The Australian Parliament approved a new Diverted Profits Tax (DPT), which is designed to “encourage greater compliance by large multinational enterprises with their tax obligations in Australia, including with Australia’s transfer pricing rules.”
The DPT will apply at a penalty tax rate of 40%, from 1 July 2017, and will be inserted into the existing general anti-avoidance rules in Part IVA of the Income Tax Assessment Act 1936. The rules will apply where it is reasonable to conclude that a scheme was carried out for a principal purpose, or for more than one principal purpose, of obtaining the relevant tax benefit.
The DPT will apply in respect of a significant global entity – a member of a group whose annual global income is at least A$1 billion – operating in Australia where, based on information available to the Commissioner, it is reasonable to conclude that profits have been artificially diverted from Australia.
The DPT will not apply if the sum of the Australian turnover of the relevant taxpayer, and the Australian turnover of any other Australian entities that are part of the same significant global group, does not exceed A$25 million.
The federal government said the DPT was expected to raise about $100 million in revenue a year from 2018-19. The Australia Taxation Office (ATO) currently has audits under way with a number of multinationals, including Apple, BHP Billiton, Chevron and Crown, which could realise up to an estimated $2 billion in revenue.
The ATO released, on 30 March, a draft taxation ruling setting out the ATO’s view on when a foreign incorporated company is considered an Australian tax resident under the central management and control test. Comments are to be submitted by 12 May.