The Government, as part of its election commitment platform, announced a multinational tax integrity package to address the tax avoidance practices of multinational enterprises (MNEs) and improve transparency through better public reporting of MNEs’ tax information. These changes form part of the Government’s commitment to ensuring that MNEs pay their fair share of tax in Australia to help fund vital services, repair the Budget and level the playing field for Australian businesses.
Tax integrity issues arise due to MNEs adopting increasingly sophisticated tax planning practices. MNEs can take advantage of the differences between jurisdictions’ tax systems to minimise their tax paid, typically by moving the incidence of taxation from a high taxation jurisdiction to a low taxation jurisdiction, or by avoiding a taxable presence in high taxation jurisdictions altogether.
Transparency is a key factor underpinning the integrity of the tax system. It can help to deter MNEs from entering arrangements to minimise their tax paid, and helps to build community confidence that MNEs are paying their fair share of tax in Australia.
This discussion paper seeks to consult on the implementation of proposals to:
- amend Australia’s existing thin capitalisation rules to limit interest deductions for MNEs in line with the Organisation for Economic Cooperation and Development (OECD)’s recommended approach under Action 4 of the Base Erosion and Profit Shifting (BEPS) program (Part 1);
- introduce a new rule limiting MNEs’ ability to claim tax deductions for payments relating to intangibles and royalties that lead to insufficient tax paid (Part 2); and
- ensure enhanced tax transparency by MNEs (Part 3), through measures such as public reporting of certain tax information on a country‑by‑country basis; mandatory reporting of material tax risks to shareholders; and requiring tenderers for Australian government contracts to disclose their country of tax domicile.
The changes contemplated in this paper seek to target activities deliberately designed to minimise tax, while also considering the need to attract and retain foreign capital and investment in Australia, limit potential additional compliance cost considerations for business, and continue to support genuine commercial activity.
This consultation paper complements the Government’s other MNE tax initiatives, including Australia’s ongoing participation in negotiations on the OECD ‘two‑pillar’ solution to address the tax challenges of the digitalisation of the economy, which includes a 15 per cent global minimum effective tax rate on the profits of large MNEs.
The Government also announced that it will implement a public registry of beneficial ownership to improve transparency on corporate structures, to show who ultimately owns (or controls) a company or legal vehicle. Further details on the beneficial ownership register will be announced in due course.
Following consideration of responses to this discussion paper, the Government will issue and consult further on exposure draft legislation prior to introducing any legislation into Parliament.