Large Business and International Tax Measures

The 2016 Budget: Large Business and International Tax Measures

As announced in the Federal Budget, the Government will initiate a Ten Year Enterprise Tax Plan, which will aim to:

Collective investment vehicles

A new tax and regulatory framework will be introduced for two new types of collective investment vehicles (CIV). A ‘corporate CIV’ will be introduced from 1 July 2017 and a ‘limited partnership CIV’ will be introduced from 1 July 2018.

Tax consolidation measures
  1. The proposed measure to address the tax benefit that arises from double counting of deductible liabilities under the tax consolidation regime announced in the 2013-14 Federal Budget will be modified.
  2. The treatment of deferred tax liabilities under the tax consolidation regime will be amended. The adjustments relating to deferred tax liabilities will be removed from the entry and exit tax cost-setting rules.
Taxing financial arrangements
  1. An integrity measure concerning liabilities arising from securitisation arrangements announced in the 2014-15 Federal Budget will be extended to also apply to non-financial institutions with securitisation arrangements. The liabilities will be disregarded if the relevant securitised asset is not recognised for tax purposes.
  2. The taxation of financial arrangements (TOFA) rules will be reformed and new simplified rules will apply from 1 January 2018
  3. From 1 July 2018, the tax treatment of asset backed financing arrangements, such as deferred payment arrangements and hire purchase arrangements will be amended.
Diverted profits tax for multinationals

From 1 July 2017, a 40% tax will apply to the profits of multinational corporations that are artificially diverted from Australia. This measure is a significant part of the Government’s Tax Integrity Package of measures to target companies that shift profits out of Australia to avoid Australian tax through arrangements with related parties. 

Where the tax paid on the profit that was diverted overseas is less than 80% of the tax that would have been paid in Australia, it is reasonable to conclude the arrangement involving related parties is designed to reduce tax in Australia and the arrangement does not have enough economic substance, the diverted profits tax will apply.

Multinational corporations that will be subject to the tax are ‘significant global entities’ with global annual revenue (including related parties) of $1 billion or more. Multinational corporations whose Australian annual turnover is less than $25 million will be exempt from the tax unless they have artificially booked income offshore.

Other measures affecting multinationals in the Tax Integrity Package
  1. With effect from 1 July 2016, Australia’s transfer pricing rules will be amended to give effect to some of the OECD recommendations made through the OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan).
  2. From 1 January 2018, and following consultation with the Board of Taxation, rules developed by the OECD in relation to their BEPS Action plan to eliminate hybrid mismatches will be implemented.

The administrative penalties that apply to ‘significant global entities’ will be increased 100 fold (the maximum penalty will rise from $4,500 to $450,000) from 1 July 2017 where tax disclosure obligations are not met. Where careless or reckless statements have been made, the penalties that apply will be doubled.

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