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  • BEPS Action Plan Update

    Tax Institute NSW 7th ANNUAL TAX FORUM

    Thursday 22 May 2014

    Dalton House Sydney

    Mark Konza, Deputy Commissioner, International

    Introduction

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Good morning and thank you for the opportunity to once again present at one of your conferences.

    Today, I have been asked to give an insight into Australia’s response to the OECD’s base erosion and profit shifting (BEPS) Action Plan. The Action Plan sets a clear framework for dealing with BEPS issues to develop a stronger international tax system that supports all jurisdictions in getting their fair share of tax. The OECD action has been undertaken at the behest of the G20 group of countries, of which Australia is a member and president during 2014. I would also like to make it clear that what I discuss today are not the views of the Government, but is simply some insight into the work Treasury and the ATO are currently undertaking.

    From Australia’s perspective, our Government has already acted against possible corporate tax erosion and avoidance through various policy reforms in the past two years. However, the delivery of the Action Plan will most likely propose further reforms for our Government to consider in addressing risks to our corporate tax base. It should always be borne in mind that the OECD work will essentially comprise recommendations and that it will be for the Australian Government to decide what, if any, changes it will make. In this respect, it should be kept in mind that compared to the rest of the world, Australia has robust tax legislation which already features a regime covering Controlled Foreign Corporations (CFC), a General Anti-Avoidance Regime and new transfer pricing provisions. It also has comparatively sound levels of voluntary compliance and comparatively healthy levels of company income tax.

    Returning to the BEPS risk, in late 2013, Treasury released a scoping paper titled ‘Risks to the sustainability of Australia’s corporate tax base’ where it states that although ‘some action can be taken unilaterally’, the ‘key focus should be working multilaterally with international organisations to modernise international tax rules'1. It is clear that a unilateral response to BEPS will not be enough, and with our current presidency of the G20, Australia through Treasury and the ATO has a unique opportunity to promote greater international cooperation and collaborative approaches on global tax matters.

    The ATO’s role in the enquiry into the BEPS issue is threefold:

    • To support Treasury in its considerations and advice to Government by providing them with the ATO’s observations and insights into the system in action;
    • To competently administer the law as it currently stands so that any changes, if needed, are the minimum necessary to achieve the Governments objectives; and
    • To ensure that this administrative competence extends to achieving the international revenue administration cooperation necessary to achieve a global compliance analysis of global tax planning arrangements.

    So I wish to clarify, that while I am addressing the many policy issues that arise under the OECD Action Plan in the presentation today, this is only because the relevant Treasury official is in Paris negotiating these things as we speak – these policy matters remain a Treasury role and the ATO operates in support of their work.

    The OECD BEPS Action Plan

    The Action Plan was released last year after G20 Ministers called for a coordinated and comprehensive approach to address BEPS issues. Its intention is to provide countries with domestic and international instruments that will better align rights to tax with economic activity.

    Action 1 focuses on addressing the tax challenges in the digital economy and possible options to address these.

    Actions 2 – 5 focus on current gaps or mismatches in the various interactions between countries’ domestic laws that could lead to opportunities for BEPS. These actions look into the development of international standards to ensure better coherence of tax at the international level and include:

    1. Neutralising the effects of hybrid mismatch arrangements.
    2. Strengthening controlled foreign company rules.
    3. Limiting base erosion via interest deductions & other financial payments.
    4. Counteracting harmful tax practices more effectively.

    Actions 6-10 seek to restore the full effects of domestic and international tax rules. This includes possible changes to existing rules to more closely align the allocation of income with the economic activity that generates that income. The actions include:

    1. Preventing the granting of treaty benefits in inappropriate circumstances.
    2. Preventing the artificial avoidance of permanent establishment status.

    8 -10 ensuring that transfer pricing outcomes are in line with value creation for intangibles, risk and capital, and other high-risk instruments.

