Australia: Labor party wins 2022 election, tax policies include public country-by-country (CbC) reporting

The Labor Party has won the 2022 federal election. The campaign saw very little debate on tax reform, but it is expected that the newly elected government will continue with the legislated individual (personal) income tax cuts announced by the outgoing government and will attempt to recover $1.89 billion* through new measures targeting multinational enterprises (MNEs).

The measures targeting large MNEs are expected to include:

• Introduction of public country-by-country (CbC) reporting. There will be further consultation on this measure, but it appears that public reporting of taxes paid and employee numbers for each jurisdiction will be required. The Labor Party has also indicated that it will introduce mandatory reporting of dealings with tax haven jurisdictions and establish a public beneficial ownership register of Australian companies.
• Adoption of the OECD’s BEPS 2.0 proposals for reform of the international business tax system, including a global minimum tax of 15%.
• Modification of the “safe harbor” for debt deductions to 30% percent of earnings before interest, taxes, depreciation and amortization (EBITDA), with retention of the alternative “arm’s length debt amount” and “worldwide gearing ratio” tests in case a taxpayer wishes to justify a higher interest deduction than would be allowed under the safe harbor. The new rule would apply from 1 July 2023. The proposal aligns with the OECD recommendations coming from its 2015 BEPS Action 4 Report Limitation on Interest Deductions—tax professionals have observed that 30% of EBITDA is at the more generous end of the range of ratios that the OECD recommended in this report, but aligns with the majority of the other countries that have taken up the OECD recommendation. Read a May report [PDF 155 KB] prepared by the KPMG member firm in Australia
• Denial of deductions for royalty payments to recipients in low-tax jurisdictions from 1 July 2023. The measure will only apply to payers that qualify as a “significant global entity,” which is broadly those with global accounting revenue of $1 billion or more. The Labor Party has said that the purpose of the new provision is to stop MNEs from “treaty shopping” by holding their intellectual property in a jurisdiction that has a double taxation agreement with Australia. The taxpayer would continue to be entitled to a deduction where it can satisfy the Commissioner of Taxation that the arrangement is not for the dominant purpose of obtaining a tax benefit. The Labor Party has announced that consultation with the business community will occur prior to the introduction of the legislation, and during this process we expect that further information will be provided on how the new measure would co-exist with the BEPS 2.0 Pillar 2 measures.

In addition, the Labor Party has indicated it intends to commit additional funding to extend and boost Australian Taxation Office (ATO) review and audit programs, as well as implement changes to the taxation of certain electric and low-emission vehicles.

Read a May 2022 report [PDF 720 KB] prepared by the KPMG member firm in Australia