The MAAL and proposed diverted profits tax both target multinational groups over $1b in income. The MAAL applies to schemes reducing Australian tax, while the diverted profits tax applies if a transaction reduces Australian tax and increases related-party foreign tax by less than 80%. The diverted profits tax rate is 40% and applies regardless of arrangement date, while the MAAL rate is 30% and considers activities/substance. Both regimes calculate attributed income similarly but the diverted profits tax sits unclear in legislation, potentially facing double tax treaty issues.

1. The MAAL and the diverted
profits tax - a comparative
by Joanne Dunne, CTA, Partner, MinterEllison, Melbourne
COVER
A diverted profits tax was proposed by the federal government in the 2016-17 Budget. A multinational
anti-avoidance law (MAAL) was enacted in late 2015. Both the MAAL and the diverted profits tax focus on
multinationals that derive $1b or more in group income. The diverted profits tax is proposed to be applicable for
income years following 1 July 2017, but to arrangements whenever they were entered into. This means that the
development of the diverted profits tax should be closely monitored and risk mitigation should be considered.
This article compares the MAAL and the diverted profits tax to demonstrate where they intersect and the
differences between them, and to highlight how these regimes provide a new framework for multinational
taxation in Australia. The article also considers example structures to demonstrate where the MAAL and
proposed diverted profits tax provide the ATO with two additional avenues to attack structures which concern it.
Comparison between the MAAL and the diverted profits tax
Issue
Who it
applies to
MAAL
Sianificant global entities, re entities with
annual global income or consolidated
oroup inCome of ,S1b or more.
Proposed diverted profits tax
The consultation paper' issued by
Treasury on 3 May 2016 states that the
purpose of the diverted profits tax is:
• to provide the ATO with greater
powers to deal with taxpayers who
transfer profits, assets or risks
to offshore related parties using
artificial or contrived arrangements
to avoid Australian tax and who do
not cooperate with the ATO; and
• to ensure that entities operating in
Australia cannot avoid Australian
taxation by transferring profits,
assets or risks offshore through
related party transactions that
lack economic substance, and
to discourage multinationals from
delaying the resolution of transfer
pricing disputes.
The consultation paper suggests
that integrity measures such as the
MAAL were difficult to enforce where a
taxpayer was not cooperative; hence
the need for a diverted profits tax.
Significant global entities, ie entities '.5th
global income or consolidated group
income of Sib or more .andi
Comrnent
The consultation paper on the diverted
profits tax suggests that there is
intentional intersection with the MAAL
to some degree. However, the diverted
profits tax seems to be a proposal
designed to incentivise multinationals
to agree to adjustments under other
provisions, such as the MAAL or
transfer pricing provisions.
both regimes are intended to
apply only to significant global entities,
some differences arise.
Purpose The explanatory memorandum to the
Tax Laws Amendment (Combating
Multinational Avoidance) Bill 2015
(0th) states that the purpose of the
multinational anti-avoidance law
(MAAL) is to counter the erosion of the
Australian tax base by multinational
entities using artificial or contrived
arrangements to avoid the attribution of
business profits to Australia through a
taxable presence in Australia.
• that are Australian tax residents
or have an Australian permanent
establishment: and
• that have Australian turnover
of S25m or more — unless the
Australian turnover is less than $
because income is ar tifici:* hooked
offshore rather than in Australia.
The, diverted protits tax only applies
vvnere there are Australian operations
which have a S25m or greater Australian
tumoi,,,er, and the consultation paper
states that this threshold is intended to
identify taxpayers of lower risk, and to
align i,vith other thresholds. such as the
S2f5m threshold applying to provide for
simplified transfer pricing
TAXATION IN AUSTRALIA I VOL 51(1) 21

2. COVER
Comment
record-keeping requirernents.2 It is also
notable that there is intended to be an
"artificiality" test to be applied by the
ATO when determining whether that
Australian turnover level is breached.
No further detail is provided.