    Actions 11-14 focus on the idea that reducing opportunities for BEPS into the future requires transparency, certainty and predictability. These actions seek to achieve this by improving the availability and analysis of data on BEPS issues. The individual actions are:

    1. Establishing methodologies to collect and analyse data on BEPS.
    2. Requiring taxpayers to disclose their aggressive tax planning arrangements.
    3. Re-examining transfer pricing documentation.
    4. Making dispute resolution mechanisms more effective.

    Implementing a number of these actions will most likely involve changes to bilateral tax treaties. Action 15 looks into the development of a multilateral instrument that could assist in streamlining the process of modifying bilateral tax treaties.

    In order to address the individual actions the OECD established various working parties and taskforces. The ATO and Treasury represent Australia on all of these including:

    • The Task Force on the Digital Economy (assessing the implications of the digital economy for the tax system).
    • Working Party 1 on Tax Conventions and related questions (focus on treaty abuse, artificial avoidance of permanent establishment status and dispute resolution).
    • Working Party 2 on tax analysis and statistics (establish methodologies to collect and analyse data on BEPS and actions to address it).
    • Working Party 6 on the Taxation of MNEs (includes work on hard to value intangibles and cost contribution arrangements, financial transactions including loans and transfer pricing documentation).
    • Working Party 9 on Consumption Taxes.
    • Forum on harmful tax practices on countering harmful tax practices more effectively.
    • Working Party 10 on the Exchange of Information and Tax Compliance, and
    • Working Party 11 on Aggressive Tax Planning (includes work on hybrid mismatch arrangements, controlled foreign companies, interest deductions and other financial payments and mandatory disclosure rules).

    The work so far and considerations for Treasury

    Work by the various OECD working parties has led to the release of four draft discussion papers on:

    • Addressing the tax challenges of the digital economy (Action 1).
    • Neutralising the effects of hybrid mismatch arrangements (Action 2).
    • Preventing the granting of treaty benefits in inappropriate circumstances (Action 6).
    • Transfer pricing documentation and country-by-country reporting (Action 13).

    Broadly speaking, the discussion papers contain a number of recommendations which might require changes to Australia’s domestic laws if they are to be adopted, and therefore they raise a number of potential policy questions for the Government. This, of course is primarily a matter for the Treasury, and initial policy analysis and evaluation on potential changes is already occurring. As I work through the various discussion papers I will discuss some of the key considerations Treasury will take into account in their current policy analysis and evaluation.

    Action 1: Digital economy

    Before I speak about the work of the Digital taskforce, I thought I’d briefly describe why the digital economy presents challenges for jurisdictions. The OECD Action Plan itself provides a good summary of the key features of the digital economy and why its features present issues from a tax perspective. It states:

    ‘The digital economy is characterised by an unparalleled reliance on intangible assets, the massive use of data (notably personal data), the widespread adoption of multi-sided business models capturing value from externalities generated by free products, and the difficulty of determining the jurisdiction in which value creation occurs. This raises fundamental questions as to how enterprises in the digital economy add value and make their profits, and how the digital economy relates to the concepts of source and residence or the characterisation of income for tax purposes'2.

    The report that has been released summarises the Digital Taskforce’s key findings from their work to date. Some of the likely key findings that I expect will be included in the final report are:

    • the digital economy cannot be separated from the rest of the global economy, and therefore we are seeing a digitisation of the entire economy
    • key features and business models common in the digital economy are potentially important from a tax perspective
    • there are no unique BEPS risks in the digital economy and therefore BEPS issues in the digital economy will be addressed within the wider Action Plan
    • the Taskforce will continue to operate until the end of 2015 and will monitor the progress of the action plan and evaluate whether it has been effective in addressing BEPS issues related to the digital economy.
    • the digital economy raises challenges for tax policy makers that extend beyond BEPS including; nexus and rules around physical presence, attributing value to data, the characterisation of certain payments and the collection of consumption tax in business to consumer transactions.
    • some of the possible options which have been raised to address these wider challenges include
      • changes to the definition of permanent establishment – the current rules may allow for a multinational enterprise to undertake significant economic activity within a source country without a permanent establishment being created
      • withholding taxes on certain payments – a final withholding tax on certain payments made by residents of a country for digital goods and services provided by a foreign e-commerce provider
      • changes to rules around consumption taxes such as the GST – so services are taxed when they are being consumed.
       
