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ATO Consults On Diverted Profits Tax Guidelines

by Mary Swire, Tax-News.com, Hong Kong

04 January 2018


The Australian Taxation Office (ATO) is consulting on draft guidance on the diverted profits tax (DPT), which entered into force in July 2017.

The DPT applies to multinationals with an annual global income of AUD1bn (USD783m) or more, and Australian income of more than AUD25m a year. Multinationals found to have artificially shifted profits overseas will face a 40 percent tax on the diverted profits.

The ATO has now published a draft Law Companion Guide, which explains how the law will work, along with concepts introduced by the measure.

The draft sets out how key elements of the new law will work. It explains the principal purpose test, which is intended to determine whether the principal purpose, or one of the principal purposes, of a scheme is to obtain an Australian tax benefit, or to obtain both an Australian and a foreign tax benefit. It additionally details how to calculate the amount of the tax benefit obtained, and how the foreign tax liability of a company is established.

As the draft explains, under the legislation, "profit must reasonably reflect the economic substance of the entity's activities." There is also a test for determining such economic substance.

The consultation will close on February 16. When the final Law Companion Guide is issued, the ATO will specify which sections of the Guide constitute a public ruling.

The ATO has also developed a Law Administration Practice Statement on the DPT, to provide direction to its staff on the administrative process of making a DPT assessment.

TAGS: compliance | tax | tax compliance | law | Australia | multinationals | legislation | transfer pricing | tax rates | BEPS

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