The Diverted profits tax (DPT) will commence operation on 1 July 2017. Notwithstanding its imminent commencement, uncertainty about Australia's new tax continues to exist.
The Diverted Profits Tax Bill 2017 and Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 (DPT Bills) received Royal Assent on 4 April 2017 following an expedited development and consultation process. The measure was first announced as part of the May 2016 Budget.
Throughout the consultation process, industry and professional bodies expressed concern as to how the new tax would fit within Australia's already crowded tax landscape, in particular how it would interact with Australia's transfer pricing rules. These concerns arose in part from the broadly drafted legislation and limited guidance set out in the explanatory memorandum accompanying the DPT Bills.
Given the DPT will potentially expose taxpayers to a 40% penalty tax on 'diverted profits', which will be payable within 21 days of receiving a DPT assessment, multinational enterprises need to be alive to the scope of the DPT and how it could affect their current and future activities in Australia.
One of the key sources of taxpayer anxiety was the apparent deferment by the legislature to the ATO to set out the precise details of when the DPT will apply and what safeguards will apply where other options are available to the ATO in taxing taxpayers. According to the explanatory memorandum to the DPT Bills, the ATO will issue a suite of guidance materials to address these matters.
It had been expected that some guidance from the ATO would be issued some time before the DPT legislation commenced operation, however at the time of writing those guidelines have yet to be released. Indeed the explanatory memorandum stated that draft law companion guidelines on the application of the DPT would be published when the legislation was introduced into Parliament and subject to consultation.
The ATO, for its part, previously announced that it was developing a law companion guideline (LCG) to provide guidance on some of the concepts introduced by the DPT Bills. In addition, it announced that it was developing a practical compliance guideline (PCG) which would provide broad law administration guidance, addressing the practical implications of the law and outlining its administrative approach. The PCG will convey the ATO's 'assessment of tax compliance risk across a spectrum of arrangements and incorporate low and high risk examples across a range of industries and business models to provide greater certainty to taxpayers'.
The DPT is a significant change to the Australian tax landscape for multinational enterprises, and materially strengthens the arsenal the ATO will have to challenge transfer pricing matters. Taxpayers will therefore need to pay close attention to the guidance material which the ATO will provide. MinterEllison will be preparing a detailed tax alert with analysis of the key points for taxpayers once the ATO releases guidance materials.