Draft Australia diverted profits tax legislation released for public comment

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The Australian government today released draft diverted profits tax legislation, designed to stop large multinational businesses from artificially shifting taxable income away from Australia.

The draft legislation implements proposals first announced in Australia’s 2016-17 budget, imposing a 40 percent penalty tax when a multinational’s profits are shifted to offshore associated entities and the resulting increase in the foreign tax liability is less than 80 percent of the corresponding decrease in the Australian tax liability.

The transaction must also lack sufficient economic substance and one of the principal purposes of the transaction must be to obtain a tax benefit.

Multinationals with annual global income of AUS 1 billion (~USD 748 million) that have Australian turnover of more than AUS 25 million (~USD 18.7 million) would be subject to the new rules.

If the Australian tax authority issues a diverted profit tax assessment, the multinational must pay the tax within 21 days, but has a right to provide the tax authority with further information disclosing reasons why the assessment should be reduced. Taxpayers that are dissatisfied with the tax authority’s decision may appeal to Federal Court, but may only use evidence in court that was provided to the tax authority during the period of review.

The government said the new law will encourage greater compliance by large multinational enterprises with their tax obligations in Australia, including with Australia’s transfer pricing rules.

Comments are sought on the draft law by December 23.

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