The Senate Economics Committee's March 20 decision to endorse the Government's legislation for a Diverted Profits Tax (DPT) represents a failure of Parliament to properly scrutinize the legislation, the Minerals Council of Australia has said.
The DPT was announced as part of the 2016-17 Budget and would be introduced from July 1, 2017. It targets multinational companies that enter into arrangements to divert their Australian profits to offshore related parties to avoid paying Australian tax. The DPT would apply to multinationals with global income of more than AUD1bn (USD764.6m) and Australian income of more than AUD25m. It will be applied at a rate of 40 percent and must be paid immediately.
The Council said: "There is wide agreement amongst Australia's most respected and knowledgeable tax experts that the legislation, as drafted, is badly flawed. The legislation will impose heavy compliance burdens and uncertainty on businesses investing in Australia and risks damage to Australia's reputation as a place to invest. Most disappointing is that the Australian tax community supported the original intent of the DPT, which was to target instances of uncooperative behavior by multinationals to delay resolution of transfer pricing disputes. Instead the proposed legislation represents a textbook case of regulatory overreach by Government."
"The legislation is poorly targeted cutting across Australia's transfer pricing and anti-avoidance rules. It introduces new and undefined concepts into the tax law with uncertain application with implications for legitimate commercial transactions. It represents an assault on procedural fairness by handing extraordinary new powers to the Australian Tax Office (ATO) without adequate oversight or protections for taxpayers doing the right thing. The DPT as drafted takes a coercive approach rather than one that will promote taxpayer co-operation. The DPT will confer unilateral powers on the ATO to raise tax assessments that are supported by minimal evidence of arm's length pricing and where genuine differences of view exist."
The Council said that the measure undermines the multilateral effort led by the OECD's Base Erosion and Profit Shifting initiative (BEPS) project to bring anti-avoidance rules and standards and rules up to date.