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Australia introduces diverted profits tax

The Australian government has introduced a diverted profits tax to prevent multinationals shifting profits overseas to avoid paying tax.29 Mar 2017

The tax will come into effect on 1 July and is expected to raise AU$100 million (£62 million) a year from 2018-2019, treasurer Scott Morrison said.

Multinationals with global revenue of more than AU$1 billion and Australian revenue of greater than AU$25m will now have to pay 40% tax on all Australian profits.

This "provides a powerful new tool for the Australian Taxation Office to tackle contrived arrangements and uncooperative taxpayers, and will reinforce Australia’s position as having some of the toughest laws in the world to combat multinational tax avoidance," Morrison said.

The tax will not apply to managed investment trusts or similar foreign entities, sovereign wealth funds and foreign pension funds.

"These entities have been excluded as they are low risk from an integrity perspective, are widely held and undertake passive activities," the treasurer said.

The legislation comes alongside other anti‑tax avoidance developments including a multinational anti-avoidance law that aims to prevent artificial profit shifting, a new tax avoidance taskforce focused on multinationals and high net worth individuals, new protection for tax avoidance whistleblowers, and increased penalties for breaches of tax reporting obligations by global companies with income of $1bn or more, the treasurer said.

The commissioner of taxation will be provided with the extra powers it will need to enforce the new legislation, it said.

"The integrity of Australia’s tax base is paramount. The Turnbull government is determined to ensure multinationals do the right thing and pay their fair share of tax here in Australia so that Australian citizens get the money that is owed to them to fund vital infrastructure and services," the treasurer's statement said.

Ewan Robertson of Pinsent Masons, the law firm behind Out-Law.com said: "It will be interesting to see how the changes actually impact on the Australian business landscape which is already under pressure on its global competitiveness. The current coalition government has at the same time pledged to reduce corporate tax rates which are currently higher than many of its competitors but this is meeting fierce opposition and may not go through."