unveils plans to implement pillar two, while EY is reportedly still divided over ‘Project Everest’.
With the M&A market booming, ITR has partnered with correspondents from firms around the globe to provide a guide to the deal structures being employed and tax authorities' responses.
Xing Hu, partner at Hui Ye Law Firm in Shanghai, looks at the implications of the US Uyghur Forced Labor Protection Act for TP comparability analysis of China.