New Legislation To Combat Anti-tax Avoidance By Multinational Enterprises
On 11 December 2015, parliament passed the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015, dubbed ‘MAAL’ (Multi-national anti-avoidance law), which came into effect from 1 January 2016.
The new law - in a nutshell - seeks to address the issue of multinational enterprises shifting profits offshore and away from an Australian tax base via artificial or contrived arrangements that aim to avoid the attribution of business profits to a taxable presence in within Australia.
The law is targeted at ‘significant global entities’ and their associates that are generating certain profits earned in Australia. A ‘significant global entity’ is a global group of companies (and the respective subsidiaries) with a combined annual revenue of more than AU$1 billion. This law therefore captures a wide range of enterprises operating within Australia who are part of a larger global group of entities, regardless of the Australian entities domestic revenue.
Contrary to the initial exposure drafts for this law, the international operations do not need to be operating in a low or no tax jurisdiction to be resulting in potentially a much broader application.
The result of being potentially captured under the MAAL legislation means that the ATO will be contacting the taxpayer to review their current structures and arrangements.
Application also means that there are new ‘Country by Country’ (“CbC”) reporting obligations for significant global entities, whereby they must now lodge annually with the ATO (within 12 months after the yearend) a ‘CbC report’, catching certain information.
The ‘CbC report’ provides information on the global activities of an entity, including information about the location of its income sources and the location of all taxes paid. The ‘master file’ provides an overview of a significant global entity's global business, its organisational structure and its transfer pricing policies. The ‘local file’ provides detailed information about a local (domestic) entity's intercompany transactions.
It is therefore critical that any multinational entities operating within Australia assess the risk of the new MAAL law applying to their existing structures, and whether they have obligations under the new reporting requirements.
For further information in relation to the MAAL, please contact your ESV engagement partner on 02 9283 1666.