Australian Government proposes extensive multinational taxation reforms

The Australian Treasury recently released a Consultation Paper on its proposed Multinational Tax Integrity and Transparency measures.

“The proposed measures will have a significant impact on many multinational groups and entities operating in Australia. These reforms would impact inbound and outbound investment across industries,” said Jock McCormack, Partner, Head of Tax, DLA Piper.

The Treasury proposal seeks public consultation on three core tax measures:

- Strengthening the Interest Limitation Rules to limit debt deductions for multinationals in line with the OECD’s recommended approach;

- Introducing a new rule limiting the deductibility of payments relating to intangibles and royalties resulting in insufficient tax being paid;

- Enhancing disclosure of tax related information including broader public disclosure of multinationals’ tax arrangements.

Jock said the proposed reforms on limiting interest deductions would effectively reference the economic activity and taxable income of an entity.

“An entity would be required to justify its level of debt relative to its operational performance,” Jock said.

Jock said the government is also focused on the use of low or no tax jurisdictions to limit the deductions for payments relating to intangibles and royalties.

“Measures to improve tax transparency would require reporting of country-by-country tax information, mandatory reporting of material tax risks, and disclosure of tax domicile for Australian government contracts,” Jock said.

Many of these tax measures are consistent with or emanate from similar initiatives on tax policy reforms across the OECD, EU, UK and the US.

“These reforms are intended to push Australia towards more global approaches, however, they are expected to significantly increase overall government revenue in their current form,” Jock said.

Ends.