• Australian business slow to act on international tax measures

Global survey highlights inactivity with BEPS

Despite heightened political and media scrutiny surrounding the tax affairs of Multinational Corporations (MNCs), Australian companies are yet to adjust their practices to better manage their international tax obligations.

Grant Thornton recently surveyed 2,600 businesses in 36 countries, and found that nearly one year after the release of the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan, 78 per cent of businesses globally have not changed their approach to managing their global taxes. This is despite more than 80 countries having agreed to adopt at least the minimum elements of the BEPS Action Plan. Australian respondents to the survey were in line with the global numbers, with 77 per cent of Australian businesses reporting that their approach to taxation had not changed.

This is surprising given the Australian government’s clear intent to lead from the front on perceived tax avoidance by MNCs. Treasurer Scott Morrison has stated that the Government remains committed to ensuring companies that earn income in Australia and benefit from the Australian economy, pay their fair share of tax here. He has further stressed that his government has been working steadfastly on measures to combat multinational tax avoidance, in partnership with the OECD and through its leadership of the G20.

The result of the government’s position is clear with a number of measures already in play including the extension of our general anti-avoidance measures to deal with MNCs avoiding a taxable presence in Australia (the so called Multinational Anti-Avoidance Law (MAAL) provisions), strengthened transfer pricing rules, increased tax transparency, greater exchange of taxpayer information, stronger financial penalties, and the proposed Diverted Profits Tax announced in this year’s Federal Budget. And there is more to come.

Given this background, it is surprising that MNCs carrying on business in Australia or Australian businesses operating offshore are not doing more to understand how the measures may impact them and ensure they don’t fall foul of the new regime.

The reasons for this are likely to be many, including:

  • a reluctance of corporates, especially mid-size businesses, to be the first mover in this area is likely resulting in many taking a “wait and see” approach
  • the lack of certainty around the application of the new and proposed measures, and the lack of guidance and ground rules
  • the increased administrative compliance burden in terms of cost and management time

That said, with some measures already in place and the certainty of more to come (for example, the Diverted Profits Tax), Australian businesses simply need to act. With significant additional ATO resources being applied to enforcement, any delay will likely result in audit activity and financial penalties.

Action plan

Given that BEPs measures broadly seek to ensure that profits are taxed where the underlying economic activity takes place and where value is created, it is important for companies to critically examine and understand their global structures and the tax positions taken historically that impact Australian tax outcomes.

Australian companies need to act to:

  1. Understand the global transaction flows for the multinational group, and Australia’s part in them.
  2. Consider any tax benefit gained either in Australia or overseas (as this impacts on risk levels with the ATO) from these transaction flows.
  3. Action Country by Country (CbC) reporting requirements, ensuring that all information provided in the CbC reports is consistent with tax return disclosures and evaluates areas of potential risk.