The Diverted Profits Tax
As part of the 2016-17 Budget, the Federal Government announced its plans to introduce a diverted profits tax (DPT), imposing a 40% tax on multinationals in an effort to tackle tax avoidance by these entities. The DPT has been nicknamed the "Google Tax" as it takes aim at some of the biggest multinationals including Apple, BHP Billiton, Chevron and, of course, Google.
The DPT came into effect on 1 July 2017, and aims to ensure that the tax paid by significant global entities properly reflects the economic substance of their activities in Australia. The Government is hoping that such measures will prevent the diversion of profits offshore through contrived arrangements and encourage global entities to provide sufficient information to the ATO to enable a faster resolution of tax disputes. The estimations provided by the federal government indicate that this new tax is expected to raise about $100 million in revenue a year from 2018-19.
The ATO has stated that they are in the process of developing an oversight framework to provide clarity about the procedures relating to DPT assessments to ensure appropriate levels of review and focus.
Importantly, the DPT only applies to 'significant global entities' being:
- A global parent entity with an annual global income exceeding A$1 billion; or
- A member of an accounting consolidated group, and the global parent entity of the group has an annual global income exceeding A$1 billion.
The DPT will also apply to schemes that were entered into before 1 July 2017, if the income years under the scheme commence on or after 1 July 2017. Schemes that will be subject to the DPT must meet the following criteria:
- A taxpayer has obtained a tax benefit in connection with the scheme in an income year;
- The principal purpose, or one of the principal purposes of the scheme, is to obtain an Australian tax benefit or to obtain both an Australian and foreign tax benefit; and
- None of the following tests apply:
- The $25 million income test
- The sufficient foreign tax test;
- The sufficient economic substance test.
Prior to 1 July, in anticipation of the tax coming into effect a number of companies, including Google, who are affected took steps to review and restructure their tax affairs.
This change represents a key area for consideration if you are an Australian business who may have a global parent, or if you are part of a global consolidated group with an overseas parent.
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