On August 5, 2022 the Australian Treasury published a consultation paper titled: “Government election commitments: Multinational tax integrity and enhanced tax transparency”. The consultation paper discusses the potential introduction of a multinational tax integrity package to address the tax avoidance practices of multinational enterprises (MNEs) and improve transparency through better public reporting of MNEs’ tax information. The closing date for submission is September 2, 2022.
This paper seeks to consult on the implementation of proposals to:
• amend Australia’s existing thin capitalisation rules to limit interest deductions for MNEs in line with the Organisation for Economic Cooperation and Development (OECD)’s recommended approach under Action 4 of the Base Erosion and Profit Shifting (BEPS) program (Part 1);
• introduce a new rule limiting MNEs’ ability to claim tax deductions for payments relating to intangibles and royalties that lead to insufficient tax paid (Part 2); and
• ensure enhanced tax transparency by MNEs (Part 3), through measures such as public reporting of certain tax information on a country-by-country basis; mandatory reporting of material tax risks to shareholders; and requiring tenderers for Australian government contracts to disclose their country of tax domicile.
The changes contemplated in this paper seek to target activities deliberately designed to minimise tax, while also considering the need to attract and retain foreign capital and investment in Australia, limit potential additional compliance cost considerations for business, and continue to support genuine commercial activity.
The consultation paper consists out of 3 parts and discussed the following subjects.
Part 1: MNE interest limitation rules
· Introduction and existing framework
· Current thin capitalisation rules
· Implementation considerations
o Adopting an earnings-based ‘safe harbour’ test
o Fixed ratio rule: implementation considerations
o Group ratio rule
o Fixed ratio rule: the role of arm’s length debt test
Part 2: Denying MNEs deductions for payments relating to intangibles and royalties paid to low or no tax jurisdictions
· Current rules
· Integrity issues
o Taxpayers in scope
o Payments relating to intangibles and royalties in scope of this measure
o Application to related and unrelated parties
o Insufficient tax
· International comparisons
Part 3: Multinational tax transparency
· Policy context
· Tax transparency reporting: the current approach in Australia
· Public reporting of tax information on a country-by-country basis
o Confidential country-by-country reporting (OECD standard)
o Public country-by-country reporting (EU standard)
o Global Reporting Initiative – Tax Standard
o (Voluntary) Tax Transparency Code
· Standardised public CbC reporting
· Mandatory reporting of material tax risk to shareholders
o Tax haven exposure
o Other forms of high-risk tax arrangements
· Requiring government tenderers to disclose their country of tax domicile
The consultation paper, which also includes information on how you can provide input, can be found here.
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