Australia: Multinational tax crackdown: Government update on tax audit activities in Australia
On April 6 2017, the Australian Treasurer announced the progress made so far of the Australian Taxation Office's (ATO) multinational tax crackdown.
Key points include:
The ATO has raised A$2.9 billion ($2.2 billion) in tax liabilities against a group of seven multinationals, four in e-commerce and three in the energy and resource industries;
The ATO is auditing 59 multinational companies and hundreds of other companies to ensure compliance with the tax laws, including the Multinational Anti-Avoidance Law (MAAL) that entered into effect on January 1 2016; and
The ATO has met with 175 affected taxpayers or their advisers and is aware of 25 taxpayers who have restructured or intend to restructure their arrangements in response to the MAAL and make payments to the ATO.
On a separate but related note, the Australian diverted profits tax (DPT) is now law and will apply to income years starting on or after July 1 2017. The DPT is aimed at ensuring large multinationals are not able to avoid their tax obligations by diverting profits generated in Australia offshore.
Potential broadening of Australia's residency test for companies
The ATO has released a draft tax ruling (TR 2017/D2), setting out the Commissioner of Taxation's preliminary view on how to apply the central management and control test of residency for companies, following the recent High Court decision in Bywater Investments Limited & Ors v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation  HCA 45 (draft ruling). The Commissioner's previous draft ruling on the issue (TR 2004/15) was withdrawn on the same date.
Broadly, even though the legislative tests remain the same, the changes arise from the High Court's decision in the abovementioned cases and the ATO's administrative response.
Among other things, the draft ruling emphasised that it is a question of fact to determine who it is that actually exercises central management and control of a particular company. Further, in the absence of evidence to the contrary, there is no presumption that central management and control is exercised by the board of directors. While this is a useful starting point, it is not by itself determinative. Rather, the question is who actually controls and directs a company's operations.
The Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 was passed by the Federal Government Senate and (pending approval of a number of amendments by the House of Representatives) will implement the following corporate tax rate changes:
The reduced corporate tax rate of 27.5% will only apply to businesses with an aggregated turnover of less than A$50 million from the 2018-19 financial year onwards;
In the 2016-17 financial year, the reduced corporate tax rate of 27.5% will apply for businesses with an aggregated turnover of less than A$10 million; A$25 million turnover in 2017-18; and A$50 million turnover from 2018-19; and
The corporate tax rate will also be further reduced in stages, starting from July 1 2024, so that it will eventually fall to 25% by the 2026-27 financial year.
Following the release of the controversial Taxpayer Alert TA 2017/1 on stapled structures, the treasury has released a consultation paper on stapled securities and re-characterisation of trading income.
It seeks views on policy options to address taxation distortions resulting from the use of stapled structures to re-characterise trading income more favourably into passive income. The consultation paper aims to ensure Australia remains internationally competitive in terms of real estate and critical infrastructure investment. Submissions are due by April 20 2017.
Melissa Lim (email@example.com), Sydney