Is your business a global entity with customers in Australia? If so you may be affected by Australia’s new tax laws targeting multinational tax avoidance.
Australia is one of the first countries to pass laws on combating multinational tax avoidance. The new law, passed on 11 December 2015, is one of the outcomes of the multi jurisdictional OECD/ G20-led BEPS (Base Erosion and Profit Shifting) project which commenced a couple of years ago.
Titled the Tax Laws Amendment (Combating Multinational Tax Avoidance) Act, it is designed to prevent multinational entities from using artificial or contrived arrangements to avoid the attribution of business profits to Australia.
The new measures specifically target multinational entities earning more than AU$1 billion worldwide, annually. Such entities are regarded as ‘significant global entities.’ If you fall into this category, it is important you seek advice with regard to how the MAAL could affect you, as the maximum penalties for tax avoidance or profit shifting schemes have literally doubled. Moreover, if you are a multinational entity and have not prepared global financial statements, the Commissioner may make a determination if he reasonably believes that the entity’s annual global income would have been AU$1 billion or more.
Multinationals found to be avoiding Australian tax under the new law will have to pay back the tax they owe (plus interest) and face penalties of up to 100% of the tax owed.
Note that the MAAL Tax Laws Amendments do not apply to those entities which have a ‘reasonably arguable position’ on the application of the relevant provisions. This is so penalties are not increased due to uncertainty in the law.
Features of the MAAL
The MAAL involves a lower threshold test than Australia’s more well known general anti-avoidance rule. Previously, the avoidance of tax had to be a scheme’s sole or dominant purpose, not just one of many purposes. Now, schemes entered into for the purpose of obtaining a tax benefit (among other purposes) will come under anti-avoidance provisions.
What can you expect? – MAAL client experience roadmap
The ATO has produced a ‘client experience roadmap’ for those entities who may be affected by the MAAL in order to ease the transition to compliance. There are five differing taxpayer situations:
- Taxpayer under current review – where the taxpayer has a current compliance activity
- Responsive taxpayer – where the taxpayer is contacted by the ATO by 31 March 2016
- Voluntary disclosure taxpayer – where the taxpayer contacts the ATO by 31 March 2016
- Subsequently identified taxpayer – where the taxpayer is identified as being in the scope of MAAL after 31 March 2016
- Out of scope taxpayer – where the taxpayer is outside the scope of the MAAL.
The experience of each taxpayer in the above categories will differ, and the earlier you engage with the ATO with regard to any schemes which you may have in place, the more favourable your experience is likely to be.
Accru is working through the MAAL experience with our multi-national clients. Whilst it is a lengthy process, we have the documentation and international tax expertise to provide the explanations they are seeking.
We expect our clients to be in the low risk category. We will provide updates as the application of the law becomes clearer. In the meantime, please do not hesitate to get in touch with your local Accru advisor for a confidential discussion.