Tax transparency: access to quality data required
Government will introduce a Diverted Profits Tax (DPT) aimed at multinationals that artificially divert profits from Australia.
The DPT will target businesses that shift profits offshore through arrangements that result in less than 80 per cent tax being paid overseas than would otherwise have been paid in Australia and where it is reasonable to conclude that the arrangement is designed to secure a tax reduction and lacks economic substance.
Where such arrangements are entered into, the Government will apply a 40 per cent tax on the diverted profits to ensure that large multinationals are paying sufficient tax in Australia.
The DPT will apply to multinationals with global revenue of $1 billion or more. The DPT will not apply to multinationals with Australian turnover of less than $25 million unless they are artificially booking their revenue offshore.
The DPT will provide the Australian Tax Office (ATO) with greater powers to deal with multinationals who transfer profits, assets or risks to offshore related parties using artificial or contrived arrangements to avoid Australian tax and who do not cooperate with the ATO.
By imposing a penalty rate of tax, requiring the DPT to be paid on assessment and broadening the ATO reconstruction powers, the DPT will encourage greater openness with the ATO, address information asymmetries and allow for speedier resolution of disputes including under our transfer pricing rules.
The DPT will apply from 1 July 2017 and forms part of the Government's Tax Integrity Package, which helps to ensure that multinationals are paying the right amount of tax.
The attached consultation paper details the key design features of the DPT. The Government invites all interested parties to make a submission on the design of the DPT.
The Diverted Profits Tax (DPT) is part of a package of measures in the 2016-17 Budget designed to achieve this.
Other key measures include:
- eliminating hybrid mismatch arrangements where corporates take advantage of differences in the tax treatment of financial instruments or entities in different countries to avoid paying tax;
- implementing the OECD’s recently updated Transfer Pricing Guidelines to ensure that Australia continues to have best practice transfer pricing rules to help prevent multinationals from using excessive related party payments to shift profits overseas; and
- establishing a new Tax Avoidance Taskforce within the Australian Taxation Office (ATO) to enhance its audit activity for large corporates and high wealth individuals.
Fighting tax avoidance
At the same time as reducing the tax burden on businesses, the Government will take additional steps to reinforce the integrity of Australia’s corporate tax base and ensure businesses pay the right amount of tax in Australia.
We are introducing tough new laws and much harsher penalties including:
- A Diverted Profits Tax (DPT) which will impose a penalty rate of tax on large multinationals that attempt to shift their Australian profits offshore to avoid paying tax. Together with the Multinational Anti-Avoidance Law, introduced by this Government last year, the DPT is expected to raise around $650 million over four years.
- Rules to prevent multinationals exploiting differences in the tax laws of two or more jurisdictions to defer or avoid paying tax (anti-hybrid rules).
- Updating Australia’s transfer pricing rules to align with international best practice.
- A new Tax Transparency Code to encourage greater transparency within the corporate sector, especially by multinationals.
- New protections for whistleblowers who disclose information about tax misconduct to the ATO.
- New rules, to be developed in consultation with stakeholders, to require better disclosure to the ATO about potentially aggressive tax planning schemes.
- Increased penalties for breach of tax reporting obligations for companies with global incomes of $1 billion or more. The maximum penalty for failing to lodge tax returns and similar documents will be increased 100 fold from $4,500 to $450,000.
Enforcement of our existing and tough new laws will be supported by a Tax Avoidance Taskforce to be set up in the ATO. This crack down on multinationals and high wealth individuals is expected to generate $3.7 billion of additional revenue over the next four years.