Base erosion and profit shifting (BEPS) update
Since our last TaxTalk publication on 1 December 2015, the following Australian developments have taken place in relation to BEPS:
- On 3 December 2015, legislation introducing the Multinational Anti-Avoidance Rules (MAAL) and country-by-country reporting (CBCR) requirements, as developed by the Organisation for Economic Co-operation & Development (OECD) in Action 13 of the base erosion and profit shifting (BEPS) project, and the requirement for significant global entities with operations in Australia to prepare and lodge general purpose financial statements was passed by the Federal Parliament. Royal Assent was granted on 11 December 2015 (see Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015).
- On 3 December 2015, legislation introducing the OECD’s Common Reporting Standard (CRS) for the automatic exchange of financial account information was tabled in a Bill (Tax Laws Amendment (Implementation of the Common Reporting Standard) Bill 2015) before Parliament. These rules will apply with effect from 1 July 2017.
- On 30 November 2015, law introducing third party transaction reporting requirements for a number of entities including market participants and administrators of payment systems received Royal Assent (see Tax and Superannuation Laws Amendment (2015 Measures No 5) Act 2015). These rules will also apply from 1 July 2017.
- On 20 November 2015, the Board of Taxation released a consultation paper on the implementation of the anti-hybrid rules as developed by the OECD in Action 2 of the BEPS project.
- On 11 December 2015, the Board of Taxation released a consultation paper on the voluntary tax transparency code developed to facilitate business information disclosure.
Tax Policy Bulletin on Final Report of OECD on Hybrid Mismatch Arrangements
Israel and Niue sign Multilateral Convention on Mutual Administrative Assistance in Tax Matters
The OECD has announced that Israel and Niue have signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters which provides for all forms of mutual assistance - exchange on request, spontaneous assistance, tax examinations abroad, simultaneous tax examinations and assistance in tax collection, while protecting taxpayers’ rights.
Tax Tips 2015 provides an insight into tax developments in New Zealand during 2015.
Taxpayer Alert: Offshore procurement hubs – dual CFC structures
On 10 December 2015, the Commissioner of Taxation published Taxpayer Alert 2015/5: Arrangements involving offshore procurement hubs. In that Alert, the Commissioner states that the Australian Taxation Office (ATO) is currently reviewing arrangements involving the use of offshore entities which source goods (procurement hub) on behalf of Australian resident multinational enterprises (MNEs). According to the Alert, these arrangements typically display all or most of the following features:
- A procurement hub and a services hub are established offshore. The hubs are controlled foreign companies (CFCs) of the MNE. A lower rate of tax or concessionary tax treatment may apply to the hubs in the relevant foreign jurisdiction(s).
- In procuring goods, the procurement hub enters into contracts with third party suppliers for or on behalf of the MNE. The procurement hub may or may not take title to or physical possession of the goods on the transfer of the goods. It does not substantially transform the goods it buys on behalf of the MNE. T
- he procurement hub may have few or no employees and assets.
- The services hub provides services to the procurement hub in exchange for a fee which may be calculated as a percentage of sales or profits. The pricing methodologies adopted may not result in outcomes which could be expected to be observed between parties dealing at arm's length.
- There is little or no commercial justification for the separation of the procurement function into two separate CFCs/entities.
The Commissioner goes on to state that the ATO has a number of concerns with these arrangements from a tax perspective, including that such structures are being used by MNEs for the purpose of, or for purposes which include, minimising tainted income under section 447 and section 448 of the Income Tax Assessment Act 1936 (ITAA 1936).