New Legislation introduces new transfer pricing documentation standards and other anti-avoidance measures
On 3 December the federal government passed the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015.
The Bill implements the recent guidance set by the OECD as part of its Base Erosion and Profit Shifting (BEPS) initiative with respect to Action Plan 13: Guidance on the Implementation of Transfer Pricing Documentation and Country-by-Country Reporting by introducing a new transfer pricing standard involving mainly:
- Country by Country (CbC) report
- Master file
- Local file
Which companies are affected?
- Australian headquartered multinational enterprises with annual global group revenue of A$ 1 billion or more (also named in the Bill as ‘Significant Global Entities’) will be required to lodge a CbC Report in addition to both a Master File and Local File.
- Australian subsidiaries and branches of multinational enterprises headquartered outside of Australia with annual global group revenue above the A$ 1 billion threshold will be required to lodge both a Master File and a Local File. No CbC Report will be required in Australia if the ATO is able to obtain the CbC Report from the tax authority in the local entity's parent entity jurisdiction
When is the legislation effective?
The legislation will apply for years beginning on or after 1 January 2016. Further guidance from the ATO is expected on the application of this new transfer pricing standard.
Other measures introduced by the Bill
- Increased penalties on adjustments relating to anti-avoidance or transfer pricing: Companies with annual global revenue exceeding AU$1 billion (Significant Global Entities) could be subject to penalties up to 100% of the tax shortfall from adjustments made under the existing transfer pricing and anti-avoidance rules as well as the MAAL for income years beginning on or after 1 July 2015. Taxpayers that have a ‘reasonably arguable position’ (e.g. transfer pricing documentation) will not be exposed to the higher penalty rates. This measure significantly increases the importance of having transfer pricing documentation that can provide a RAP under Subdivision 284-E.
- A new multinational anti-avoidance Law (MAAL) effective 1 January 2016: The MAAL is intended to ensure that multinational entities cannot use complex and artificial schemes to escape paying Australian tax. The MAAL targets multinational entities that:
- avoid a taxable presence by undertaking significant work in Australia in direct connection to Australian sales but booking their revenue offshore; and
- have a principal purpose of avoiding tax in Australia or reducing their foreign tax liability.
Where the MAAL applies, the foreign entity will be taxed as if had made the sales through a deemed Australian permanent establishment. The MAAL will not operate, if under the current law or under the BEPS proposal, the foreign entity has a permanent establishment in Australia. Further guidance from ATO is contained in Law Companion Guideline (LCG) 2015/2.
- New financial reporting requirements for multinationals operating in Australia: Entities that are part of a group with global income of more than AUD 1 billion (also named in the Bill as ‘Significant Global Entities’) are required to prepare general purpose financial statements for their Australian operations. The general purpose financial statements will need to be submitted by the taxpayer to the Australian Taxation Office (ATO) by the time of filing the tax return. The ATO will be required to share the financial statements it receives with ASIC and as result this information will be publicly available as the intention of this measure is to increase public transparency. The new requirement will apply for years beginning on or after 1 July 2016.
For more information about these news measures and how can affect your company please contact Transfer Pricing Solutions on +61 3 5911 7001 or firstname.lastname@example.org www.transferpricingsolutions.com.au