    • include the use of primary and secondary rules which provide a primary change point and then a secondary adjustment point to be applied if the first country does not neutralise the mismatch
    • ensure consistency, as there will be one set of internationally accepted rules for countries to apply, and
    • include ordering rules to prevent the risk of double taxation.

    We have undertaken some initial analysis on these options and will continue to provide ongoing advice to Treasury, especially in regard to the administrative and compliance issues of these options.

    Of course, these are only my predictions; we will have to wait and see what the final report will actually say.

    BEPS risks in the digital economy do pose a threat to the corporate tax base within Australia. So far, our compliance checks have indicated potential BEPS risks in a wide range of businesses including large technology MNE’s, small internet business and even brick and mortar businesses locating automated activities on offshore servers. In our advice work we have also seen the development of parallel business models where local businesses are developing an internet based business offshore, sometimes as an option for the customers of their existing business, sometimes as an online competitor in their existing industry.

    Our advice and compliance work will help us identify and address BEPS risks in a digital context under our current law. We will also be keeping a close eye on the work of the action plan to address issues related to the digital economy and work with Treasury on areas where our current law may need to be looked at.

    Action 2: Hybrids mismatch arrangements

    Because of differences in domestic laws, every country has an exposure to hybrid mismatch arrangements. Mismatches can occur when the tax treatment of a financial instrument or entity differs between two countries, producing a mismatch in tax outcomes. Examples of mismatches can be a deduction in two countries for the same payment, or a deduction in one country, with no taxable receipt in another.

    The main recommendation in the discussion paper is the introduction of standardised domestic rules to be applied when a mismatch occurs. The proposed rules set out in the paper are aimed at eliminating the incentive to enter into hybrid mismatch arrangements and will only adjust the tax outcomes of the hybrid mismatch rather than re-characterise the instrument or entity.

    From Australia’s point of view, we don’t currently have any anti-hybrid mismatch rules and therefore Treasury is interested in the work of the OECD in developing proposals for internationally accepted domestic rules. The ATO has a number of current audit cases involving potential hybrid instrument and entity issues and hybrid mismatch arrangements have been identified as a risk to our corporate tax base. According to the discussion paper the proposed anti-hybrid mismatch rules will:

    • include the use of primary and secondary rules which provide a primary change point and then a secondary adjustment point to be applied if the first country does not neutralise the mismatch
    • ensure consistency, as there will be one set of internationally accepted rules for countries to apply, and
    • include ordering rules to prevent the risk of double taxation.

    The adjustment rules under consideration are intended to minimise the need for adjustment of domestic laws (though adjustment provisions may need to be enacted) while removing any incentives for jurisdictions to offer hybrid planning opportunities. It is important that any the new hybrid mismatch rules should not apply to ‘unintended mismatches’. Treasury is assisting the OECD in drafting text for the rules around the types of arrangements that might be covered and any exclusions.

    Action 6: Preventing treaty abuse

    Australia has 44 bilateral tax treaties with other countries. The main purpose of these treaties is to facilitate cross border trade and investment by preventing double taxation. However, in some circumstances the benefits provided by treaties can be granted in inappropriate circumstances, resulting in unintended double non-taxation. This can occur in two different situations where:

    • a person tries to circumvent limitations provided by treaties – for example treaty shopping by interposing a third country into the tax treaty framework.
    • a person tries to circumvent provisions of domestic laws using treaty benefits.

