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Australia Talks Anti-BEPS Initiatives

by Mary Swire,, Hong Kong

23 May 2014

National efforts to tackle base erosion and profit shifting (BEPS) must be complemented by appropriate and coherent international responses, Australia's Treasury Secretary has said.

Steven Ciobo made the comments during a speech at a BEPS workshop, where he stressed that "open, frank and constructive engagement with the private sector on BEPS and how best to frame our response is critical."

Ciobo argued although that globalization and digitization have helped businesses to increase their efficiency and realize new opportunities, such developments have also enabled multinationals to minimize their tax bills. They can do this by "artificially segregating profits from the countries in which value is created, or through exploiting differences in the tax rules of different countries in ways which result in double non-taxation."

A 2013 Treasury Scoping Paper, Risks to the Sustainability of Australia's Corporate Tax Base, concluded that the extent to which BEPS is currently affecting the country's corporate tax base is unclear. It did nevertheless acknowledge that the rising importance of global value chains, the digital economy and intangibles have increased the risks of BEPS.

Ciobo maintained that while Australia's tax integrity rules are "robust and credible," an international response to the issue is needed to prevent new gaps and opportunities from emerging and to stop individual countries putting in place potentially damaging unilateral measures.

Australia is the 2014 President of the Group of 20 (G20) nations. According to Ciobo, the Abbott Government is "fully supportive of the G20's commitment to a global response to BEPS based on sound tax policy principles."

At the request of G20 Finance Ministers, the Organisation for Economic Cooperation and Development (OECD) last year produced a 15 point Action Plan on BEPS. It offers recommendations on addressing the challenges of the digital economy, neutralizing the effect of hybrid mismatch arrangements, preventing treaty abuse and the artificial avoidance of permanent establishment status, and ensuring that transfer pricing outcomes are in line with value creation.

Seven of the action items have deliverables due for completion in September 2014. The remaining eight points will be finalized in December 2015.

Ciobo believes that it is "in Australia's national interest to be a participant when global tax rules are being negotiated." He pointed out that "Australia has been vocal in advocating the need for the G20 to provide leadership on BEPS" and that its "overall engagement strategy with OECD Working Parties has been to argue that changes should be principles-based, pragmatic, proportionate to risk, and targeted to address unintended interactions and situations where tax outcomes are misaligned with economic substance."

Ciobo further explained that the Action Plan will result in proposals to change the OECD's Model Tax Convention and Transfer Pricing Guidelines, along with "best practice" recommendations for domestic legislation.

"Potential changes to Australian treaty policy and domestic law will be guided by the national interest and informed by further consultation with business and other interested groups. Our responses to these recommendations will address BEPS in ways which are consistent with the Government's broader economic policy priorities, including our 'open for business' philosophy, our support for cross-border investment and trade and our deregulation agenda," he concluded.

TAGS: compliance | tax | investment | business | tax compliance | tax avoidance | tax incentives | revenue guidance | law | Organisation for Economic Co-operation and Development (OECD) | Australia | ministry of finance | tax authority | multinationals | legislation | tax planning | transfer pricing | tax rates | G20 | revenue statistics | tax reform | regulation | trade | Tax | Tax Evasion

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