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Australian Revenue Minister Explains Diverted Profits Tax

by Mary Swire,, Hong Kong

23 January 2017

Australia's Revenue Minister, Kelly O'Dwyer, has explained how a proposed new diverted profits tax (DPT) will "make sure that large multinational companies pay the right amount of tax on the profits that they make" in the country.

In November, the Government released draft legislation which, if passed, would impose a 40 percent penalty tax on profits that have been "artificially diverted" from Australia by multinationals.

In an interview with 3AW radio, O'Dwyer stressed that the Government is taking a "belts and braces approach" to tax compliance. The DPT will focus on "companies that are using contrived arrangements to shift their profits overseas to avoid the tax here," she said.

O'Dwyer said the DPT will operate on the basis of two tests. In the first instance, there will be an "effective tax mismatch test," which she said "means that basically if multinationals are saving around 20 percent in tax on the tax that they ought to have been paying, as a result of paying tax overseas rather than paying it here in Australia," the DPT will be triggered.

The second test is an "insufficient economic substance test." O'Dwyer explained that "if it's reasonable to conclude, based on the information that's available to the Australian Taxation Office (ATO), that the arrangement is designed to secure a tax reduction, then they'll be caught within the net."

O'Dwyer added that the measure strengthens the powers of the ATO by "in effect giving them the ability to raise an assessment against the multinational company and then they are hit with a penalty tax of 40 percent and then they have to come back and justify why that isn't an appropriate assessment."

According to O'Dwyer, the Government expects the DPT to raise around AUD100m a year.

TAGS: compliance | tax | tax compliance | tax avoidance | Australia | ministry of finance | tax authority | multinationals | legislation | tax planning | transfer pricing | BEPS

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