On 12 February 2018, Treasury released an exposure draft of legislation to extend the application of the Multinational Anti-Avoidance Law (MAAL) to capture the use of certain trusts and partnerships that may otherwise circumvent the MAAL. This measure was announced in the 2017-18 Federal budget (in May 2017).

The MAAL is located in Part IVA of the ITAA36 (the ‘general anti-avoidance provisions’). This Part applies to certain ‘schemes’, which are listed in various of it’s sections, including the MAAL. The MAAL is in s177DA and commenced to operate on 1 January 2016 (as will these proposed amendments).

  1. If the Part IVA applies, to a ‘scheme’, s177F entitles the Commissioner to cancel the stated ‘tax benefit’ in various ways, such as by adding back avoided income (ss(1)(a)), disallowing deductions incurred for avoidance purposes (ss(1)(b)) and imposing withholding tax (ss(2A)).
  2. The MAAL is designed to counter schemes, under which, ‘foreign entities’ avoid making supplies, to ‘Australian customers’, through an Australian ‘permanent establishment’ (P/E). They do this by carefully following the P/E definition(s) – the crux of which is to get others to help facilitate the sales, so that the foreign entity only finalises the sales. Without an Australian P/E, Australia can’t tax the income attributable to those sales, under the ‘business profits’ article of most of Australia’s ‘Double Tax Agreements’. (It is worth noting, though, that the proceeds from such a supply would still need to be ‘sourced’ in Australia, before our domestic tax law, would allow a non-resident to be assessed on those proceeds, in the first place.)
  3. The MAAL only applies to suppliers that are part of a A$1b global turnover group. This is by virtue of s177DA(1)(c), which requires the foreign supplier to be a ‘significant global entity’, which, in turn, is a ‘global parent entity’ or a member of the parent’s consolidated group, for accounting purposes (s960-555 of the ITAA97).
  4. The foreign entity must have derived Australian ‘ordinary’ or ‘statutory’ income from the supply, some, or all of which, is not attributable to an Australian P/E (s177(1)(a)(iv)&(v)).
  5. The MAAL won’t apply unless a person who entered into the ‘scheme’ did so for the principal purpose of enabling a taxpayer to get a ‘tax benefit’ (s177DA(2)). A ‘tax benefit’ includes ‘assessable income avoided’ and ‘withholding tax’ avoided (s177C(1)(a)&(bc)).

Multi-nationals were restructuring in a way that was likely to have avoided the MAAL (avoid the anti-avoidance provision). This was because of the requirement that, it had to be a ‘foreign entity’, that supplies the Australian customer.

  • A foreign entity’ is defined as one that is not an ‘Australian entity’, which in turn was defined (in s336 of the ITAA36) as a ‘Part X Australian resident’; an ‘Australian partnership’ (at least one Australian partner – s337) and an ‘Australian trust’ (at lease one Australian trustee – s338).
  • Thus, Australian partnership or Australian trust, was not a ‘foreign entity’ and it could avoid the MAAL, if made the supply to the Australian customer and net proceeds could still find their way back to the ‘significant global entity [group]’.
  • Because of this concern, the proposal is to backdate the commencement, of this amendment, to the commencement of the MAAL (which is: 1 January 2016).

The proposed amendment, is set out below (and is reasonably compact).

  1. It involves inserting a new ss(7) & ss(8) into the MAAL (s177DA of the ITAA36).
  2. Under new ss(8), the relevant relevant ‘foreign entity’ would be deemed to have made the supply to the Australian customer and to have received the ‘ordinary income or statutory income’ from that supply (that the partnership or trust actually received for actually making the supply).
  3. For this amendment to apply, the partnership or trust must have a ‘foreign entity participant’ (new ss(7)(d)). This is a foreign entity that is a partner or a beneficiary of the trust (see new s177A(1), which also has further ‘look through’ provisions).
  4. The partnership or trust must have made a supply that year (new ss(7)(b)(i)).
  5. And finally there are 3 further alternate requirements.
    • the foreign entity must be connected with the partnership or trust (new ss(7)(a)(i)). This refers (primarily) to the foreign entity having a 40% control interest, in the partnership or trust (viz: its income, capital or voting power – on an ‘affiliate’ inclusive basis) – per existing s328-125 ITAA97.
    • the partnership or trust must be an affiliate of the foreign entity (new ss(7)(a)(ii)). An ‘affiliate’ is an ‘individual or company [which] acts, or could be reasonably be expected to act, in accordance with your directions or wishes, or in concert with you’ – per existing s328-130 of the ITAA97. This new provision goes on to modify the existing definition by having it apply as if the ‘individual and company’ were partnership or trust (which I have some difficulty with – see EDITORIAL COMMENT below).
    • the partnership or trust and a foreign entity are members of the same global group (new ss(7)(a)(iii)). This is an accounting consolidation test.


