The Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 amends the GAAR (Part IVA) to ensure schemes with the main aim of avoiding tax are effectively countered, while the transfer pricing regime has been updated to “align with internationally accepted principles, as set out by the OECD”.
“These reforms strengthen two of our key weapons in the fight against base erosion and profit shifting. They will help to protect the integrity of Australia’s income tax system and make sure large taxpayers pay their fair share,” said David Bradbury, Assistant Treasurer.
Australia has already taken strides to tackle challenges in this area, for instance through the formation of an expert group to tackle multinational tax minimisation strategies. After the group’s formation, Bradbury also announced that he has asked officials to look at ways of improving transparency within the business tax system, including the possibility of forcing the disclosure of corporate tax returns.
Prime Minister Julia Gillard also addressed the issue in her January 30 speech at the National Press Club in Canberra. She said tax revenue collections have been significantly lower than forecasted, with both “domestic and global factors at work”.
“For instance, we see more genuine competitive movement of capital and of profit centres to seek the highest private returns than there has ever been; although, as the Assistant Treasurer has noted, some of the movement does look like it is about movement of the accounting of capital and profit,” said Gillard. “This is an area where the G20, which Australia will chair next year, can and should find a fruitful agenda and we will be using our special status to get this done.”
The issue is already at the forefront of discussions regarding the international tax system, with the OECD producing its report Addressing Base Erosion and Profit Shifting this week and committing to producing an action plan for changes to international tax rules in time for the G8 heads of government meeting in June. (See here for an article written exclusively for International Tax Review in which Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration and Will Morris, chairman of the tax branch of the OECD’s Business and Industry Advisory Committee and global tax policy director for GE, summarise their reactions to the BEPS report and outline the need for revisiting international tax rules.)
Similar discussions are sure to dominate Friday’s meeting of G20 finance ministers in Moscow, too.
In an interview with Radio National Breakfast today, shortly before heading to Moscow, Treasurer Wayne Swan said “global leaders are very concerned that there are some multinational firms that are not paying tax anywhere”.
“What needs to happen is we need to find a way globally of acting together to ensure they pay tax in their host country that reflects economic activity in that host country,” he added. “We do need international agreement on a path ahead.”
Further reforms possible
Despite it being an election year, Gillard’s government may introduce more tax reforms. There have been murmurs about a redesign of the controversial minerals resource rent tax (MRRT), while other measures to fund a corporate tax cut have not been ruled out.
Last year, the Business Tax Working Group identified several potential “savings measures” that may help fund a reduction in the corporate tax rate. The proposals included tightening up the thin capitalisation rules, in particular reducing the safe harbour limits from 75% to 60%; introducing stricter tax depreciation rules; and limiting R&D incentives.
“Though no further progress was made – due mainly to the mixed reaction from business – these measures, especially the thin capitalisation measures, may still be considered where the budget surplus is threatened,” said Leon Mok, executive director at Baker Tilly Pitcher Partners.
“With a federal election in September, one may expect a fairly voter-friendly budget in May,” added Mok. “However, the incumbent government is somewhat limited by the fact it has a key policy item: the commitment to maintain a budget surplus.”
