Diverted Profits Tax — a new hurdle for multinationals
Contributed by Tamara Cardan, Senior Associate, K&L Gates
Legislation was introduced into parliament to enact the Diverted Profits Tax (DPT) — the Diverted Profits Tax Bill 2017 and the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 (collectively, the Bill) earlier this year.
This follows on from the release by Treasury of the exposure draft legislation on 29 November 2016, upon which submissions closed on 23 December 2016. The speed at which the Bill was introduced into parliament signifies that the government is treating the DPT as a high-priority measure.
On 16 February 2017, the Senate referred provisions of the Bill to the Economics Legislation Committee (the Committee) for inquiry and report by 20 March 2017. The Committee concluded that the DPT is a welcome and necessary addition to the legislative measures to combat multinational tax avoidance, and has recommended that the Bill be passed.
The DPT will apply a 40% tax rate on the diverted profits of multinationals. The penalty tax aims to ensure that tax paid by significant global entities properly reflects the economic substance of their activities in Australia, and seeks to prevent the diversion of profits offshore through contrived arrangements.
An entity is a significant global entity for an income year if it has annual global income of $1b or more, or it is a member of a consolidated group and the global parent has annual global income of $1b or more.
The DPT will have effect from 1 July 2017, but may also apply to schemes that were entered into before that date.
For details on new features of the Bill and when the DPT will apply, read the full article on Wolters Kluwer Central.