The Senate Economics References Committee has released its final report on corporate tax avoidance after an inquiry lasting more than three years.The issue of corporate tax avoidance was first referred to the Committee in October 2014, and the inquiry has yielded recommendations from the Committee that cover the following:
- changes to thin capitalisation rules such that the worldwide gearing ratio would be the sole method by which interest-related deductions are calculated.
- a review into Australia’s transfer pricing regime to identify how it can be improved.
- the adoption of various tax transparency measures, including making the Tax Transparency Code mandatory, allowing public release of limited Country-by-Country (CbC) Report data, and requiring all entities with income over a certain threshold to lodge general purpose financial statements (GPFS) with the Australian Securities and Investments Commission (ASIC).
- companies, trusts and other corporate structures should be required to disclose information regarding their beneficial ownership for publication on a public register.
- the Australian Taxation Office (ATO) should be required to publish a dedicated section on the number and value of tax settlements of $50 million or greater in its annual report.
- finalisation and release of the government’s response to the Callaghan report into the Petroleum Resource Rent Tax (PRRT), and the making of various changes to simplify and/or limit the deductions that can be claimed in calculating PRRT.
The Coalition Senators on the Committee noted that they do not support the recommendations regarding thin capitalisation and the release of CbC Reporting data. They also recommended that no action be taken on PRRT until after the release of the Callaghan report.
The final report also highlights that since 2014, Parliament has enacted several new laws to address base erosion and profit shifting, including:
- the Multinational Anti-Avoidance Law (MAAL)
- the Diverted Profits Tax (DPT)
- new measures to apply goods and services tax (GST) to digital services and low-value importations
- transfer pricing amendments and
- increased penalties for significant global entities.
Businesses should be prepared for the possibility that a number of these recommendations may be adopted over time. In the case of transparency measures, considerable thought is required as to what information would provide value to the public in a tax context.