  1. The attempted extension of the ‘affiliate’ definition, to include partnership and trusts is, I think, misconceived.
  2. The definition only mentions ‘individuals’ and ‘companies’ as they are the only two persons that have a legal identity and are, thus, capable of ‘acting … in accordance with directions’ or ‘acting in concert’.
  3. Income tax law deems ‘partnerships’ and ‘trusts’ to be entities for income tax law purposes (s960-100(1)(d)&(f)). Section 960-100(2) appears to recognise this reality, for trusts, at least. It defines the ‘trustee of the trust … at any given time‘ as the relevant entity.
  4. It is not clear that s960-100 deals with ‘partnerships’ effectively, though. Section 960-100(3)&(4) say that a legal person is a different ‘entity’ in each of their different capacities (ss(3)) and that it is only the ‘entity’, of the kind referred to, that counts (ss(4)).
  5. I would recommend that s96-100 have a further subsection added, to the effect that  ‘the partners, of a partnership, from time to time, so far as they conduct the partnership business, will constitute the entity”.
  6. Then s177DA(1)(a)(ii) could read, simply: “(ii)  a trust estate or partnership is would be an affiliate (within the meaning of that Act).”


[Treasury website: consultation on draft Bill & EM; FJM; LTN 28, 12/2/18; Tax Month February 2018]


Study questions (answers available)

  1. Is this an exposure draft of a Bill (and EM) to extend the MAAL to cover supplies made, by certain trusts and partnerships, that may otherwise circumvent the MAAL?
  2. Is the MAAL part of the general anti-avoidance provisions in the Taxation Administration Act 1953?
  3. Can avoiding a supply through an Australian P/E deprive Australia of the right to tax income attributable to that supply?
  4. Is the MAAL limited to supplies by foreign entities that are part of a global group with A$1b of turnover?
  5. Is the the usual thing the Commissioner does, if the MAAL applies, is disallow deductions claimed?
  6. Is the principal mischief, using Australian partnerships and trusts, to avoid there being a ‘foreign person’ who makes the supply to an Australian customer?
  7. Is a critical part of the new measure, that there is a foreign person, who is a partner in the partnership or a trustee of the trust – known as a ‘foreign person participant’?
  8. Is the effect of this amendment, to deem this foreign person to have made the supply and received the proceeds (so as to trigger the MAAL)?
  9. Is the way the amendment ensures it is only foreign person participants’, who can pass the proceeds back to the ‘significant global group’, is to require the ‘participant’ and the partnership/trust to be all of: ‘connected’, affiliates and members of the same global group?







Treasury Laws Amendment (Measures for a later sitting) Bill 2018: MAAL

Schedule MMultinational anti‑avoidance law

Income Tax Assessment Act 1936

1 Subsection 177A(1)


foreign entity participant:

(a)   if a beneficiary of a trust estate or a partner in a partnership is a foreign entity, the trust estate or partnership has a foreign entity participant; and

(b)   if a trust estate or partnership has a foreign entity participant (including through a previous operation of this paragraph):

(i)  a trust of which the trust estate or partnership is a beneficiary also has a foreign entity participant; and

(ii)  a partnership in which the trust estate or partnership is a partner also has a foreign entity participant.

2 At the end of section 177DA

Income from supply by trust estate or partnership

(7)  Subsection (8) applies if:

(a)   any of the following conditions are satisfied:

(i)  a trust estate or partnership is connected with (within the meaning of the Income Tax Assessment Act 1997) a foreign entity;

(ii)  a trust estate or partnership would be an affiliate (within the meaning of that Act) of a foreign entity if the trust estate or partnership were an individual or a company;

(iii)  a trust estate or partnership and a foreign entity are members of the same global group; and

(b)  both of the following conditions are satisfied:

(i)  the trust estate or partnership makes a supply in a year of income to an entity;

(ii)  that entity would be an Australian customer of the trust estate or partnership if the trust estate or partnership were a foreign entity; and

(c)    because of the supply, an amount of ordinary income, or statutory income, is included in the assessable income of the for the purposes of working out its net income for that year of income); and

(d)    the trust estate or partnership has a foreign entity participant at any time in that year of income.

(8)  For the purposes of this section:

(a)    treat the foreign entity mentioned in paragraph (7)(a) as having made the supply; and

(b)    treat the Australian customer as being an Australian customer of the foreign entity; and

(c)    treat the foreign entity as having derived the ordinary income, or statutory income, from the supply.



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