Proposed diverted profits tax
Date in effect ' 1 January 2016
0When it can The MAAL can apply where:
eapply
is there is a scheme under which a
• the foreign entity obtains ordinary
-income or statutory income from the
supply;
is some or all of that income is
not attributable to an Australian
permanent establishment of the
foreign entity; and
• it can be concluded that the scheme
was entered into for the principal
purpose or a principal purpose
of enabling a taxpayer to reduce
Australian taxes or reduce Australian
and foreign taxes (with a deferral
of foreign tax being relevant unless
there are reasonable commercial
grounds for the deferral). The
specified factors taken into account
include the extent of activities
performed in Australia and outside
of Australia relating to the supply.
foreign entity in the group supplies
goods and/or services (other than
equity interests, debt interests or
options over equity or debt interests)
to unrelated Australian customers;
la activities are undertaken in Australia
directly in connection with the
supply;
the Australian activities are
undertaken in whole or in part by an
associated Australian entity or an
Australian permanent establishment
of the foreign entity, or by an
unassociated Australian entity that
is commercially dependent on the
foreign entity;
Proposed to be effective for income
years on or after 1 July 2017 but can
apply to arrangements whenever they
were entered into. There is no legislation
as yet.
The diverted profits tax can apply Some differences arise.
The MAAL is focused on multinational
• there is an effective tax mismatch, ie: groups which may or may not have
• there is a transaction between the associated Australian operations. The
Australian taxpayer and a related MAAL focuses on transactions with
unrelated Australian customers and
considers what part an associated
Australian operation or unassociated
Australian operation (where there is
commercial dependence) plays in the
transactions with those customers.
The MAAL does not have a de minim's
Australian turnover threshold before
..
applicable. The
taxpayer's Australian tax liability, a principal purpose test which is a
For example, if there is a $100 different test to the remainder of Pt IVA
reduction in the Australian of the Income Tax Assessment Act 1936
taxpayer's Australian tax liability (Cth) (ITAA36).
as a result of a deductible fee,
but the related party only pays
The diverted profits tax focuses on
$60 of tax on the fee income
multinational groups which definitely
in its jurisdiction, there is an
have Australian operations, where those
operations derive Australian turnover
above a $25m de minim's level. It is
focused on transactions between the
Australian taxpayer and a related party
in the multinational group. The diverted
profits tax does not include a purpose
test, rather it applies a "design" test.
there is insufficient economic As is demonstrated by the structure
substance, le it can be reasonably examples below, there are situations
concluded based on the information where the MAAL and diverted profits
available to the ATO that the tax can both be applicable, but the
transaction at issue or structure at diverted profits tax is of potentially wider
issue was designed to secure a tax application •
reduction.
When considering the insufficient
economic substance test, if it can be
shown that the non-tax ficancial benefits
exceed the financial benefit of the tax
reduction, then there may be economic
substance, and the diverted profits tax
may not be applicable.
where:
party cross-border;
the transaction reduces the
Australian taxpayer's Australian
tax; and -
the transaction increases the
related party's tax, but by less
than 80% of the corresponding
reduction in the Australian
effective tax mismatch. Note:
factors which might cause that
tax mismatch to arise, such as
the application of tax relief in a
foreign jurisdiction, are not taken
into account when considering if
a mismatch arises; and
22 TAXATION IN AUSTRALIA I JULY 2016

3. COVER
MAAL
The MAAL applies at the corporate tax
rate (30%)* on Australian income that
ought to have been returned in Australia
(the Commissioner will determine the
arm's length profits attributable to
Australia) plus an additional potential
penalty of 100% of unpaid taxes,— and
interest.
It is possible for the MAAL to apply
to a small Australian business that
is part of a multinational group —
potentially at the small business tax
rate of 28.5% (or 27.5% if the 2016-17
Budget measures are passed).
** Penalties can be up to 120% if
aggravating factors arise, such as
obstructing an ATO officer. The
100% penalty can be reduced if it
can be shown that the taxpayer's
position was reasonably arguable.
Proposed diverted profits tax_ _
The diverted profits tax applies at 40%.
