The Government will introduce a Diverted Profits Tax (DPT) aimed at multinationals that artificially divert profits from Australia. It will apply from 1 July 2017 and will impose a tax at 40% of the diverted profits.
- The DPT will target businesses that shift profits offshore through arrangements that result in less than 80 per cent tax being paid overseas than would otherwise have been paid in Australia (that is overseas tax is at least 20% less than would have been payable in Australia); and
- where it is reasonable to conclude that the arrangement is designed to secure a tax reduction; and
- where the arrangement lacks economic substance.
- The DPT will apply to multinationals with global revenue of $1 billion or more.
- The DPT will not apply to multinationals with Australian turnover of less than $25 million unless they are artificially booking their revenue offshore.
The DPT will provide the Australian Tax Office (ATO) with greater powers to deal with multinationals who transfer profits, assets or risks to offshore related parties using artificial or contrived arrangements to avoid Australian tax and who do not cooperate with the ATO.
By imposing a penalty rate of tax, requiring the DPT to be paid on assessment and broadening the ATO reconstruction powers, the DPT will encourage greater openness with the ATO, address information asymmetries and allow for speedier resolution of disputes including under our transfer pricing rules.
Treasury has issued a consultation paper details the key design features of the DPT and invites all interested parties to make a submission on the design of the DPT.
[Treasury website] [LTN 85, 5/5/16]
Consultation Paper – Table of Contents
Consultation Process …………………………………………………………………………….. iv
Background ………………………………………………………………………………………….. 1
Tackling multinational tax avoidance ………………………………………………………… 1 Context…………………………………………………………………………………………………. 2 Purpose………………………………………………………………………………………………… 2
The DPT in the Australian context…………………………………………………………….. 3
Commencement of the DPT ……………………………………………………………………. 3
Taxpayers subject to the DPT …………………………………………………………………. 3
Transactions subject to the DPT ……………………………………………………………… 4
The effective tax mismatch requirement …………………………………………………… 4
The insufficient economic substance test …………………………………………………. 5
Calculation of the assessment…………………………………………………………………. 5
Diverted Profits Amount …………………………………………………………………………. 5
DPT rate ………………………………………………………………………………………………. 6
DPT assessment……………………………………………………………………………………. 6
Income tax treatment of a DPT liability …………………………………………………….. 6
Timeframes and administrative processes ……………………………………………….. 7
Administrative guidance…………………………………………………………………………. 7
Next steps……………………………………………………………………………………………. 8
Appendix A.1: Who is caught by the DPT? ………………………………………………. 9
Appendix A.2: Timing and calculation of the DPT……………………………………… 10
Appendix B.1: Example of an ‘inflated expenditure’ scenario……………………… 11
Scenario …………………………………………………………………………………………….. 11
Application of the DPT requirements ……………………………………………………… 11
Outcome of an application of a DPT assessment ……………………………………. 12
Appendix B.2: Example of a reconstruction scenario………………………………… 13
Scenario ……………………………………………………………………………………………. 13
Application of the DPT requirements ……………………………………………………… 13
Outcome of an application of a DPT assessment …………………………………….. 14
Appendix B.3: Example of an understated income reconstruction
scenario ……………………………………………………………………………………………….15
Scenario …………………………………………………………………………………………….. 15
Application of the DPT requirements ………………………………………………………. 16
Outcome of an application of a DPT assessment …………………………………….. 16