|Transfer Pricing Solutions|
|Baker Tilly Pitcher Partners|
The Australian government has sought to increase its tax base to obtain more revenue for its federal programmes. Some practitioners have commented on the Australian government's challenges to comprehensively reform the tax system.
The government has focused on implementing the BEPS Project, and the Australian Tax Office (ATO) has begun to take decisive action against MNEs on the issues of transfer pricing and tax avoidance. Tax professionals have mentioned that the Australian government has gone beyond the principles laid out in BEPS: the tax legislation is stricter, and many view this as offering the taxpayer less protection.
A key piece of legislation is the diverted profits tax (DPT). The DPT gives more powers to the ATO to handle international groups which have diverted profits from Australia to offshore companies. Such international companies use mechanisms designed to avoid paying Australian income or withholding tax.
The government has enhanced the ATO's budget, meaning more resources for – and more pressure on – the authority now to collect revenue. In the past, the ATO negotiated and was keen to finalise disputes. The government's approach appears to have resulted in the ATO being increasingly keen to initiate tax litigation when disputes arise. Some tax practitioners have stated that there is less consultation between the revenue authority and the tax advisory community on legislation and the interpretation of the law. Practitioners have also observed that the ATO also appears to be exercising greater influence on tax policy-making.
Dispute areas relate to cross-border issues, such as inbound debt pricing, the inbound importation of high-value goods and the exportation of commodities. The decision in Chevron Australia Holdings Pty Ltd (CAPHL) v Commissioner of Taxation  FCAFC has highlighted the robust approach taken by the government. In this case, Chevron lost its appeal regarding its Australian subsidiary subjected to a TP challenge on an inbound loan. Chevron is seeking special leave from the High Court to appeal the Federal Court's ruling. The case is seen as significant, as there are very few tax cases that deal with transfer pricing on cross-border loans.
(As of August 23 2017)
|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 Corporate Tax Guide 2017 and Deloitte