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KPMG Responds To Hockey's Tax 'Integrity' Measures

by Mary Swire,, Hong Kong

12 May 2015

Grant Wardell-Johnson, KPMG Tax Partner, has said that while it would have been better for Australia to await the outcome of the OECD's base erosion and profit shifting Action Plan, the international tax measures proposed recently by Treasurer Joe Hockey "have the benefit of being highly targeted."

On May 11, Hockey said that his May 12 Budget would include legislation to strengthen the anti-avoidance regime and deal with the activities of 30 identified multinational companies. Hockey also unveiled plans to establish a level goods and services tax (GST) playing field for suppliers of digital products and services.

On a proposal intended to penalize companies who divert profits out of Australia, Wardell-Johnson said of the plans: "There is a high turnover threshold which will exclude the small to medium players. These new rules will only apply if all three of the following tests are deemed to have occurred: the multinational corporations would be using mainly Australian employees to deal with Australian customers; the otherwise untaxed profits would flow through to tax havens; and there must be a principal purpose of avoiding a taxable presence in Australia. So the bar is set quite high before the rules kick in."

Wardell-Johnson noted that the Government should be praised for not adopting a system like the UK's Diverted Profits Tax, which he said "could have encouraged wider or more damaging reciprocal rules from other countries."

On the announcement that the Government will introduce stricter GST rules on offshore suppliers of goods and services to the Australian market, he added: "It is plainly unfair that a supplier of digital products in Australia has to charge GST and an offshore supplier does not. When the GST legislation was drafted it did not anticipate the massive growth in supply of digital goods like movie downloads, games, and e-books from overseas."

Deborah Jenkins, KPMG Indirect Tax Partner, said: "Large multinationals will welcome any clarification of the GST law relating to imported digital services - because they tell us 'we want to comply, tell us how?' Simplifying the rules relating to imported digital services is consistent with the trends emerging globally and also with the draft OECD International VAT/GST Guidelines."

Jenkins stressed that "any legislative change will need to be accompanied by appropriate systems and technology at the Australian Tax Office to cope with non-residents' registrations or the collection of data." KPMG anticipates that the changes will not enter into force until late 2015 at the earliest.

TAGS: tax | value added tax (VAT) | interest | law | employees | goods and services tax (GST) | Australia | United Kingdom | tax authority | offshore | multinationals | legislation | transfer pricing | G20 | tax reform | services

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