Interest will also be imposed from the
date any amount would have been
subject to income tax to the date of
the provisional diverted profits tax
assessment. While it is not mentioned
directly in the consultation paper,
depending on taxpayer behaviour,
penalties may be applicable as well.
The diverted profits tax can apply
in situations where income arising
between offshore entities is attributed
to Australia. The consultation paper
suggests that in that scenario, when
determining the diverted profits amount
on which the diverted profits tax will .
apply, the ATO may take into account
Australian tax regimes that would have
applied had the profits at issue been
brought to tax in Australia.
For instance, to use a simple example
referred to in the consultation paper:
• Foreign Co is equity funded by
Foreign Parent Co and uses the
funding ($300m) to acquire an asset;
• a related Australia Co leases the
asset from Foreign Co, and claims a
deduction in Australia for the lease
costs of $30m; and
• assume that the ATO takes the
view that the diverted profits tax
tests (effective tax mismatch and
insufficient economic substance)
are satisfied.
The diverted profits tax operates in
this example if the ATO concluded that
absent the above structure, Foreign
Parent Co would have equity funded
Australia Co and Australia Co would
have held the asset. The diverted profits
amount would be calculated as $30m
(being the lease payment made, which
Comment
, The diverted profits tax rate is
: deliberately penal in nature.
The consultation paper states that
the rate has been set "to encourage
•taxpayers to pay the lower corporate tax
rate through complying with Australia's
tax rules".
•It is also notable that the diverted
profits tax sets out an expanded
seven-year statutory time bar (like the
transfer pricing time bar period), strict
timeframes for response by taxpayers
•to a provisional diverted profits tax
. assessment, and then cut-down
timeframes for the ATO to conclude its
diverted profits tax assessment. This
assessment process is further explained
in detail in the consultation paper.
The MAAL assessment process is
consistent with Pt IVA assessment
•processes, and the MAAL does
not have any specifically designed
assessment process. The MAAL gives
the ATO the option of either attributing
income to an Australian related
subsidiary, or deeming a permanent
establishment of the offshore entity to
•arise, and attributing income to that
deemed permanent establishment.
There is some degree of similarity
between the regimes in relation to the
calculation of income — particularly in
focusing on what would have been the ,
position had the scheme or transaction
at issue not occurred.
Issue
The rate of
tax
How the As the MAAL is an anti-avoidance
fr,income that . measure, the ATO has powers under
P.
subject Pt IVA to reconstruct the scheme to
to the tax is counter the tax benefit obtained.
t calculated
The ATO will assume that the foreign
entity had a permanent establishment
in Australia and that some or all of
the activities of the foreign entity were
undertaken by and attributable to that
deemed permanent establishment, and
apply tax to that attributed amount.
In its MAAL client experience roadrnap3
and in LOG 2015/2,4 the ATO suggests
that when determining the income to
which the MAAL could apply, it is for the
taxpayer to prepare a functional analysis
and profit attribution as it would under
the transfer pricing regime. This may of
course allocate deductible expenses
that would have been applicable
to any such deemed permanent
establishment. LCG 2015/2 also
states that compensating adjustments
can be requested by a taxpayer and
determined by the Commissioner under
s 177F(1) ITAA36 to take into account
tax deductions or benefits that would
have been available had the scheme not
been entered into.
TAXATION IN AUSTRALIA I VOL 51(1) 23

4. Where the
regime
sits in the
income tax
legislation
In Pt IVA.
COVER
Issue MAAL Proposed diverted profits tax
represents diverted profits) less an
amount representing the depreciation
that Australia Co would have claimed.
40% tax would be calculated by the
ATO on that net amount.
It should be noted that the diverted
profits tax can apply widely, including
as-an adjunct to the transfer pricing
rules to attack excessive expenses
paid to related parties. In this event, the
diverted profits amount on which the tax
is applied would be the tax benefit from
the excessive expense (le (generally)
30% of the excessive expense).
The diverted profits tax will not provide
a credit for any foreign tax paid, but a
credit may be available for Australian
tax paid on any diverted profits amount
brought to Australian tax (eg under the
controlled foreign company rules).
Not clear yet.
