03 May 2016

Australian Federal Budget 2016-17: Tax Compliance

The Government has announced a raft of tax integrity measures in an effort to protect Australia’s revenue base. A number of these have been addressed earlier. The following measures form part of that package.

Increased penalties

From 1 July 2017, increased administrative penalties will apply to companies with a global revenue of $1 billion or more. In particular:

  • penalties which relate to the lodgement of documentation with the ATO will be increased by a multiple of 10 (making the maximum penalty $450,000); and
  • penalties relating to the making of statements to the ATO will be doubled.

The changes appear to be directed at multinational taxpayers in particular.

Disclosure of aggressive tax planning schemes

The Government has announced further consultation on the OECD’s proposals for mandatory disclosure rules. If enacted, these rules will require individuals (including tax advisers and taxpayers) to make early disclosures to the ATO of aggressive tax arrangements.

The purpose of the consultation is to seek industry views on how the mandatory disclosure rules should be framed in an Australian context, having regard to the disclosure laws that are currently in operation.

Protections for whistleblowers

As part of the Budget measures, the Government will introduce new arrangements to better protect individuals (including employees, former employees and tax advisers) who disclose information to the ATO about tax misconduct, tax avoidance behaviour and other tax issues.

It will be interesting to see the extent of these measures (which are proposed to take effect from 1 July 2018) and whether the mandatory disclosure rules will largely reflect the position recently taken in the United Kingdom.

Tax Transparency Code

The Government’s release of the Tax Transparency Code contained in the Board of Taxation’s final report aims to encourage greater tax transparency amongst large Australian-headquartered and foreign multinational businesses. The Code is voluntary and aims to encourage businesses with a minimum annual turnover of $100 million to disclose tax information in accordance with set minimum standards and principles.

The Code disclosure is divided into two parts. It is suggested that ‘medium businesses’ with an aggregated TTC Australian turnover of at least AUD$100 million but less than AUD$500 million adopt Part A, while ‘large businesses’ with an aggregated TTC Australian turnover of AUD$500 million should adopt both Parts A and B.

The “TTC Australian turnover” is calculated as follows:

  • For an Australian headquartered business: the turnover of the relevant Australian entity or the tax consolidated group headed by an Australian entity; or
  • For a foreign multinational business: the turnover of the accounting consolidated group headed by a foreign parent to the extent that the turnover relates to Australian entities, or an Australian tax consolidated group; and any foreign entities to the extent that the turnover is referable to an Australian PE.

The minimum standard of information required under Part A includes:

  • a reconciliation of accounting profit to tax expense and to income tax paid or income tax payable;
  • identification of material temporary and non-temporary differences; and
  • accounting effective company tax rates for Australian and global operations (pursuant to AASB guidance).

The minimum standard of information required under Part B includes:

  • approach to tax strategy and governance;
  • tax contribution summary for corporate taxes paid; and
  • information about international related party dealings.

The Government has stated that the aim of the Code is to facilitate informed public debate and build community confidence in Australian businesses which are compliant with tax measures. Similar tax transparency measures are in the process of being adopted in other countries, with the UK Government and European Commission in the process of consulting on similar measures to increase transparency of tax information around large businesses.

For a full analysis of this year's Budget measures, please see Australian Federal Budget 2016-17.

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