Yesterday afternoon, federal Treasurer Scott Morrison revealed that the ATO will soon have increased powers to address multinational tax avoidance through the diverted profits tax, which was originally announced in the 2016-17 budget.
BDO tax partner Mark Molesworth responded to the announcement, warning multinationals to be prepared.
“Today’s announcement by federal Treasurer regarding increased powers for the ATO to attack perceived multinational tax avoidance is a figurative gun to the head of Australian subsidiaries of multinationals, or Australian-based significant global entities,” Mr Molesworth said.
“The new ATO powers effectively mean that a company can be forced to participate in a review and they cannot challenge the ATO findings based on new evidence not shared with the ATO.”
Mr Molesworth said this should come as a wake-up call to all potentially affected companies.
“Companies will be limited to what they disclose during the review period. Therefore affected companies should be prepared for an open-books review,” he said.
“They need to have their transfer pricing policies and documentation ready in advance of any ATO contact.”
The threat implicit in the legislation is a tax rate of 40 per cent on profits diverted to a ‘low-tax jurisdiction’, compared with the usual company tax rate of 30 per cent, which would apply in other circumstances, according to Mr Molesworth.
A low-tax jurisdiction is any country with a tax rate less than 80 per cent of Australia’s, meaning the majority of the OECD countries are considered low-tax. This will include the USA if President-elect Trump succeeds in reducing the corporate tax rate.
Draft legislation has been released for consultation, with responses due on 23 December. The diverted profits tax is set to commence on 1 July 2017.