The Budget continues the Australian Government's focus on certain foreign-based multinationals, after the Australian Senate's inquiry focussed on the Australian tax positions of leading global e-commerce companies.
As a significant integrity measure to protect Australia's revenue base, draft legislation has been released outlining anti-avoidance rules combatting multinational tax avoidance.
Under the proposed section 177DA of Part IVA of the Income Tax Assessment Act 1936, tax benefits will be cancelled in respect of schemes that satisfy all of the following requirements:
Under, or in connection with, the scheme
- goods or services are provided by a non-resident to an Australian resident who is not an associate of the non-resident;
- income derived by the non-resident from the supply is not attributable to an Australian permanent establishment (PE);
- activities are undertaken in Australia by an Australian resident, or through an Australian PE of an associate of the non-resident or who is commercially dependent on the non-resident, in connection with the supply;
Scheme designed to avoid PE income
- it would be reasonable to conclude that the scheme is designed to avoid the non-resident deriving income attributable to an Australian PE;
Double principal purpose test
- a person or persons who entered into or carried out the scheme did so for a principal (as opposed to a sole or dominant) purpose of enabling a taxpayer to obtain an Australian tax benefit (that is, an Australian income tax saving) and to reduce foreign taxes or secure a saving from other Australian taxes (for example, GST);
Global revenue threshold
- annual global revenue of the non-resident in the relevant income year exceeds $1 billion; and
No or low corporate tax jurisdiction
- the non-resident is connected with a no or low corporate tax jurisdiction.
Other measures to tighten the rules for multinationals include adopting stronger penalties for groups that enter into tax avoidance measures related to profit shifting, and applying new transfer pricing documentation standards from January 1 2016.
The Budget confirms the GST rules are to be extended to the importations of digital products and services. This so called 'Netflix' tax is designed to ensure that non-resident suppliers of such content pay GST, thereby levelling the playing field for Australian suppliers already subject to GST. This measure is consistent with the OECD's guidelines on this subject, but under Australia's laws will require the approval of all states and territories to be enacted.
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