When the Federal Government introduced the Multinational Anti-Avoidance Law (MAAL) last year, it put multinational corporations (MNCs) on notice regarding taxation. During the recent budget announcements, Federal Treasurer Scott Morrison made it clear the political will to curb the execution of potentially contrived tax structures is high, and will be well funded.
The drive to transparency includes a number of important measures:
- Tax legislation is ramping up to be in line with the Organisation for Economic Co-operation and Development (OECD) transfer pricing and Base Erosion and Profit Shifting (BEPS) guidelines.
- Significant additional funding for the Australian Taxation Office (ATO), to heighten enforcement of tough new penalties for non-compliance through the 1,000+ strong Tax Avoidance Task Force.
- A maximum penalty of $450,000 for non-compliance of tax disclosure by submission due date.
- Double penalty for companies found to have made false and misleading statements to the ATO.
- The Diverted Profits Tax (DPT) will introduce a penalty tax rate of 40% on profits levied upon companies transferring profits, assets or risks offshore through related party transactions that lack economic substance.
- Australia’s transfer pricing laws will be amended to give effect to the 2015 OECD transfer pricing recommendations on intangible property, contractual allocation of risks and low value-adding intragroup services arrangement.
- Adoption of the OECD’s hybrid mismatch arrangement rules will reduce the opportunity for companies to exploit differences in the tax treatment of an entity or instrument, which results in tax that is either deferred or not paid at all.
This drive to increase transparency does not stop with the corporations themselves. Budget announcements included powers for the Tax Avoidance Taskforce to scrutinise the taxation affairs of high net worth individuals, whilst new arrangements will better protect individuals who disclose information to the ATO on tax avoidance behaviour and other tax issues.
What should MNC’s and their advisors be doing?
The extended powers of the ATO and the Tax Avoidance Task Force are expected to net AUD$3.7b by 2020. With years of continued budget deficit forecast, recouping losses will likely be a bi-partisan effort for some years to come.
The onus is on MNCs to be prepared to abide by new tax rules and that means it is time to review the global value chain, its operational substance and the value creation mechanism, as well as the way revenues recognised around the world.
With larger “sticks” in place to enforce the new and coming rules and regulations, and the heightened level of scrutiny by the media and the public, leadership teams should act soon to address their transparency requirements and ensure they can take a clearly confident position on global taxation.
Technology that can streamline multiple data collection, automate accurate report preparation and conduct advance analytics and planning exercises is one way to gain that confidence, quickly.
Contact us today to find out you can benefit from leveraging transfer pricing technology in your organisation.
You can read our latest paper ‘Budget Update: Towards Transparency’ here.