Australia

Market overview

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.


Tax authorities

Australian Taxation Office
Ground Floor, Ethos House, 28-36 Ainslie Ave, Civic Square ACT 2600
Tel: +61 2 6216 1111
Fax: +61 1300 097 953
Email: datamatchingteam@ato.gov.au
Website: www.ato.gov.au


Tax rates at a glance

(As of January 1 2016)

Corporate income tax rate 30% (a)
Capital gains tax rate 30% (a)
Branch tax rate 30%
 
Withholding tax
Dividends
Franked n.a.
Unfranked 30% (b)
Conduit foreign income n.a. (c)
Interest
General 10% (d)
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)
Carryback 0
Carryforward Indefinite

  1. The rate is 28.5% for eligible small business entities with turnover of less than AUD2 million. For corporations, capital gains are taxed at the relevant corporate income tax rate.
  2. This is a final tax that is imposed on payments to non-residents only. A reduced rate (in recent treaties, reduced rates typically are 0%, 5% or 15%, depending on the level of ownership) applies to residents in treaty countries.
  3. An exemption from dividend withholding tax applies to the part of the unfranked dividends that is declared in the distribution statement to be conduit foreign income.
  4. In general, this is a final withholding tax that is imposed on payments to non-residents only. However, withholding tax is imposed in certain circumstances on interest paid to residents carrying on business overseas through a permanent establishment (branch). Modern Australian tax treaties exempt government and unrelated financial institutions from withholding tax.
  5. Interest paid by an Australian branch of a foreign bank to its parent is subject to a rate of 5% on the notional interest rate based on the London Interbank Offered Rate (LIBOR).
  6. Unilateral exemptions from interest withholding tax are provided for certain publicly offered debentures, for state and federal government bonds and for offshore borrowing by offshore banking units.
  7. In general, this is a final withholding tax that is imposed on gross royalties paid to non-residents. A reduced rate (5% in recent treaties) applies to residents of treaty countries.
  8. The filing of an Australian tax return to obtain a refund may be required if this withholding results in an overpayment of tax. A variation of the rate to mitigate the adverse cash flow impact is available to certain taxpayers that have previously filed tax returns in Australia.
  9. Effective from July 1 2012, managed investment trusts that hold only newly constructed energy-efficient commercial buildings may be eligible for a 10% withholding tax rate.

Source: EY 2016 Worldwide Corporate Tax Guide