Toughening the multi-national anti-avoidance law
The definition of foreign entities to whom the multi-national anti-avoidance law (MAAL) regime applies has been broadened to include the use of foreign trusts and partnerships in corporate structures. The imposition of a more specific definition will afford clarity to taxpayers and tax agents during their self-assessment of whether the MAAL regime is applicable to their existing related party transactions.
From exhaustive to inclusive definitions
In order to fall under the umbrella of the MAAL regime, an entity or individual is currently defined as a ‘foreign entity’ that is a significant global entity or ‘a person’.
As part of the early engagement and risk assessment process of the MAAL, taxpayers or their corresponding tax agents are required to carry out a self-assessment of the applicability of the MAAL to their respective related party transactions. Under the current law, the applicability of the MAAL was restricted to the broad definition of ‘foreign entity’ and ‘a person’.
Under the new proposed measure, MAAL will also apply to the following entities:
- Corporate structures that involve the interposition of partnerships that have any foreign resident partners
- Trusts that have any foreign resident trustees
- Foreign trusts that temporarily have their central management and control in Australia.
The amendments however apply retrospectively from 1 January 2016.
The amendments to the definitions strengthen the implementation of the original policy intent behind the MAAL which is to combat the erosion of the Australian tax base by multi-national entities using artificial and complex schemes to avoid the attribution of profits to a permanent establishment in Australia.
The proposed measure also reduces the likelihood of potential loopholes arising from any ambiguity in definitions when assessing and characterising an entity or an individual as a ‘foreign entity’ or ‘a person’.
The proposed measure improves, to some extent, the clarity surrounding the characterisation of entities and/or individuals entering a scheme that is subject to the MAAL. The changes are targeted at taxpayers and advisers who are perceived to have been seeking ‘loopholes’ in the MAAL.
As the MAAL only applies to groups with a global turnover in excess of $1 billion, the changes impact on a small, but significant, target group.