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Federal government proposes tax reforms to target multinational enterprises

The Australian government has proposed extensive multinational tax reforms targeting multinational enterprises (MNEs). Here, a DLA Piper partner and head of tax has commented on the potential impacts of the reforms.

user iconJess Feyder 12 August 2022 Big Law
Federal government proposes tax reforms to target multinational enterprises
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The Australian Treasury has released a consultation paper proposing a set of tax reforms that seek to address tax avoidance practices by MNEs.

MNEs are using increasingly sophisticated tax planning practices that take advantage of differences between jurisdictions’ tax systems to minimise their tax paid, resulting in increases in tax integrity issues. 

Three reforms are proposed:

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  • To limit interest deductions for MNEs in line with the Organisation for Economic Co-operation and Development (OECD)’s recommended approach;
  • Introduce a new rule limiting MNEs’ ability to claim tax deductions for payments relating to intangibles and royalties that lead to insufficient tax paid;
  • Ensure enhanced tax transparency by MNEs, through measures such as public reporting of certain tax information; mandatory reporting of material tax risks to shareholders; and requiring tenderers for Australian government contracts to disclose their country of tax domicile.
The government announced it would also implement a public registry of beneficial ownership to improve transparency on corporate structures in order to show who ultimately owns or controls a company or legal vehicle. 

Partner and head of tax at DLA Piper, Jock McCormack, said the proposed measures would have a significant impact on many multinational groups and entities operating in Australia. 

The reforms will inevitably impact inbound and outbound investment across industries, he noted. 

Mr McCormack commented that the reform proposed for 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,” he said. 

“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,” he said. 

Many of the proposed tax measures are consistent with, or emanate from, similar initiatives on tax policy reforms that are implemented across the European Union, United Kingdom, United States and countries part of the Organisation for Economic Co-operation and Development.

“These reforms are intended to push Australia towards more global approaches,” he said.

“They are expected to significantly increase overall government revenue in their current form.”

Until 2 September, the government will remain open to responses, which it will consider responses in the drafting of legislation prior to introducing it into Parliament.

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