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Diverted Profits Tax: Power Bar Shifting Further Towards ATO

09 February 2017

BDO has today commented on the Turnbull Government’s introduction of legislation to implement the new Diverted Profits Tax (DPT).

Mark Molesworth, Tax Partner at BDO said the legislation gives increased powers for the ATO to address multinational tax avoidance.

“The new legislation will have a big impact on Australian subsidiaries of multinationals or Australian based significant global entities,” Mr Molesworth said.  

“It gives the ATO unprecedented power to assess profits based on any sort of belief about a taxpayers’ arrangements and it significantly reduces taxpayers' rights to dispute assessments.”

“It’s a red flag for all potentially affected companies to have their transfer pricing policies and documentation ready in advance of any contact or engagement with the ATO.”

“The new powers effectively mean that a company can be forced to participate in a review and they cannot challenge the ATO findings based on new evidence not shared with the ATO.  Companies will be limited to what they disclose during the review period. Therefore affected companies should be prepared for an ‘open books review’.”

“Affected taxpayers need to consider their position and have a strategy in advance for how they interact with the ATO.  This is potentially a more important consideration than the technical aspects of the tax law changes.”

The legislation:

  • increases penalties for late lodgement by 500 times (to a max of $450,000, expected to increase to $525,000 from 1/7/17)
  • doubles penalties for getting it wrong for those taxpayers.

“The threat implicit in the legislation is a tax rate of 40% of the profits allegedly diverted to a ‘low tax jurisdiction’ (as compared to the usual company tax rate of 30% which would apply in other circumstances). Additionally, a low tax jurisdiction is any country with a rate of tax less than 80% of Australia’s. At present, this means that a majority of the OECD countries will be low tax, as will the USA if President Trump reduces the corporate rate of tax.”

Notes to Editors:
For more information on the legislation, refer to the Federal Treasurer’s announcement