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Australia Issues Draft Legislation for Tougher Anti-Avoidance Penalties and New TP Documentation Requirements including CbC Reports — Orbitax Tax News & Alerts

On 6 August 2015, the Australian government issued exposure drafts of legislation to implement tougher anti-avoidance penalties for large companies and new transfer pricing documentation requirements based on guidelines developed as part of Action 13 of the OECD BEPS Project. The measures were introduced in the 2015 Budget ({News-2015-05-13/P/2- previous coverage}).

Tougher Anti-Avoidance Penalties

The anti-avoidance amendments include a doubling of the penalties imposed for large companies that have entered into tax avoidance or profit shifting schemes. The increased penalties will apply for taxpayers with global revenue exceeding AUD 1 billion in the tax year concerned. However, the penalties will not apply for taxpayers that adopt a reasonably arguable tax position.

The penalties, based on the relevant scheme shortfall amount, are as follows:

Tax avoidance schemes:

  • Base penalty amount - 100%
  • Aggravating factors apply - 120%
  • Disclosure during examination - 80%
  • Disclosure before examination - 20%

Profit shifting schemes:

  • Base penalty amount - 50%
  • Aggravating factors apply - 60%
  • Disclosure during examination - 40%
  • Disclosure before examination - 10%

The penalties will apply for benefits obtained, or that would be obtained, on or after 1 July 2015, regardless of when the scheme was entered into or carried out.

Transfer Pricing Documentation Requirements

For tax years beginning on or after 1 January 2016, multinationals with annual global revenue of AUD 1 billion or more will be required to provide a statement to the Australian Taxation Office (ATO) Commissioner that includes one or more of the following:

  • A country-by-country (CbC) report;
  • A master file; and
  • A local file

The statement requirement will apply to Australian headquartered multinational enterprises, Australian subsidiaries of multinational enterprises headquartered outside of Australia, and foreign resident entities with a permanent establishment in Australia. Entities required to provide a statement will be required to do so using an approved form, which allows the Commissioner to specify the information that is required from the entity.

CbC Report

In general, only an Australian headquartered multinational will be required to include the CbC report in its statement. However, an Australian subsidiary of a multinational would also be required to include a CbC report unless the following conditions are met:

  • The subsidiary's worldwide parent entity is resident in another jurisdiction;
  • The parent provides a CbC report to the tax authority of its jurisdiction;
  • Arrangements are in place for the automatic exchange of CbC reports between that authority and the ATO; and
  • The ATO is, in practice, able to obtain CbC reports from that tax authority

Master File

Australian resident entities and foreign residents with an Australian PE will generally be required to provide the master file as part of the statement. However, where there are multiple Australian entities that are part of the same multinational group, the Commissioner may specify that only one of the entities provide the master file.

Local File

Every Australian resident entity and foreign residents with an Australian PE will generally be required to provide the local file in its statement.

Exclusions

The ATO Commissioner will have the right to exclude certain entities from the statement requirements in one or more tax years, such as entities with no or insignificant cross border transactions. In addition, legislation may be introduced to exclude specified classes of entities in order to reduce compliance costs.

Click the following link to the Australian Treasury website for the exposure drafts, explanatory materials, and instructions for submitting comments. Comments must be submitted by 2 September 2015.