The government is making good on its promise to attack the diverted profits of multinationals with the introduction of legislation to Federal Parliament.
Australia’s Revenue Minister, Kelly O’Dwyer, has explained how a proposed new diverted profits tax (DPT) will “make sure that large multinational companies pay the right amount of tax on the profits that they make” in the country. According to O’Dwyer, the Government expects the DPT to raise around AUD100m a year. read more at tax-news.com
The Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 amends the ITAA 1936, the Taxation Administration Act 1953 (TAA 1953) and associated Acts to introduce a new diverted profits tax.
The tax applies to the amount of the diverted profit at a rate of 40%. The legislation targets entities with a global turnover of $100 billion or more, and includes a 20% tax diversion trigger.
If passed by the parliament in its present form, the new tax will apply from 1 July 2017.
Tax advocacy groups have welcomed the move.
The Tax Justice Network – the group behind the push to review the petroleum resource rent tax regime – says the government’s clampdown on multinational tax avoidance is necessary because the OECD’s base erosion and profit-shifting project has failed. Read more at Guardian.com.
Concern has been expressed over the draconian nature of the new laws which go further than the UK version, and have a “pay first, argue later” mode of attack. On determination that a DPT applies, the taxpayer has 21 days to pay.
Twenty-four per cent is the magic number because the DPT will apply to companies that make transactions with “insufficient economic substance” so as to reduce the tax paid on the profits generated in Australia by more than 20 per cent (80 per cent of Australia’s headline rate of 30 per cent is 24 per cent). Read more at afr.com.au
The proposed legislation “aims to ensure that the tax paid by significant global entities properly reflects the economic substance of their activities in Australia and aims to prevent the diversion of profits offshore through contrived arrangements”. (source explanatory memorandum).
Although commonly referred to as the Google tax, it is expected that Apple and Microsoft are targetted with these measures, along with (for example) other corporations taking advantage of Singapore’s headline 17% company tax rate through the use of marketing hubs and other structures.