Australia: Australia’s response to BEPS to date
In the context of the October 5 release of the final package of measures relating to the BEPS project, the Australian Government has signalled its commitment to the BEPS process as evident in the new Treasurer's October 6 media release. The Treasurer highlighted that "Australia is firmly on the right track" in supporting the BEPS measures and outlined Australia's responses to the BEPS action items to date.
Ensuring multinationals pay their fair share of tax in Australia
The Multinational Anti-Avoidance Law (MAAL), which has been introduced into parliament, seeks to ensure that certain companies will be subject to tax in Australia where they make sales in Australia but book that revenue offshore. The same Bill also introduced the country-by-country reporting (CbCR) requirements as well as doubling the penalties imposed on multinationals which seek to avoid tax through transfer pricing and profit shifting schemes. As outlined by the Treasurer, this Bill is aligned with the objectives of BEPS Action 7 which aims to prevent the artificial avoidance of a permanent establishment, as well as with the objectives of BEPS Action 13 which seeks to promote transparency through the implementation of CbCR. With respect to the MAAL, the Commissioner of Taxation, in his media release on October 7 2015, has expressed his support for the Bill and confirmed that the Australian Taxation Office (ATO) will be entering into discussions with around 80 multinational enterprises which will be potentially affected by the MAAL.
Hybrids and financing arrangements
The Australian Government has also initiated efforts to combat or neutralise hybrid mismatches (BEPS Action 2), by tasking the Board of Taxation to consult on the OECD's recommendations and provide a report in March 2016. While the OECD has also released final deliverables on designing effective controlled foreign company (CFC) rules (Action 3) and limiting base erosion involving interest deductions and other financial payments (Action 4), it is unlikely that the Australian Government will introduce any new measures in this regard. As outlined by the Treasurer, Australia's CFC rules already meet the OECD best practice guidelines and Australia has already tightened its thin capitalisation rules by, for example, reducing the safe harbour threshold from 75% to 60% effective from July 1 2014.
'Netflix Tax' and the digital economy
Last but not least, in response to addressing the tax challenges of the digital economy (Action 1), the Australian Government has obtained the in-principle agreement of the states and territories to apply goods and services tax (GST) to digital products and services imported by Australian consumers. In the May 2015 Federal Budget, the Government announced that Australia's 10% GST would be extended to apply to inbound supplies of intangibles (such as digital content) made by non-residents from outside Australia to consumers in Australia. If legislated, the reforms (which are often cited in the media as the 'Netflix Tax') will apply from July 1 2017 – subject to any transitional arrangements. In early October, the government released a second tranche of consultation draft legislation, together with associated explanatory materials, which provides further insight into how the government intends to implement and apply these reforms.
Melissa Lim (email@example.com)
Tel: +61 2 9286 8239