|Baker & McKenzie|
|Greenwoods & Herbert Smith Freehills|
Australia's 2016-2017 federal budget (released in May 2016) saw the government amend its transfer pricing rules to incorporate the OECD's BEPS recommendations. The changes came into effect July 1 2016.
This new guidance from the OECD, which includes changes to the handling of intangibles, will strengthen the Australian Tax Office's (ATO's) ability to challenge transfer pricing arrangements said Dixon Hearder, head of transfer pricing at Baker & McKenzie.
He also pointed out a growing trend for tax and transfer pricing audits which increasingly draw on new law developments like the multinational anti-avoidance law (MAAL) (introduced in January 2016) and the diverted profits tax (DPT) (proposed in the 2016-2017 budget). "If companies have MAAL and DPT issues and the positions are not resolved, it will be more difficult to get an advance pricing agreement (APA). On the other hand the ATO may encourage APAs to those [companies which have] resolved their positions with MAAL and DPT laws," added Hearder.
Tony Frost, managing director at Greenwoods & Herbert Smith Freehills, described the proposed Australian DPT as an "unfortunate development". Frost said the proposal, modelled on the UK's DPT, which was introduced last year, goes beyond what the OECD set out in the 15 BEPS action points.
He also noted "Uncoordinated unilateral measures like diverted profits taxes will create considerable uncertainty and may lead to increased disputes between countries and companies as to how to divide up tax revenue from multinational companies."
On top of these new laws, the ATO has been given more resources. In the Budget, the government announced the establishment of a new Tax Avoidance Taskforce within the ATO. This taskforce of more than 1,000 officials will enhance audit activities targeting multinationals, large public and private groups and high net wealth individuals. The ATO has also expanded its whistleblower integrity and protection provision to encourage and protect individuals who disclose information to the ATO on tax avoidance behaviour and other tax matters. This measure will take effect from July 1 2018.
"Clients are now more careful to not overlook state taxes which includes land tax, payroll tax and stamp duty as the revenue authority is keen to aggressively improve its revenue bases," said Jock McCormack, head of transfer pricing at DLA Piper.
Not only has Australia become a "first-mover" nation on TP issues, but several of Australia's initiatives exceed the recommendations of the OECD, particularly in respect of the country-by-country reporting (CbCR) requirements, said Leslie Prescott-Haar of TP Equilibrium. As a result "the complexity and extent of transfer pricing risks for significant global entities has increased considerably, as has their compliance burden," she added.
(As of January 1 2016)
|Corporate income tax rate||30% (a)|
|Capital gains tax rate||30% (a)|
|Branch tax rate||30%|
|Conduit foreign income||n.a. (c)|
|Interest paid by Australian branch of foreign bank to parent||5% (e)|
|Interest (debentures, state and federal bonds and offshore banking units)||n.a. (f)|
|Royalties from patents, know-how, etc.||30% (f)|
|Construction and related activities||5% (h)|
|Fund payments from managed investment trusts||15% (i)|
|Branch remittance tax||n.a.|
Net operating losses (years)
Source: EY 2016 Worldwide Corporate Tax Guide