The Australian Taxation Office (ATO) today released draft guidance discussing the meaning of the term ‘directly in connection with’ as it applies to Australia’s multinational anti-avoidance law (MAAL).
The MAAL, which became effective in 2016, is designed to shut down tax schemes undertaken by large multinational groups that have a principal purpose of limiting taxable presence in Australia.
The MAAL applies when a foreign entity makes a supply to an Australian customer; activities are undertaken in Australia ‘directly in connection with’ the supply; some or all of those activities are undertaken by an Australian entity who is an associate of, or is commercially dependent on, the foreign entity; and the foreign entity derives ordinary or statutory income from the supply, some or all of which is not attributable to an Australian permanent establishment of the foreign entity.
The ATO’s new draft MAAL guidance, TD 2018/D1, seeks to define ‘directly in connection with’ in this context.
The ATO said that the phrase must be read taking into account the law’s purpose to ensure that foreign multinational entities cannot avoid the attribution of business profits to Australia by avoiding a taxable presence in Australia.
The phrase must be construed broadly, the ATO, and analysis must take into account the facts and circumstances. The guidance provides examples of the types of activities which might be directly connected to a supply.
The ATO has asked for feedback on its draft MAAL guidance by June 1.
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