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Tax and super

Making our tax system more sustainable so we can cover the Government’s responsibilities for the next generation

Please note: some Budget measures may be subject to the passage of legislation.

Targeting tax avoidance

Tougher laws, stronger compliance

At a time when the burden of tax is being reduced for business, it is important that additional measures are taken to reinforce the integrity of Australia’s corporate tax base.

The Government is committed to ensuring businesses pay the right amount of tax in Australia when they do business in Australia.

We have already implemented tough new laws to crack down on tax avoidance and have been leading the way in implementing measures agreed by the G20 and OECD. Last year the Government introduced into Parliament the Multinational Anti Avoidance Law (MAAL) to ensure that large multinational companies operating in Australia are subject to our tax laws. The legislation was enacted in December 2015.

In this Budget, the Government will build on existing measures by introducing a new Diverted Profits Tax and significantly enhancing the ATO’s enforcement capabilities. The Diverted Profits Tax will impose a 40 per cent penalty rate of tax on large multinationals that attempt to shift their Australian profits offshore to avoid paying tax. Together, the MAAL and the Diverted Profits Tax are expected to raise around $650 million over four years from large multinationals.

These are major steps in the fight against corporate tax avoidance that are reinforced by other tough new measures in the 2016-17 Budget to prevent multinational profit shifting, strengthen enforcement and improve corporate tax transparency.

Tougher laws

  • A new Diverted Profits Tax preventing multinationals shifting profits made in Australia offshore to avoid paying tax
  • Preventing multinationals from exploiting cross-country tax differences to defer or avoid paying tax
  • Aligning transfer pricing rules with the latest international guidelines

Stronger compliance

  • A new Tax Avoidance Taskforce that will strengthen the ATO’s audit and compliance activities
  • A new Tax Transparency Code encouraging greater tax transparency by large corporations
  • Protecting whistleblowers that provide information on tax avoidance to the ATO
  • Progressing a disclosure regime to uncover aggressive tax planning schemes
  • Increasing penalties for breach of tax reporting obligations by large companies

Enforcing tough new laws

More power and more resources for our tax cop ‘on the beat’

The new Tax Avoidance Taskforce

Enforcement of existing laws and the tough new measures announced in the 2016–17 Budget will be supported by additional funding to the ATO to establish a new Tax Avoidance Taskforce.

The Taskforce will pursue tax avoidance by multinationals and high wealth individuals. It is expected to raise $3.7 billion of additional Government revenue over the next four years.

A new Tax Transparency Code

The Government is committed to encouraging greater tax transparency within the corporate sector, especially by multinational corporations. The Tax Transparency Code will encourage businesses with an annual turnover of $100 million or more to publish information to support greater and better informed public scrutiny.

The Government encourages all companies to adopt the Code from the 2016 financial year onwards.

New protections for whistleblowers

The Government will introduce new whistleblower protections for people who disclose information about tax misconduct to the ATO. Whistleblowers will have their identity protected and will be protected from victimisation and civil and criminal action for disclosing information to the ATO.

These protections will encourage whistleblowers to come forward and help support compliance with Australia’s tax laws.

A new regime for disclosure of potential tax avoidance

The Government is determined to improve disclosure of taxpayer information to the ATO, and will consult on new rules requiring tax and financial advisors to report potentially aggressive tax planning schemes.

These rules will give the ATO an extra tool to combat the use of aggressive tax schemes and limit the opportunity for such schemes to be marketed.

Increased penalties

The Government will increase the penalties for breach of tax reporting obligations for companies with global incomes of $1 billion or more.

The Government will increase the maximum penalty from $4,500 to $450,000 for failing to lodge tax returns and similar tax documents on time.

The Government will also double the penalties for making false and misleading statements to the ATO.

These new penalties will send a clear message that the Government will not tolerate inaccurate or delayed tax reporting and administration by large businesses.

Making multinationals pay tax on what they earn in Australia

Preventing multinationals from profit shifting

Introduction of a Diverted Profits Tax

The new Diverted Profits Tax will help ensure that large multinationals are paying the right amount of tax on profits made in Australia.

The Diverted Profits Tax will commence on 1 July 2017 and apply to multinationals using artificial or contrived arrangements to reduce tax by diverting profits offshore.

The Diverted Profits Tax arrangements will provide the ATO with greater powers to deal with uncooperative multinationals and provide strong incentives for large companies to pay an appropriate amount of tax.

The Diverted Profits Tax will broaden the ATO’s scope to identify large multinationals seeking to avoid tax by shifting profits out of Australia and will levy a tax rate of 40 per cent on transactions that are caught – a penalty compared to the standard company tax rate.

The Diverted Profits Tax will reinforce Australia’s position as having amongst the toughest laws in the world to combat corporate tax avoidance.

 

The Diverted Profits Tax will provide the ATO with greater powers to combat corporate tax avoidance.

Preventing the exploitation of cross-country tax differences

The Government will also close loopholes that allow multinational corporations to exploit the differences between the tax treatment of entities and instruments across different countries. These loopholes enable multinationals to obtain unfair tax advantages over purely domestic companies.

For example, a loan from a parent company to its subsidiary may be treated as equity in one country’s tax law and debt in another.

Without the Government’s changes, the subsidiary may have been allowed to claim a deduction for interest payments made to its parent but the parent company would not pay tax on those payments.

Measures to close loopholes such as these have been agreed by the OECD. These tough new ‘anti hybrid’ rules will come into effect by 1 January 2018 or six months following Royal Assent.

Preventing the use of related-party transactions to minimise tax

The Government will update legislation to close loopholes that allow multinational companies to use excessive related-party payments to shift profits overseas and reduce the tax they pay in Australia.

Transfer pricing rules regulate the way companies set prices for the trade of goods and services amongst their different businesses in different countries.

The OECD has updated its guidance on how these transactions should be priced. The Government will amend legislation to ensure that this updated guidance applies in Australia.

The new guidance will make clearer how intellectual property and other intangibles can be priced and clarify that it is the substance rather than the contractual form of a transaction that matters.