RSM director and national head of tax, Rami Brass, said Australia’s tax laws have escalated in complexity significantly in recent years, highlighting the increasing scrutiny from the tax office and added compliance costs of doing business in the country.
Recent initiatives such as the Base Erosion and Profit Shifting (BEPS) measures, which include justified trust, Diverted Profits Tax (DPT), and Multinational Anti-Avoidance Law (MAAL), translates to significant extra costs for businesses managing their tax responsibilities, according to Mr Brass.
The DPT, effective on 1 July 2017, imposes a 40 per cent penalty tax on companies that fail to pay the normal 30 per cent company tax. Furthermore, according to Mr Brass, businesses need to prepare general purpose accounts and, if they earn more than $25 million in Australia and belong to a significant global entity, they will face more stringent requirements.
“This may see small subsidiaries of larger global companies switch from special purpose to general purpose, which adds a new level of complexity to adhere to accounting standards,” said Mr Brass.
“The new rules go beyond internationally-accepted rules, which have been negotiated over the last two years through the monumental BEPS process, which involved the G20 and the Organisation for Economic Co-operation and Development (OECD). Furthermore, this legislation may lead to double taxation of corporate profits.
“Australia has committed to accepting binding mandatory arbitration for the resolution of double tax disputes that arise under Australia’s many double tax treaties. However, the DPT and MAAL amendments preclude access to those double tax relief procedures. This creates an unfair and unlevel playing field for multinational organisations.”
Earlier this month, Thomson Reuters managing director for Australia and New Zealand, Ben Scull warned of increased scrutiny from the ATO in the wake of the Paradise Paper revelations, with the 31 December 2017 BEPS Action 13 deadline affording increased visibility.
“Doing business has become more complicated and expensive no matter where the business is located,” added Mr Brass.
“The more complex legislation there is, the greater the chance of an organisation accidentally failing to comply, which can carry significant financial penalties.
“For some businesses, the answer might be to leave Australia altogether and move to an environment where the taxes are lower and the ATO can’t touch them.”