    The BEPS treaty abuse focus group has been looking into effective ways of preventing treaty abuse and in particular treaty shopping. The work of the focus group has resulted in the recent release of the public discussion paper on preventing the granting of treaty benefits in inappropriate circumstances. The main recommendations of the draft are the:

    • development of model treaty provisions and recommendations – including anti-treaty abuse rules based on existing limitation of benefits provisions and more general rules in treaties and domestic law
    • clarification that tax treaties are not intended to be used to generate double non-taxation, and
    • identification of policy considerations that countries, in general, should consider before entering into bilateral tax treaties.

    Australia supports the work of the OECD in developing internationally agreed anti-treaty abuse rules that all countries can apply. We believe it is important the proposed limitation of benefits and main purpose tests are clear, carefully focused and provide certainty for taxpayers and tax administrations. We also support further provisions to allow competent authorities to work together to resolve issues in applying the proposed rules. Treasury will also have to ensure that any proposed future new anti-treaty abuse rules do not restrict the ability for cross-border trade and investment in and out of Australia and that they deal with instances of intended treaty abuse and do not deny benefits to those doing the right thing. It should be mentioned that while Australia currently does not have a definite policy position on future treaty abuse provisions, it does have limitation on benefits provisions in tax treaties with the USA and Japan, and also a limited main purpose test in our tax treaty with the UK. Our domestic anti-avoidance provision Part IVA could also be applied in some cases of treaty abuse.

    Tax treaties were originally introduced to avoid double taxation. These changes and the others under consideration will have to be carefully considered to ensure that in the efforts to avoid double non taxation we don’t end up with trade curtailing double taxation.

    Action 13: Country by country reporting and transfer pricing documentation

    Currently there are inconsistencies between jurisdictions on the types and amounts of information multinational enterprises can be required to provide to tax administrations on their business operations. This poses questions on the compliance burdens faced by multinational enterprises due to the diversity and bespoke nature of information requirements, and whether tax administrations are receiving the right information to undertake appropriate risk assessments.

    Working party 6 has been re-examining the transfer pricing (TP) documentation multinational enterprises provide to tax administrations, and also the potential introduction of a common country-by-country reporting template.

    Chapter V of the OECD’s TP guidelines provides guidance for countries on the development of domestic laws around TP documentation. The OECD draft discussion paper recommends a complete revision of this chapter and proposes a standardised three-tiered approach to documentation requirements across jurisdictions. This approach includes:

    • a master file – providing a reasonably complete picture of global business operations, including organisational structure, description of business, intangibles and financial and tax positions.
    • a ‘country-by-country’ report – to be included within the master file that comprises country-wide information relating to the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity (for example, stated capital and accumulated earnings) among the countries in which the MNE group operates.
    • a local file – providing information on specific transactions and positions on the multinational enterprise’s TP approaches within each country of operation.

    The proposed changes to the guidelines are intended to give tax administrations the relevant information to better understand the interactions between related parties of a multinational enterprise.

    Transfer pricing documentation is not specifically required under Australian law. However, in our provisions, the absence of transfer pricing documentation affects a taxpayer’s penalty protection in the event that a transfer pricing adjustment is required. In April 2014 the ATO released a draft tax ruling on the documentation provisions. Our legislation envisages taxpayers identifying their arm’s length profits consistent with ‘relevant guidance materials’ which include the OECD’s Transfer Pricing Guidelines.

    With that interaction in mind, Australia has been a contributor to the ongoing development of the revised Chapter V of the transfer pricing guidelines, and will continue to monitor the content.

    Australia welcomes the work on establishing standardised approaches to TP documentation as long as the right information is being captured to ensure compliance with the arm’s length principle. In terms of any potential changes to Australia’s domestic laws, Treasury will need to ensure any policy evaluation on changes to domestic law considers any additional reporting burdens and costs of compliance for taxpayers. We are therefore closely monitoring the current work underway on the format that information will be supplied by multinational enterprises and whether it can be extracted from their existing and natural business systems, as this could help address any concerns business have over increased reporting burdens.

    We also encourage further work on ensuring tax administrations are supported on how to use and get value from country-by country-data, master files and local files. This will be important as many tax administrations will have access to greater information on multinational enterprises operations and they may need technical guidance on how to effectively use this data. Treasury will consider Australia’s future policy response to TP documentation and country-by-country reporting once the guidelines are finalised by the OECD, with a key consideration to striking the right balance between taxpayers providing useful information and the associated cost of compliance.

    Action 15: Establishing a multilateral instrument

    The delivery of some of the OECD actions will likely involve changes to bilateral tax treaties, for example the introduction of anti-treaty abuse provisions and possible changes to the definition of permanent establishment.

    With over 3000 bilateral tax treaties in place worldwide, the process of changing bilateral tax treaties on a treaty-by-treaty basis would be very lengthy. To address this, the OECD’s Working Party 1 is currently examining the issues involved in developing a multilateral instrument to allow jurisdictions the option of implementing tax treaty changes in a more timely and cost effective manner.

    While work on a possible multilateral instrument has commenced, much of this work can only be progressed once the other actions that could involve changes to tax treaties have been more fully developed. However, an initial report will be released by September identifying the public international law and tax issues that need to be considered.

    It seems logical that a multilateral instrument could be a more effective and timely way of implementing potential treaty rules rather than changing treaties individually.

    It is expected that the public discussion papers that I have mentioned (Addressing the tax challenges of the digital economy (Action 1), Neutralising the effects of hybrid mismatch arrangements (Action 2), Preventing the granting of treaty benefits in inappropriate circumstances (Action 6), Transfer pricing documentation and country-by-country reporting (Action 13) will be finalised by the end of September, once public comments have been received and taken into account.

    Action 3: CFC rules

    The first meeting of the focus group on CFC rules was held in March. It was agreed that work will focus on the development of guidance material allowing jurisdictions to put in place effective CFC rules that address BEPS issues. A number of countries were particularly interested in Australia’s current CFC rules, in particular our approach of exhaustively defining passive income and our de facto control test. A discussion draft is being developed and will eventually be released for public comment.

    Action 4: Limit base erosion via interest deductions

    Work has commenced on action 4 through the focus group on interest deductions. The group is currently evaluating existing approaches used by jurisdictions to limit interest deductibility. A discussion draft including this work will likely be developed later this year.

    Action 5: Countering harmful tax practices

    The Forum on Harmful Tax Practices is currently progressing the development of a substantial activity requirement for preferential regimes. Work has also commenced on BEPS issues arising from countries providing secretive preferential tax treatment through rulings. The likely deliverable appears to be a process for the compulsory exchange on taxpayer specific rulings and reviewing the integrity and transparency of country rulings regimes.

    Action 7: Preventing the artificial avoidance of PE status

    The work on this action is still in its preliminary stage; however initial discussions have been held on possible changes to the wording of Art. 5.5 and/or 6 of the OECD Model Tax Convention to address commissionaire arrangements and business models where warehousing and computer centres are an essential part of the business.

    Action 8: Transfer pricing of intangibles

    Work on this action was already underway before the release of the action plan and is therefore well progressed. A revised draft discussion paper was released last year, and since then Working Party 6 has been finalising its work on clearly defining intangibles, appropriately allocating profits from intangibles, developing guidance on hard-to-value intangibles and cost contribution arrangements. It is expected the final report on transfer pricing aspects of intangibles will go to the OECD’s Committee of Fiscal Affairs (CFA) for approval in June.

    Action 9, 10 and 11: Transfer pricing of risks and other high-risk transactions, and the collection and analysis of data on BEPS

    Work on action 9, 10 and 11 are all in their early stages and will be completed by September 2015.

