All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Economic stimulus initiatives head Australia’s 2020-21 budget

Sponsored by Sponsored_Firms_piper.png
The federal budget tackles an array of much-discussed economic considerations

Jock McCormack of DLA Piper summarises developments from Australia in October 2020, including the key takeaways from the federal budget and the latest guidance on the principal or main purpose test.

Australian Federal Budget 2020-21

The Australian Treasurer, the Hon Josh Frydenberg, delivered the 2020/21 Federal Budget on October 6 2020. As anticipated, the key focuses were on firstly, bringing forward the effective date of previously legislated personal income tax cuts to July 1 2020, and secondly, expanding significant economic stimulus initiatives.



However, several important international tax and related measures were also announced, including:

  • Clarifying the ‘corporate residency’ test for non-Australian incorporated companies, and in effect requiring a ‘significant economic connection’ to Australia, as well as Australian central management and control, in order to be regarded as Australian resident;

  • Expanding the list of exchange of information (EOI) countries eligible for the concessional (15%) managed investment trust (MIT) withholding tax, including most importantly adding Hong Kong SAR to the EOI list;

  • Enabling businesses, with aggregated annual turnover of less than AUD5 billion (US$3.53 billion), to immediately deduct the full cost of certain capital assets (with restrictions), provided these assets are first used or installed by June 30 2022;

  • Introducing limited loss carry-back rules for companies with aggregated annual turnover of less than AUD5 billion; and

  • Reversing various integrity measures and limitations to the research and development (R&D) tax offset.


ATO guidance on principal or main purpose test

On October 1 2020, the Australian Tax Office (ATO) issued Practice Statement Law Administration, PS LA 2020/2, which deals with the recommended approach to the principal or main purpose test as applicable to Australia’s double tax treaties.



The Practice Statement essentially provides guidance to ATO staff on the internal processes for considering the potential application of the principal or main purpose test, and thereby denies benefits under an Australian double tax treaty – e.g. withholding tax rate concessions. Guidance is provided on consultation with ATO international tax specialists, the Tax Counsel Network and the General Anti-Avoidance Rules Panel, as well as questions to raise and documents to access from relevant taxpayers. It is a guideline applicable to both multilateral instrument impacted treaties, as well as non-multilateral instrument impacted treaties/scenarios. It replaces draft PS LA 2019/D2.

Memorandum of understanding: Arbitration process for unresolved issues under the Australia/Switzerland double tax treaty

The ATO has released the memorandum of understanding (MOU) on the mode of application of proposed arbitration processes between the competent authorities of Australia and the Swiss Confederation under Article 24 (5) of the Australia/Swiss Double Tax Agreement.



The MOU is operative from September 15 2020 and prescribes the arbitration process, selection and appointment of arbitrators, timing issues, confidentiality and non-disclosure rules, operating procedures and the effect of arbitration decisions which are generally binding on both contracting states (subject to limited exceptions).



Generally, unresolved issues arising from a mutual agreement procedure may be submitted to arbitration however, only after three years from the date on which a case was presented to the competent authority of one contracting state under Article 24(1) of the double tax agreement.

Individual residency case – tie breaker operative

In a decision of the Full Federal Court in Australia, Federal Commissioner of Taxation v Pike (2020) FCAFC 158, it was held that a taxpayer resident in Australia under ordinary concepts, was deemed to be a tax resident solely in Thailand under the tiebreaker provision, Article 4 (3) of the Australia/Thailand double tax agreement.



While the taxpayer was mostly employed in Thailand for several years, his partner and children stayed in Brisbane living in properties jointly rented in the name of the taxpayer. The Full Court held that the taxpayer’s personal and economic relations were closer to Thailand under the tiebreaker test in the double tax agreement.





Jock McCormack

T: +61 2 9286 8253

E: jock.mccormack@dlapiper.com

More from across our site

The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
Businesses must ensure any alternative benchmark rate is included in their TP studies and approved by tax authorities, as Libor for the US ends in exactly a year.
Tax directors warn that a lack of adequate planning for VAT rule changes could leave businesses exposed to regulatory errors and costly fines.
Tax professionals have urged suppliers of goods from Great Britain to Northern Ireland to pause any plans to restructure their supply chains following the NI Protocol Bill.
Tax leaders say communication with peers is important for risk management, especially on how to approach regional authorities.
Advances in compliance tools in international markets and the digitalisation of global tax administrations are increasing in-house demand for technologists.
The US fast-food company has agreed to pay €1.25 billion to settle the French investigation into its transfer pricing arrangements over allegations of tax evasion.
HM Revenue and Customs said the UK pillar two legislation will be delayed until at least December 2023, while ITR reported on a secret Netflix settlement and an IMF study on VAT cuts.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree