In Nov 2015 I was asked to give a tax presentation (15 minutes) on recent Australian tax changes - with a focus on Base Erosion and Profit Shifting. I focussed mainly on the simplified transfer pricing regime for medium sized entities and how family owned businesses in other countries can reduce the cost of doing business in Australia.

1. Transfer Pricing and other
nasties
A Very Fast Australian Perspective

2. Base Erosion and Profit Shifting
Press release 6 Oct – full support of both sides of politics
Items 1 to 14 generally accepted.
Item 15 – Multilateral instrument needs further work

3. Capital gains withholding tax
From July 2016 purchasers of Australian land will need to withhold 10%
tax if they reasonably suspect the vendor is a non-resident.
Excludes residential land under $2.5m

4. Agricultural land register
All foreign persons who own agricultural land from 1 July 2015
must register with the Tax Office from 1 December 2015.

5. Disclosure of tax information
Taxpayers generating a revenue of more than $100m will have
their tax information available.
Private family groups excluded.
Reputational risk is a factor.
www.data.gov.au available December 2015

6. Transfer pricing: guilty until proven innocent
the consequence of not meeting the …
requirements is that … there is a
presumption that you … [are] not
reasonably arguable and a higher base
penalty … will apply.
ATO Factsheet QC 43562

7. Dec 14: A simplified option
Should you self-assess as eligible for one or more of the
simplification record-keeping options, we will not allocate
compliance resources or take other compliance action to
examine your transfer pricing records relevant to the option
selected.
ATO QC 43562

8. Option 1 – Small Business Taxpayer
No sustained losses over 3 years
Turnover of less than $25m
Fees paid to parent are less and 15% of turnover
Does not apply to royalties, license fees or R&D
• Pssstt! - other factors as well but keeping it simple

9. Option 1 - Example
Ausco: turnover of $17 million + profit of $800k.
Ausco has paid ChinaCo $2 million for marketing.
Ausco meets the eligibility criteria.

10. Option 2 - Distributors
Distributors of simple manufactured product.
- $50m turnover
- At least 3% profit before tax ratio

11. Option 2 – example
Ausco has a turnover or $47m and profit of $2.6m (5.5%).
Ausco has purchased stock of $38m from MalayCo.
Ausco meets the simplified documentation requirements.

12. Option 3 – 15% rule, low value + 7.5%
Value of related party dealings is under $1m: or
Costs/sales from/to the parent are < 15% of costs/sales; +
No sustained losses
And
7.5% mark-up!

13. Option 3 - example
Ausco: turnover of $53m and profit of $1.5m.
AusCo paid $850,000 for management fees (7.1% markup) and
$25m for stock to ChinaCo (the parent).
Ausco qualifies for its management fees. The stock purchases
exceed the 15% of total cost criteria.

14. Option 4 – Low level loans
• Loan of less than $50m at all times.
• Interest rate is below a floating rate (currently 6.6%)
• Funds are provided and paid in AUD
• No sustained losses over 3 years

15. Option 4 – Example
AusCo borrows AUD $10m from IndoCo. It pays 5% in interest.
Ausco makes a profit.
Ausco meets the simplified record keeping criteria.

16. However…
• Election must be made in the International Dealings
Schedule.
• IDS if you have > $2m in related party dealings.
• Is an administrative concession: it is not law.

17. Questions
Thanks for your time on our speed slide presentation.
Ross Forrester
Westcourt Chartered Accountants
Perth, Western Australia
www.westcourt.com.au