    Action 12: Disclosing aggressive tax planning arrangements

    Work on this action is in its early stages. The likely deliverable appears to be domestic mandatory disclosure rules (MDR) for aggressive or abusive transactions, arrangements or structures, with a focus on international tax schemes.

    Action 14: Making dispute resolution mechanisms more effective

    Initial meetings of the focus group on dispute resolution have been held and a work plan has been decided upon. A likely outcome will be changes to the Model Tax Convention to ensure mutual agreement procedures (MAP) and dispute mechanisms are more effective in resolving bilateral treaty-related disputes.

    GST/VAT

    Although not a specific action, GST/VAT in relation to BEPS is also being considered by the OECD. Last month at meetings of OECD Working Party 9 and the Global VAT Forum, further discussions were held on where cross border supplies of services should be taxed. Both meetings unanimously agreed that GST/VAT on cross border supplies of services should accrue to the jurisdiction of consumption.

    Work is continuing on the development of the OECD International VAT/GST Guidelines as a global standard for the application of VAT/GST to cross border trade in services and intangibles. The Global VAT Forum has now endorsed chapters of the guidelines on neutrality and on place of taxation for cross-border business-to-business supplies of services and intangibles.

    The preferred collection mechanism is for registered recipients to apply a reverse charge. This means the recipient pays for GST on imported services and claims an input tax credit if entitled. The non-resident supplier is not required to register. The supplier treats its supply as an “exported” GST-free supply from its own jurisdiction. The GST law in Australia is broadly consistent with this guideline.

    In terms of business-to-consumer supplies, emerging guidelines from OECD Working Party 9 recommend:

    • since consumers are not registered for GST, the preferred collection mechanism is for non-resident suppliers to register in the jurisdiction of consumption, generally where the consumer is resident.
    • the supplier treats its supply as an “exported” GST-free supply from its own jurisdiction.

    Some jurisdictions already follow these principles, notably the European Union, Norway and shortly South Africa. Anecdotally they have reported high levels of registration and compliance by non-resident suppliers. The GST law in Australia does not tax services “imported” by unregistered consumers.

    Treasury will continue to monitor the work within the Action Plan and carefully consider any recommendations where changes to our current laws are being proposed. The ATO is supporting Treasury in their work by passing on intelligence coming out of compliance activities on the way domestic laws are currently operating.

    My observation is that Treasury will be very careful to ensure that any changes will be:

    • Effective;
    • Pragmatic;
    • Proportionate; and
    • Targeted

    to the problem they are meant to be addressing and avoid the curtailing of international trade.

    What is the ATO doing?

    The Treasury scoping paper that I mentioned earlier that recommends ‘Australia’s policy response to the risk of corporate tax base erosion be in shaping and leading efforts to improve multilateral reform, with domestic action primarily focused on identifying and taking action against emerging risks’. The Commissioner has dedicated resources to examine the distinct but overlapping areas of base erosion, profit shifting, and the implications of the development of e-commerce and digital business to support this direction. Apart from assisting Treasury in future policy considerations our key focus areas are:

    • Addressing BEPS within our existing laws through our ISAPS initiative
    • Encouraging greater international engagement through bilateral and multilateral cooperation, and our active role in various international forums
    • Promoting greater transparency through our existing tax treaty network and also our contribution to the design of the OECD’s Exchange of Information Common Reporting Standard.

    International Structuring and Profit Shifting (ISAPS) Initiative

    Our current compliance work includes the International Structuring and Profit Shifting (ISAPS) initiative. Under this four year program we are focusing on companies that indicated in their international dealings schedule that they have undertaken an international business restructure or have significant related party cross-border arrangements. Our focus includes:

    • business restructures like digital duplication of domestic business to shift profits to a low tax jurisdiction
    • IT companies with low domestic tax and large “stateless income”
    • pricing mismatches, with large mark ups ending up in an offshore “services” hub
    • the alienation of intangibles at ‘non arms-length’ prices
    • debt dumping into Australia, sometimes involving inflated asset valuations to provide a façade of compliance with thin capitalisation safe harbours.

