Australia is leading the global fight against multinational tax avoidance and is cracking-down on taxpayer tax evasion with a number of reforms announced as part of the 2016-17 Budget.
Tax Avoidance Taskforce
Enforcement of existing laws and the new measures announced in the 2016–17 Budget will be supported by additional funding to the ATO to establish a new Tax Avoidance Taskforce.
The Taskforce will pursue tax avoidance by multinationals and high wealth individuals. It is expected to raise $3.7 billion of additional Government revenue over the next four years.
Tax Transparency Code
The Tax Transparency Code is a set of principles and standards to guide medium and large businesses on public disclosure of tax information. Businesses with an annual turnover of $100 million or more are encouraged to publish information to support greater and better informed public scrutiny.
The Government encourages all companies to adopt the Code from the 2016 financial year onwards.
New protections for whistleblowers
The Government will introduce new whistleblower protections for people who disclose information about tax misconduct to the ATO. Whistleblowers will have their identity protected and will be protected from victimisation and civil and criminal action for disclosing information to the ATO.
These protections will encourage whistleblowers to come forward and help support compliance with Australia's tax laws.
Treasury released a consultation paper in December 2016 on the Review of the tax and corporate whistleblower protections.
Disclosure of potential tax avoidance
The Government is improving the disclosure of tax information to the ATO, and is working on developing new rules to require tax and financial advisors to report potentially aggressive tax planning schemes.
These rules will provide the ATO an extra tool to combat the use of aggressive tax schemes and limit the opportunity for such schemes to be marketed.
The Government has introduced legislation to increase the penalties for breach of tax reporting obligations for entities with global incomes of $1 billion or more.
The maximum penalty will increase from $5,250 to $525,000 when taking into account the increase in the value of Commonwealth penalty unit announced in the 2016-17 Mid-Year Economic and Fiscal Outlook.
The Government is also doubling the penalties for entities with global incomes of $1 billion or more when they make false or misleading statements to the ATO.
Diverted Profits Tax
The new Diverted Profits Tax will help ensure that large multinationals are paying the right amount of tax on profits made in Australia. Enabling legislation was introduced on 9 February 2017.
The Diverted Profits Tax will commence on 1 July 2017 and apply to multinationals with global income of $1 billion or more, and who enter into arrangements with off-shore related parties that lack economic substance, with the principal purpose of avoiding tax.
The Diverted Profits Tax will levy a tax rate of 40 per cent on transactions that are caught – a penalty compared to the standard company tax rate.
The Diverted Profits Tax will provide the ATO with greater powers to deal with uncooperative multinationals and provide strong incentives for large companies to pay an appropriate amount of tax.
The Diverted Profits Tax will reinforce Australia's position as having amongst the toughest laws in the world to combat corporate tax avoidance.
Preventing the exploitation of cross-country tax differences
The Government will close loopholes that allow multinational corporations to exploit the differences between the tax treatment of entities and instruments across different countries. These loopholes enable multinationals to obtain unfair tax advantages over purely domestic companies.
For example, a loan from a parent company to its subsidiary may be treated as equity in one country's tax law and debt in another.
Without the Government's changes, the subsidiary may have been allowed to claim a deduction for interest payments made to its parent but the parent company would not pay tax on those payments.
Measures to close loopholes such as these have been agreed by the OECD. These tough new 'anti hybrid' rules will come into effect by 1 January 2018 or six months following Royal Assent.
Preventing the use of related-party transactions to minimise tax
The Government will update legislation to close loopholes that allow multinational companies to use excessive related-party payments to shift profits overseas and reduce the tax they pay in Australia.
Transfer pricing rules regulate the way companies set prices for the trade of goods and services amongst their different businesses in different countries.
The OECD has updated its guidance on how these transactions should be priced. The Government has introduced legislation to ensure that this updated guidance applies in Australia.
The new guidance will make clearer how intellectual property and other intangibles can be priced and clarify that it is the substance rather than the contractual form of a transaction that matters.