Combating multinational tax avoidance – a targeted anti-avoidance law
In the 2015–16 Budget, the government announced changes to the existing Part IVA of the Income Tax Assessment Act 1936. The new law will apply to tax benefits obtained on or after 1 January 2016 irrespective of when the scheme was entered into.
The measure will apply to artificial or contrived arrangements where the scheme was designed to avoid the attribution of profits to Australia through an Australian permanent establishment (PE) and the principal purpose or one of the principal purposes of the scheme was to obtain an Australian tax benefit or to obtain both an Australian and foreign tax benefit.
The measure will apply to taxpayers that are considered to be significant global entities, which are taxpayers that have an annual global income of $1 billion or more, or taxpayers that the Commissioner reasonably believes have an annual global income of $1 billion or more.
The effect of the proposal will be to allow the Commissioner to tax the foreign entity that supplied the goods or services to Australian customers as if the foreign entity had undertaken the activities in relation to that supply through a PE in Australia. This would cover business profits attributable to the PE and obligations under royalty and interest withholding tax.
The measure is contained in Schedule 2 of the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015, which was introduced into Parliament on 16 September 2015. The Bill has been referred to the Senate Economics Legislation Committee, which is due to issue its report on the Bill by 9 November 2015.