Corporate tax avoidance – Senate committee releases final report – 13 recommendation after a 3.5 year torrid inquiry – legislation already fixed some problems

On 30 May 2018, the Senate Economics Reference Committee released a final 128 page report of its inquiry into corporate tax avoidance in Australia. The Committee’s hearings caused headlines as senior officers of major companies were grilled as to the tax structures (a bit like the current Banking Royal Commission, but the Australian revenue was the victim).

After all that heat, the final report makes 13 recommendations, including:

1. amend the thin capitalisation rules so that the worldwide gearing ratio is the only method for calculating interest related deductions for Australian tax purposes
2. undertake an independent review of the current transfer pricing regime, and options to modify or replace it
3. reduce the threshold for all companies, including private companies, that are subject to the publication of tax data tax transparency measures to $100 million or more
4. require the disclosure of beneficial ownership of companies, trusts and corporate structures
5. allow public access to Country-by-Country reports excerpts free of charge
6. convert the existing voluntary tax transparency code to a mandatory code for all large and medium corporations operating in Australia
7. require that the Australian Taxation Office (ATO) include a section on tax settlements of $50 million or greater in its annual report
8. make specific changes to the operation of the Petroleum Resource Rent Tax (PRRT)

The Coalition Senators on the Committee noted that they do not support the recommendations regarding thin capitalisation and the release of CbC Reporting data.  They also recommended that no action be taken on PRRT until after the release of the Callaghan report.

The final report also highlights, that since 2014, Parliament has enacted several new laws to address base erosion and profit shifting, including:

• the Multinational Anti-Avoidance Law (MAAL)
• the Diverted Profits Tax (DPT)
• new measures to apply goods and services tax (GST) to digital services and low-value importations
• transfer pricing amendments and
• increased penalties for significant global entities.

The matter was originally referred to the committee on 2 October 2014, for report by June 2015. The reporting date for the inquiry was extended several times, with the inquiry lapsing at the end of the 44th Parliament, and being re-adopted by the current 45th Parliament. The inquiry received 167 submissions and held 12 public hearings, with 146 witnesses appearing.

2.6.18

[APH website: Final Report; KPMG 31/5/18 & 1/6/18; LTN 103, 31/5/18; FJM; Tax Month – May 2018]

Study questions (answers available)

1. Was the Committee’s inquiry commenced about 3.5 years ago?
2. Were its public hearings turbulent?
3. Since the inquiry began, has Australian passed a number of laws mitigating some of the problems investigated, including the MAAL, DPT, GST on digital services and transfer pricing amendments?
4. Was one of its 13 recommendations to abandon the ‘worldwide gearing ratio’ thin capitalisation test, for allowing deductions for interest expenses?
5. Were they content with the ‘transfer pricing’ regime as it is?
6. Did they recommend that the threshold for the current mandatory tax disclosure regime, be reduced to $100m or more, in global turnover?
7. Did they recommend that disclosure of beneficial ownership of entities be disclosed?
8. Did they recommend that the current voluntary tax transparency code be made mandatory?
9. Did they recommend that tax settlements over $100m be put on a register?