In the 2015 Budget, the Government announced a package of measures to address multinational tax avoidance. Exposure drafts to implement two of these measures – the multinational anti-avoidance law and extending the GST to digital products and services – were released on budget night. The Government has now released exposure drafts to implement another two of the multinational tax integrity measures:
- introducing the new OECD standards on transfer pricing documentation and Country-by-Country reporting; and
- doubling administrative penalties for multinational entities that are found to have entered into tax avoidance or profit shifting schemes.
Both these measures apply to entities with annual global revenue of $1 billion or more. In these exposure drafts, an entity's 'annual global revenue' is to be calculated according to subsections 177DA(5) to (7) of Pt IVA of the Income Tax Assessment Act 1936, as proposed by the exposure draft of the Tax Laws Amendment (Tax Integrity Multinational Anti-Avoidance Law) Bill 2015 (the multinational anti-avoidance measure). These subsections refer to calculating the annual global revenue of non-residents. The concept of ‘annual global revenue’ was subject to consultation as part of the multinational anti-avoidance measure. Issues raised with those provisions are currently being examined as part of that consultation process, noting that these provisions are relevant for all three measures in the multinational tax avoidance package.
Country-by-Country reporting and new transfer pricing documentation standards
This exposure draft inserts Subdivision 815-E into the Income Tax Assessment Act 1997. These amendments require entities with annual global revenue of $1 billion or more to file an annual statement with the Commissioner of Taxation. Large multinationals operating in Australia will be required to provide this statement, which will provide the Commissioner with relevant and reliable information to carry out transfer pricing risk assessments.
An entity may be required to include in its statement one or more of:
- a Country-by-Country report containing information on the location of the economic activity undertaken by the multinational group;
- a master file, which provides a high-level description of the multinational group’s business operations; and
- a local file, which describes the Australian entity’s operations and cross border related party transactions.
Stronger penalties to combat tax avoidance and profit shifting
These amendments double the maximum administrative penalties for large companies that are found to have entered tax avoidance or profit shifting schemes. These increased penalties only apply to companies with annual global revenue exceeding $1 billion and that do not adopt a tax position that is reasonably arguable.