Australia: Australian Budget increases heat on cross-border taxpayers and transactions

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Australia: Australian Budget increases heat on cross-border taxpayers and transactions

McCormack

Jock McCormack

The Australian Government continued attacking multinational tax avoidance with its 2016-2017 Federal Budget released on May 3 2016. The announced measures include a 40% diverted profits tax on large multinationals from July 1 2017, akin to the UK diverted profits tax.

Other related measures announced included:

  • Anti-hybrid rules to limit the use of hybrid entities or instruments under two or more tax jurisdictions;

  • Further alignment of Australia's transfer pricing (TP) rules with international / OECD best practice;

  • A new tax avoidance taskforce, with 390 new specialist officers;

  • Enhanced protections for whistleblowers who advise the Australian Taxation Office (ATO) of tax misconduct;

  • Increased administrative penalties for significant global entities with global revenues of A$1 billion ($728 million) or more.

MAAL and other developments

These measures complement the existing Multinational Anti-Avoidance Law (MAAL) dealing with notional permanent establishment status, and the comprehensive tax transparency and reporting regimes, including the recently enacted country by country reporting requirements.

The corporate tax rate will be progressively reduced for small businesses with annual turnover of less than A$10 million, initially to 27.5% from July 1 2016, and ultimately for all companies by 2023 -2024. A target has also been set to reduce the corporate tax rate to 25% over 10 years.

Importantly, the government will introduce two new types of collective investment vehicles (CIVs): A corporate CIV from July 1 2017 and a limited partnership CIV from July 1 2018. Generally, these CIVs will be flow-through entities for tax purposes provided they are widely held and engage primarily in passive investment.

On GST (VAT), the Government announced:

  • The GST Act will be amended to better deal with digital currency (that is, Bitcoin);

  • GST will be imposed on low value imported goods (value less than A$1,000) from July 1 2017;

  • Compliance costs for entities with a turnover less than A$10 million will be reduced.

The Government also tightened various superannuation concessions.

Diverted profits tax (DPT)

Broadly, the DPT applies to large multinationals where:

  • They shift profits offshore through related-party arrangements; and

  • As a result, the bill on the profit shifted is less than 80% of the tax that would otherwise have been paid in Australia; and

  • It is reasonable to conclude that the arrangement is designed to secure a tax reduction and lacks economic substance.

For income years commencing on or after July 1 2017, the DPT (if applicable) will impose a penalty tax rate of 40% on profits transferred offshore.

Anti-hybrid mismatch rules

Australia will implement the OECD's measures to eliminate hybrid mismatch arrangements. The rules start January 1 2018, or six months after Royal Assent of the enabling legislation.

The measure targets arrangements exploiting differences in the tax treatment of instruments or entities in different countries to achieve double non-taxation and/or long term deferral of taxation. Redeemable preference shares are a common example of a hybrid instrument in Australia.

Tax avoidance taskforce

A new tax avoidance taskforce will focus on compliance with, and enforcement of, the various multinational tax avoidance measures above and the Multinational Anti-Avoidance Law (MAAL). Large multinationals should expect increased ATO audit activities on these measures.

Strengthening TP rules

The Government intends to strengthen Australia's TP rules and to ensure the rules are consistent with international best practice by focusing on substance over form. The Government announced that the OECD paper entitled "Aligning Transfer Pricing Outcomes with Value Creation" issued in October 2015 would be given the same guidance status as the OECD's 2010 guidelines within our TP rules.

Better protection for tax whistleblowers

New arrangements will apply from July 1 2018 to give better legal protection to individuals who disclose information to the ATO on tax avoidance behaviour. No further detail has been released, but the protection will likely apply to employees, former employees and advisers.

Jock McCormack (jock.mccormack@dlapiper.com)

DLA Piper Australia

Tel: +61 2 9286 8253

Fax: +61 2 9286 8007

Website: www.dlapiper.com

more across site & shared bottom lb ros

More from across our site

The threat of 50% tariffs on Brazilian goods coincides with new Brazilian legal powers to adopt retaliatory economic measures, local experts tell ITR
The country’s chancellor appears to have backtracked from previous pillar two scepticism; in other news, Donald Trump threatened Russia with 100% tariffs
In its latest G20 update, the OECD also revealed tense discussions with the US where the ‘significant threat’ of Section 899 was highlighted
The tax agency has increased compliance yield from wealthy individuals but cannot identify how much tax is paid by UK billionaires, the committee also claimed
Saffery cautioned that documentation requirements in new government proposals must be limited if medium-sized companies are not exempted from TP
The global minimum tax deal is not viable without US participation, Friedrich Merz has argued
Section 899 of the ‘one big beautiful’ bill would have spelled disaster for many international investors into the US, but following its shelving, attention turns to the fate of the OECD’s pillars
DLA Piper’s co-head of tax for the US and Latin America tells ITR about her fervent belief in equal access to the law, loving yoga, and paternal inspirations
Tax expert Craig Hillier agrees with the comparison of pillar two to using a sledgehammer to crack a nut
The amount is reported to be up 57% from the £5.6bn that the UK tax agency believes was underpaid in the previous year
Gift this article