The bill containing the proposed Australian Diverted Profits Tax (DPT) has been referred to the Senate Economics Legislation Committee for inquiry and report by 20 March 2017.
The UK DPT enacted in 2015 has been the inspiration for both the Australian Multinational Anti-Avoidance Law (MAAL) and now our DPT.
It is generally recognised that Australia and the UK are out of line with the international Base Erosion and Profit Shifting (BEPS) coordination project. However, and perhaps even more disturbingly, a comparison of the UK DPT and the proposed Australian equivalent shows that in the majority of areas the Australian version is (unreasonably) more onerous for taxpayers than the UK version.
In the comparison we have broken down both the Australian and UK DPTs into 26 common issues: 19 of a substantive nature and 7 dealing with procedural matters.
Of the 26 issues identified, 14 are ranked as more onerous in Australia, three as more onerous in the UK and nine as broadly neutral between Australia and the UK.
We consider that 11 of these 26 issues are the most important and the following table summarises the outcomes on those issues, as to which country is more onerous for taxpayers.
Click here to view table.
The only important substantive issue where the UK is more onerous than Australia is the lack of a limitation of its DPT to significant global entities – all the UK eliminates is SMEs as defined in EU law. By contrast, on major structural issues for the application of the tax (Issues 9, 10, 12, 14, 15, 16, 17), Australia is more onerous than the UK.
On the procedural front the UK has an obligation on taxpayers to notify HMRC of the potential application of the DPT (with several exceptions) which Australia does not require. Otherwise, Australia has the longer limitation period for issuing assessments of 7 years, compared to 2-4 years in the UK and worst of all prevents the taxpayer from producing evidence if it does not disclose the evidence to the ATO in the review period; whether or not the ATO requests the evidence (with some exceptions, but still a very significant diminution of the normal rights and protections enjoyed by taxpayers in Australia).
Also of great concern is the current proposal for Australia to exclude the DPT from the arbitration process it is currently proposing to accept in the context of the BEPS project via the Multilateral Instrument.
Hopefully the Senate Economics Legislation Committee will recognise that the proposed DPT has many defects and unreasonable aspects and make recommendations for amendments.