The Australian Government/Australian Taxation Office have published the Law Companion Guideline for schemes that limit a taxable presence in Australia (a 16 page document). In an introductory statement the Guideline states a.o.: “This Guideline describes how the ATO will apply the law in Schedule 2 to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 when it comes into effect. If Schedule 2 to the Bill is enacted without amendment, this Guideline will be a public ruling when the Bill comes into effect.”
In Paragraph titled “What this Guideline is about” the following is stated: “This Guideline discusses Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 (the Bill), in particular, Schedule 2 to the Bill which deals with schemes that limit a taxable presence in Australia. This Guideline is provided as a measure to assist you with understanding the new law.”
Three other very interesting (sub-)paragraphs are the (sub-)paragraphs titled: “Outline of the new law”, “Necessary conditions for the MAAL[1] to apply” and “When the MAAL does not apply”.
In the paragraph “Outline of the new law” the following is stated:
6. The MAAL is designed to counter the erosion of the Australian tax base by multinational entities using artificial and contrived arrangements to avoid the attribution of profits to a permanent establishment in Australia.
7. Schedule 2 to the Bill amends the anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936)1 to introduce section 177DA, also referred to as the MAAL.
8. Under section 177DA, a taxpayer may have their tax benefit cancelled by the Commissioner under Part IVA if they:
· are a significant global entity (an entity with annual global income, or the annual global income of the group in which the entity is a member, is $1 billion or more), and they
· obtain a tax benefit in connection with a scheme (involving the avoidance of the attribution of income to an Australian permanent establishment) that was entered into or carried out for a principal purpose of, or for more than one principal purpose that includes a purpose of obtaining a tax benefit (or obtaining both a tax benefit and reducing a foreign tax liability) under the scheme.
In the sub-paragraph “Necessary conditions for the MAAL to apply” the following is stated:
9. In order for the MAAL to apply to a foreign entity all of the following conditions must be satisfied:
· the foreign entity is a ‘significant global entity’
· there is a scheme with the following features: - the foreign entity makes supplies to customers in Australia
- activities are undertaken in Australia directly in connection with those supplies by an Australian entity who is associated or commercially dependent on the foreign entity
- the foreign entity derives ordinary or statutory income from those supplies, some or all of which, is not attributable to a permanent establishment in Australia of the foreign entity, and
· a person who entered into or carried out the scheme did so for a principal purpose of, or for more than one principal purpose that includes a purpose of: - enabling a taxpayer to obtain a tax benefit in Australia, or also to reduce one or more of their foreign tax liabilities, or
- enabling a taxpayer and another taxpayer to each obtain tax benefits in Australia, or also to reduce either of their foreign tax liabilities.
In the sub-paragraph “When the MAAL does not apply” the following is stated:
10. The MAAL will not apply in any of the following circumstances:
· An entity does not satisfy the ‘significant global entity’ requirement explained above.
· An entity sells directly to customers in Australia, and no activities are undertaken in Australia by an associate or commercially dependent entity that are in direct connection with those supplies (for example, this would be the case where there is no such related entity physically present in Australia, or there is such an entity in Australia but all of their activities relate to post-contract customer issues such as faulty products and delivery delays issues).
· An entity only makes excluded supplies to customers in Australia (that is, the supply of an equity interest or a debt interest in an entity, or the supply of an option to supply either or a combination of such types of interests).
· An entity does not derive ordinary or statutory income from the supplies it makes to customers in Australia.
· None of the persons who entered into or carried out a scheme, or any part of a scheme, to which paragraph 177DA(1)(a) applies has the requisite principal purpose (see below for further explanation of the principal purpose test).
In the Paragraph “Specific issues for guidance” the Guideline furthermore discusses a.o. subjects like:
· Principal purpose test
o Timing
· A combined purpose of obtaining a tax benefit and reducing (or deferring) a liability to tax under a foreign law
· A reduction or deferral of foreign tax liabilities
· Determining the tax benefit for schemes captured by the measure
o Attributing profit
o Taxation obligations
· Compensating adjustments
· Examples
o Background
o High risk example
§ Conclusion
o Low risk example
§ Conclusion
· Framing questions
· Documentation
· Status of existing Advance Pricing Agreements (APAs)
· ATO approach to managing tax risk
· Related guidance products
· Further guidance
Click here to the be forwarded to the Law Companion Guideline for schemes that limit a taxable presence in Australia as available on the website of the Australian Taxation Office, which will open in a new window.
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