Comment
This is an important issue when
considering Australia's double tax
treaty obligations. While the MAAL is
not an issue in this respect as it sits in
Pt IVA and s 4(2) of theInternational
Tax Agreements Act 1953 (Cth) gives
primacy to Pt IVA, it is not clear where
the diverted profits tax will sit in the
income tax legislation. Given the
manner in which it is described in the
consultation paper, it does not seem
the diverted profits tax will be part of
Pt IVA although, in the absence of actual
•legislation, that is uncertain at this
stage.
, The diverted profits tax can seek to
, impose tax in relation to business profits
derived by an entity resident in another
contracting state. This is in the scenario
where profits are derived between two
•foreign entities in a multinational group,
and the ATO seeks to use the diverted
profits tax to reconstruct the transaction
and attribute some of that income to
Australia. The business profits article
' in an applicable double tax treaty
. may be applicable to provide relief
from the diverted profits tax in those
circumstances. The issue is whether the
. diverted profits tax is a tax that could be
covered by a double tax treaty.
In a number of Australia's double
tax treaties (eg NZ-Australia Treaty,
US-Australia Treaty), "tax" is defined
in art 3 as excluding "any penalty or
interest imposed under the law of
either contracting state relating to its
tax". It may be that Australia seeks to
maintain that despite its title as a "tax",
the diverted profits tax is a "penalty".
This would mean that those double tax
treaties would not affect Australia's right
to impose the diverted profits tax.
24 TAXATION IN AUSTRALIA I JULY 2016

5. Issue MAAL
Where the
regime
sits in the
income tax
legislation
In Pt IVA.
COVER
Proposed diverted profits tax
represents diverted profits) less an
amount representing the depreciation
that Australia Co would have claimed.
40% tax would be calculated by the
ATO on that net amount.
It should be noted that the diverted
profits tax can apply widely, including
as an adjunct to the transfer pricing
rules to attack excessive expenses
paid to related parties. In this event, the
diverted profits amount on which the tax
is applied would be the tax benefit from
the excessive expense fie (generally)
30% of the excessive expense).
The diverted profits tax will not provide
a credit for any foreign tax paid, but a
credit may be available for Australian
r tax paid on any diverted profits amount
brought to Australian tax (eg under the
controlled foreign company rules).
, _
Not clear yet.
Comment
This is an important issue when
considering Australia's double tax
treaty obligations. While the MAAL is
not an issue in this respect as it sits in
Pt IVA and s 4(2) of theInternational
Tax Agreements Act 1953 (Cth) gives
primacy to Pt IVA, it is not clear where
the diverted profits tax will sit in the
income tax legislation. Given the
manner in which it is described in the
consultation paper, it does not seem
, the diverted profits tax will be part of
Pt IVA although, in the absence of actual
legislation, that is uncertain at this
stage.
The diverted profits tax can seek to
impose tax in relation to business profits
derived by an entity resident in another
contracting state. This is in the scenario
. where profits are derived between two
foreign entities in a multinational group,
and the ATO seeks to use the diverted
profits tax to reconstruct the transaction
and attribute some of that income to
Australia. The business profits article
in an applicable double tax treaty
may be applicable to provide relief
from the diverted profits tax in those
circumstances. The issue is whether the
diverted profits tax is a tax that could be
covered by a double tax treaty.
In a number of Australia's double
tax treaties (eg NZ-Australia Treaty,
US-Australia Treaty), "tax" is defined
in art 3 as excluding "any penalty or
interest imposed under the law of
either contracting state relating to its
tax". It may be that Australia seeks to
maintain that despite its title as a "tax",
the diverted profits tax is a "penalty".
This would mean that those double tax
treaties would not affect Australia's right
to impose the diverted profits tax.
24 TAXATION IN AUSTRALIA JULY 2016

6. Unrelated Australian
customers
Cloud Computing
Sub Australia
(5) Sales revenue
Singapore Cloud
Computing Co
(3) Marketing and negotiating
bespoke contracts including
price with customers
(2) Fee
(1) Marketing services
COVER
Issue MAAL Proposed diverted profits tax Comment
In Australia's older treaties (eg
Singapore—Australia Treaty), that penalty
exclusion is not explicit, and instead
the treaty provides that it applies to
Australia's income tax or "any identical
or substantially similar taxes". In
relation to those treaties, it may be that
Australia seeks to maintain that the
diverted profits tax is not an "income
tax" and is also not substantially similar
to an income tax, but is a new tax or a
penalty that is not an "income tax". That
was the position taken by HM Revenue
& Customs in the United Kingdom
when it enacted its own diverted profits
tax (to some criticism). This argument
could support the view that those older
double tax treaties would not affect
Australia's right to impose the diverted
profits tax.
This issue will need to be clarified prior
to the enactment of the proposed
diverted profits tax.
Example structures
1. Sales revenue booked offshore: MAAL and diverted profits tax intersect, both potentially applicable
(4) Finalise sale,
sign contract
MAAL
The MAAL could apply in this
circumstance. This is because Cloud
Computing Sub Australia carries out most
of the functions to secure the contracts
with the unrelated Australian customer,
including contract negotiation, pricing
and bespoke terms. Little real activity
could be perceived to occur in Singapore
where the contracts are concluded. It
could be concluded that the principal
purpose of the arrangement is to ensure
that Australian tax is not paid on the profits
from Australian sales. The multinational is
at risk of the MAAL applying. If the MAAL
applied, profits from Australian sales
could be attributed to Cloud Computing
Sub Australia or to a deemed permanent
establishment of Singapore Cloud
Computing Co, with that attributed income
subject to Australian tax at 30%.
Diverted profits tax
Assuming that the tax rate applicable
in Singapore is less than 80% of
Australia's rate, the issue will be whether
the arrangement with Singapore Cloud
Computing Co has insufficient economic
substance. The issue will be whether the
information available to the ATO might
lead it to conclude that the structure was
designed to secure a tax reduction in
Australia. It will also be critical to consider
the non-tax financial benefits of the
structure and compare those to the value
of the tax reduction. The diverted profits
tax could subject Australian sales income
to tax at 40%.
TAXATION IN AUSTRALIA I VOL 51(1) 25

7. (3) Loan from
Parent(1) Administrative
services
(2) Fee
Cloud Computing
Sub Australia
(4) Interest payment
COVER
2. Sales revenue booked offshore: MAAL may not be applicable, diverted profits tax may still apply
Singapore Cloud
Computing Co (1) Marketing/customer solicitation service
(4)Negotiate and
conclude contracts,
including price
(6)Sales revenue
AND (2) Fee
(5)Finalise Unrelated Australian
customers
Cloud Computing
Sub Australia
(3) Marketing — providing
introduction to Singapore
Cloud Computing Co — no
involvement in contract
provision, finalisation or
negotiation
MAAL
Example 3.6 and example 3.8 in the
explanatory memorandum to the Tax Laws
(Combating Multinational Avoidance) Bill
2015 (Cth) suggest that the MAAL should
not be applicable in this situation as it
cannot be concluded that the scheme was
entered into for the or a principal purpose
of enabling a taxpayer to reduce Australian
taxes. This is because of the lack of any
involvement by Cloud Computing Sub
Australia in concluding sales contracts with
Australian customers.
Diverted profits tax
It seems possible for the diverted profits
tax to nonetheless be applicable — even
where the MAAL does not apply. Assuming
that tax rate applicable in Singapore is less
than 80% of Australia's rate, the issue will
be whether Singapore Cloud Computing
Co has insufficient economic substance.
The issue will be whether the information
available to the ATO might lead it to
conclude that the structure was designed
to secure a tax reduction in Australia, and
whether any non-tax financial benefits can
be shown to exceed the tax benefits from
the structure. It will be important to ensure
that the ATO has sufficient information so
that it does not reach that conclusion. It
seems most likely that where the MAAL
does not apply the diverted profits tax
ought not apply either. The point to note
is that the diverted profits tax imposes a
lower standard, there is no purpose test,
and the ATO may be able to use the tax in
circumstances where Pt IVA requirements
may be more onerous.
3. Deductible payment between related parties: MAAL is not applicable, diverted profits tax could apply
Singapore Cloud
Computing Co
Hong Kong Parent
Cloud Computing Co
MAAL
The MAAL is not relevant to this example.
There is no supply of goods and services
to unrelated Australian customers.
Diverted profits tax
The diverted profits tax can apply.
The fee paid for administrative services
could be deductible to Cloud Computing
Sub Australia and, assuming Singapore's
applicable tax rate is less than 80% of
Australia's rate, there is an effective tax
mismatch. In terms of whether there is
insufficient economic substance, the value
of the services to Cloud Computing Sub
Australia commercially will need to exceed
the financial benefit of the tax reduction.
This may be difficult to establish. The
consultation paper states that the diverted
profits amount will be 30% of the fee
(being the tax benefit obtained from the
deductible fee), and the 40% tax will be
imposed on that amount.
The administrative fee example
demonstrates clear intention to use the
diverted profits tax as a mechanism to
enforce the transfer pricing rules. The ATO
will be able to strategically impose the
diverted profits tax where it is not satisfied
as to compliance with transfer pricing
documentation requirements and with the
amount of a fee. Agreeing to a transfer
pricing adjustment instead leads to a lower
rate of tax (30%) being applied than the
40% diverted profits tax.
The diverted profits tax could also apply
to the loan. Again, this assumes an
interest deduction for Cloud Computing
Sub Australia, and the applicable tax rate
in Hong Kong being less than 80% of
Australia's rate. It also assumes that the
ATO can conclude that there is insufficient
economic substance to the structure —
particularly that the commercial benefits
do not outweigh the benefit of the tax
26 TAXATION IN AUSTRALIA I JULY 2016

8. COVER
2. Sales revenue booked offshore: MAAL may not be applicable, diverted profits tax may still apply
Singapore Cloud
Computing Co (1) Marketing/customer solicitation service
(4)Negotiate and
conclude contracts,
including price
(6)Sales revenue
AND (2) Fee
(5)Finalise Unrelated Australian Cloud Computing
customers Sub Australia
(3) Marketing - providing
introduction to Singapore
Cloud Computing Co - no
involvement in contract
provision, finalisation or
negotiation
MAAL
Example 3.6 and example 3.8 in the
explanatory memorandum to the Tax Laws
(Combating Multinational Avoidance) Bill
2015 (Cth) suggest that the MAAL should
not be applicable in this situation as it
cannot be concluded that the scheme was
entered into for the or a principal purpose
of enabling a taxpayer to reduce Australian
taxes. This is because of the lack of any
involvement by Cloud Computing Sub
Australia in concluding sales contracts with
Australian customers.
Diverted profits tax
It seems possible for the diverted profits
tax to nonetheless be applicable — even
where the MAAL does not apply. Assuming
that tax rate applicable in Singapore is less
than 80% of Australia's rate, the issue will
be whether Singapore Cloud Computing
Co has insufficient economic substance.
The issue will be whether the information
available to the ATO might lead it to
conclude that the structure was designed
to secure a tax reduction in Australia, and
whether any non-tax financial benefits can
be shown to exceed the tax benefits from
the structure. It will be important to ensure
that the ATO has sufficient information so
that it does not reach that conclusion. It
seems most likely that where the MAAL
does not apply the diverted profits tax
ought not apply either. The point to note
is that the diverted profits tax imposes a
lower standard, there is no purpose test,
and the ATO may be able to use the tax in
circumstances where Pt IVA requirements
may be more onerous.
3. Deductible payment between related parties: MAAL is not applicable, diverted profits tax could apply
Singapore Cloud
Computing Co
Hong Kong Parent
Cloud Computing Co
1
(2) Fee
(1) Administrative
services
(3) Loan from
Parent
(4) Interest payment
Cloud Computing
Sub Australia
MAAL
The MAAL is not relevant to this example.
There is no supply of goods and services
to unrelated Australian customers.
Diverted profits tax
The diverted profits tax can apply.
The fee paid for administrative services
could be deductible to Cloud Computing
Sub Australia and, assuming Singapore's
applicable tax rate is less than 80% of
Australia's rate, there is an effective tax
mismatch. In terms of whether there is
insufficient economic substance, the value
of the services to Cloud Computing Sub
Australia commercially will need to exceed
the financial benefit of the tax reduction.
This may be difficult to establish. The
consultation paper states that the diverted
profits amount will be 30% of the fee
(being the tax benefit obtained from the
deductible fee), and the 40% tax will be
imposed on that amount.
The administrative fee example
demonstrates clear intention to use the
diverted profits tax as a mechanism to
enforce the transfer pricing rules. The ATO
will be able to strategically impose the
diverted profits tax where it is not satisfied
as to compliance with transfer pricing
documentation requirements and with the
amount of a fee. Agreeing to a transfer
pricing adjustment instead leads to a lower
rate of tax (30%) being applied than the
40% diverted profits tax.
The diverted profits tax could also apply
to the loan. Again, this assumes an
interest deduction for Cloud Computing
Sub Australia, and the applicable tax rate
in Hong Kong being less than 80% of
Australia's rate. It also assumes that the
ATO can conclude that there is insufficient
economic substance to the structure —
particularly that the commercial benefits
do not outweigh the benefit of the tax
26 TAXATION IN AUSTRALIA I JULY 2016

9. 24TH NO.OSA. .
TAX INTENSIVE
The SME Operating Theatre
— Is a Check-up Sufficient or
Do You Need Radical Surgery?
Those in the profession of giving tax advice to SME clients
urgently need to mark the 10th and llth of November
in your diaries to attend the 24th Noosa Tax Intensive.
You won't want to miss the compelling line-up of speakers
and valuable networking opportunities, all presented
to you in the incomparable surrounds of Noosa.
10-11 November 2016
Sofitel Noosa Pacific Resort
THE TAX INSTITUTE
PROGRAM To register your interest contact
AVAILABLE Carlie Lemon on 07 3225 5200 or
SOON carlielemon@taxinstitute.com.au
COVER
reduction in Australia. The consultation
paper states that the loan falls within thin
capitalisation safe harbours that protects
the amount of debt, but the diverted
profits tax could still apply to the "pricing
of the debt" — presumably the interest
rate. Again, it seems that the diverted
profits tax is a back up to transfer pricing
provisions in this regard. The consultation
paper suggests that the actual amount of
debt could also be challenged assuming
thin capitalisation safe harbours are not
met; again, a back up to transfer pricing
adjustment provisions as well as to the
thin capitalisation regime. However, if thin
capitalisation safe harbours are not met,
there may be no interest deduction and
it is hard to see what the tax reduction is
in Australia giving rise to an effective tax
mismatch. The point to note is that diverted
profits tax potentially has a wide reach,
particularly given the UK's diverted profits
tax carves out most loans, in main part on
the basis that its thin capitalisation and
transfer pricing rules effectively manage
the issue.
Joanne Dunne, CTA
Partner
MinterEllison, Melbourne
References
1 Treasury,Implementing a diverted profits tax,
consultation paper, 3 May 2016.
2 ATO, "Simplifying transfer pricing record keeping",
ATO guide, January 2016. Available at www.ato.gov.
au/business/international-tax-for-busIness/in-detail/
transfer-pricing/simplifying-transfer-pricing-record-
keeping/.
3 ATO,MAAL client experience roadmap, a guide to
assist taxpayers transition to compliance with the
new MAAL provisions, 12 January 2016. Available
at www.ato.gov.au/law/view/pdf/cgl/maal_client_
experience_roadmap.pdf.
4 LCG 2015/2. Available at www.ato.gov.au/law/view/
yiew.htm?srcehs&pit=99991231235958&aro=false&s
tart.18.pageSize=108,total=1&num=0&docid-COG%
2FLCG20152%2FNAT%2FATO%2F00001&dc=false&t
m=and-basic-Icg 2015%2F2#P29.
TAXATION IN AUSTRALIA VOL 51(1) 27