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: Tax round-up

Sponsored by

Australia underwent a flurry of tax developments at the end of 2019

Jock McCormack of DLA Piper summarises tax-related developments which rounded off 2019 in Australia.

The Australian Taxation Office (ATO) has provided important guidance in applying the principal or main purpose test in Australia’s double tax treaties as well as its views on limiting the withholding tax exemption for foreign superannuation funds and the broader tax exemption for sovereign wealth funds. Further, the Australian Board of Tax has outlined two primary reform options relating to corporate tax residency status and the government has released further proposed amendments to Australia’s hybrid mismatch rules.

Principal or main purpose test

On December 16 2019 the ATO issued draft Practice Statement Law Administration (PSLA) 2019/D2 dealing with ‘administering general anti-abuse rules, such as a principal or main purpose test, included in Australia’s double tax treaties’. The principal or main purpose test has been included in many of Australia’s double tax treaties as a consequence of Australia’s and other countries’ commitment to and ratifying the multi-lateral instrument (MLI).

The draft Practice Statement provides practical and technical guidance to ATO staff on the administrative process of applying the principal (or main) purpose test in Australia’s double tax treaties. It essentially provides guidance on questions that should be raised by ATO officers of taxpayers, documents to be produced and the general process and considerations for evaluating the principal or main purpose test. The ATO is open to submissions on the application of the principal purpose test and will closely review international dealing schedule working papers, annual reports, contemporaneous transfer pricing reports and inter-company agreements and policies.

Corporate tax residency

The Board of Tax released a 2nd Consultation Paper on December 9 2019 outlining two primary reform options – firstly, the retention of a modified ‘central management and control’ test and secondly, the adoption of an ‘incorporation only’ test.

The Board is seeking further comments on these two options and has rejected a test based on the international treaties standard of ‘place of effective management’ because of uncertainty risks.

The concept of corporate residency is critical in Australia for a range of reasons including access to treaty benefits, concessional non-portfolio foreign dividend exemption, foreign participation exemption and a range of capital gains tax (CGT) and foreign hybrid type recognition/rules. The Board is carefully considering its options and will report to the government in the coming months.

Separately, the ATO has released an updated version of its Practical Compliance Guideline (PCG) 2018/9 providing guidance to foreign incorporated companies on applying the ‘central management and control test’ as it impacts corporate residency.

Other developments

The government released draft legislation on December 13 2019 to clarify and amend Australia’s hybrid mismatch rules. Most particularly, it amended the integrity rule as it applies to inbound financing arrangements and related matters.

Finally, the ATO released Draft Law Companion Ruling 2019/D4 on December 4 2019 outlining its views firstly, on the eligibility of foreign superannuation funds for the withholding tax exemption (most particularly related to the ‘influence test’), and secondly, the broader sovereign wealth fund / entity group tax exemption.

Jock McCormack

T: +61 2 9286 8253 


more across site & bottom lb ros

More from across our site

The Indian company, which is contesting the bill, has a family connection to UK Prime Minister Rishi Sunak – whose government has just been hit by a tax scandal.
Developments included calls for tax reform in Malaysia and the US, concerns about the level of the VAT threshold in the UK, Ukraine’s preparations for EU accession, and more.
A steady stream of countries has announced steps towards implementing pillar two, but Korea has got there first. Ralph Cunningham finds out what tax executives should do next.
The BEPS Monitoring Group has found a rare point of agreement with business bodies advocating an EU-wide one-stop-shop for compliance under BEFIT.
Former PwC partner Peter-John Collins has been banned from serving as a tax agent in Australia, while Brazil reports its best-ever year of tax collection on record.
Industry groups are concerned about the shift away from the ALP towards formulary apportionment as part of a common consolidated corporate tax base across the EU.
The former tax official in Italy will take up her post in April.
With marked economic disruption matched by a frenetic rate of regulatory upheaval, ITR partnered with Asia’s leading legal minds to navigate the continent’s growing complexity.
Lawmakers seem more reticent than ever to make ambitious tax proposals since the disastrous ‘mini-budget’ last September, but the country needs serious change.
The panel, the only one dedicated to tax at the World Economic Forum, comprised government ministers and other officials.