House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 1 - Introduction

1.1 Corporate tax avoidance is of significant concern both on a domestic and global scale. Governments around the world have been wrestling with multinational taxation, and Australia is taking a leading role in the push for foreign businesses to pay their fair share.

1.2 As the G20 President in 2014, Australia led progress on the Organisation for Economic Co-operation and Development's (OECD's) Base Erosion and Profit Shifting (BEPS) Action Plan to ensure multinational entities pay the right amount of tax.

1.3 The vast majority of Australians do the right thing, and the tax system is built on trust and voluntary compliance; however, some multinational entities engage in deliberate tax avoidance, exploiting legal loopholes to pay less tax than the law intended.

1.4 To the extent this erodes Australia's tax base, this may mean that individuals and other businesses face higher rates of tax in the future, hurting the economy and jobs.

1.5 The Government is committed to the two year G20/OECD BEPS project which aims to restore fairness in the international tax system and ensure that entities pay tax where they have earned their profits.

1.6 The 2015-16 Budget included a package of measures to combat multinational tax avoidance, which included action on four of the 2014 BEPS recommendations. Specifically:

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implementing the OECD's country-by-country reporting regime from 1 January 2016;

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incorporating the OECD's treaty abuse rules into our treaty practice;

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asking the Board of Taxation to consult on the implementation of the OECD's anti-hybrid rules; and

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the Australian Taxation Office (ATO) commencing exchange of information on preferential tax rulings.

1.7 While the OECD work is essential, immediate action is also required to ensure that Australia's tax laws are fit to deal with the most egregious tax avoidance arrangements.

1.8 To this end, the 2015-16 Budget package also included a number of domestic measures, including:

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introducing a multinational anti-avoidance law to strengthen our existing tax avoidance laws;

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improving the integrity of the tax system by ensuring the goods and services tax (GST) applies to digital products and services imported by Australian consumers; and

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doubling penalties for large companies engaging in tax avoidance and profit shifting.

1.9 This Bill introduces one of the OECD's 2014 BEPS recommendations described above - country-by-country reporting - and two of the domestic measures - the multinational anti-avoidance law and increased penalties.