The diverted profits tax (DPT) is part of a package of tax integrity measures which include increased penalties, measures to address cross-border mismatches involving hybrid instruments and a beefed-up ATO Tax Avoidance Taskforce.
Michael Croker, the Tax Leader at Chartered Accountants Australia and New Zealand, said the ‘get tough on multinationals’ message will be popular in the electorate, but if not managed carefully the policies could create risks for an open economy like Australia.
“Businesses need certainty and despite what politicians say, the law doesn’t levy tax based on the concept of paying a ‘fair share’.
In the eyes of the international business community, Australia can ill-afford to be seen as a place where the ascertainment of tax payable only becomes clear following discussions with the ATO about the inbound structure and related party transactions.”
Mr Croker said the process of developing ATO guidance contemporaneously with the DPT legislation will be very important.
He noted that Australia was also sending a message to the OECD which has urged a multilateral, coordinated approach to base erosion and profit shifting.
“Australia’s unilateral action shouldn’t be equated with the United Kingdom’s DPT approach. The UK’s DPT has been accompanied by a phased reduction in the UK company tax rate, from 28% (2010) to 17% (2020). Our Federal Budget maps out an unbearably slow process of reducing our large company tax rate from 30% (2022-23) to 25% (2026-27). The comparison with the UK also begs the question – what is a low tax jurisdiction compared to Australia?”
Although everyone acknowledges Australia’s sovereign right to act as it sees fit, Mr Croker said the government should commit to a post-implementation review of the tax once progress had been made by the global community on the OECD’s BEPS recommendations, or any adverse investment impacts identified.
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