Foreign tax measures
Disclosure of residency to ATO
Labor proposes that taxpayers disclose to the ATO their residency or citizenship of other countries. The automatic exchange of information rules that are currently in place require Australian financial institutions to identify accounts held by customers who are foreign tax residents or entities connected to foreign tax residents.
The Labor Party wants to stop ‘citizenship shopping’ although the declaration is not restricted to tax haven jurisdictions and may require disclosure of residency and citizenship for any jurisdiction. It appears unlikely that the mere requirement to disclose such information will materially improve Australia’s tax collections, given the current policy settings about taxation of foreign sourced income.
Thin capitalisation amendments
Under a Labor Party proposal the safe-harbour thin capitalisation and ‘arm’s length’ tests for interest deductions of multinational firms will be abolished. This will leave the world-wide gearing ratio test as the only method by which the denial of interest deductions can be avoided.
The Labor Party has not provided any rationale for this policy change, apart from indicating that it estimates that this policy will save $1.1 billion over the next four years and $4.6 billion over the next ten years). The increased compliance costs imposed on taxpayers forced to use the world wide gearing ratio will be significant, and should be considered as part of the legislative design for this measure.
Public country by country reporting
It is proposed that parts of country-by-country reports will be publicly released, ensuring the release of high-level tax information about where and how much tax was paid by large corporations. Currently country-by-country reports are required for groups with over $1 billion in global revenue, but are not publicly released.
The Labor Party has not provided an explanation for publication of country-by-country reporting. Publication of reports would be in breach of Australia's confidentiality commitments under the reporting regime and could prevent the ATO from receiving exchanged reports from other OECD member countries such as Canada, France, Germany, Japan, and the USA.