    Through risk filtering and case selection we have identified an initial 86 cases and are now in the process of reviewing structures and arrangements to see if ISAPS risks are present and if there could be inappropriate shifting of profits outside of Australia. Where issues from these reviews are identified, we will conduct an audit of those arrangements to check the validity of our concerns and establish whether they are appropriately paying tax in accordance with Australian laws. We are also undertaking a number of audits originating from past reviews that involve ISAPS risks and also expect that further cases will be identified as we conduct more risk profiling.

    Based on intelligence gathered from risk filters and early profiling work, we have seen trends in key ratios and overall financial outcomes that have raised concerns for us. This is particularly apparent where those trends are inconsistent with broader industry performance. We will be focusing on these issues as part of the ISAPS program, including tax profiles involving:

    • Migration of intangibles (IP) offshore
    • Creation of offshore hubs
    • Debt push down/ excessive interest arrangements
    • Tax arbitrage via hybrid entities/instruments
    • Base erosion via related party leveraging
    • Treaty abuse
    • Transfer pricing outcomes which are inconsistent with arm's length outcomes including so called “tax effective supply chains”.

    International engagement

    In a recent speech at your national convention in Hobart, the Commissioner said that ‘just as modern corporations think globally when planning their tax affairs, tax administrations, like the ATO, need to think globally when addressing company tax risks'3. With Australia’s presidency of the G20 this year, the Commissioner has made it a priority for the ATO to take the lead on driving collaborative approaches on international taxation matters. One of the ways we have been doing this is by engaging with a number of jurisdictions both multilaterally and bilaterally to foster greater cooperation between tax administrations.

    For example we are currently involved in a cooperative compliance approach involving five other jurisdictions to investigate the global tax planning of multinational enterprises operating in the e-commerce industry. Initially, collaboration between tax administrations led to the production of an aggregate risk report, using intelligence from each country to gain a better understanding of particular business structures and potential BEPS risks. This intelligence was then used by the group to identify the arrangements of a small number of multinational enterprises where it is highly likely BEPS risks could be present. This information is now being used by audit teams to develop an informed global view of these particular multinationals enterprises and test how they sit with the existing law. Through this work with other jurisdictions we were also able to provided tax structuring examples to the OECD digital taskforce and the hybrids focus group.

    On the bilateral side we have also been involved in two joint audits with another revenue administration. One of these joint audit cases is of particular strategic importance to us as it involves some of the BEPS issues covered in the action plan. We expect that it will be able to provide Treasury with important information in evaluating Australia’s tax policy settings and the effectiveness of our current legislative and compliance tools. Like our multilateral cooperation these joint audits have assisted us in understanding the global operations and tax planning arrangements of multinational enterprises. Bilateral audits are becoming an increasingly common feature of the international tax system and the OECD has issued a guidance note to assist administrations set them up.

    As well as this bilateral and multilateral cooperation we are also actively engaging internationally through our involvement in various forums. This engagement includes the

    • Study Group on Asian Tax Administration and Research (SGATAR) – we will host the 44th meeting in Sydney later this year and the Commissioner has highlighted a potential focus on collaboration in the areas of profit shifting, transparency and building capability.
    • Joint International Tax Shelter Information Centre (JITSIC) – we have a delegate in London and are a still working closely with other member countries.
    • OECD – the ATO and Treasury has representatives on the various OECD working parties and taskforces that I mentioned earlier.
    • Global Forum on Transparency and EOI – we are an active member on the Global Forum which ensures the implementation of internationally agreed standards of transparency and exchange of information.

    Also, in the first week of May I accompanied the Commissioner to the G20 International Tax Symposium in Tokyo. This event brought together a wide range of tax specialists, businesses and representatives of over 40 countries (with a significant number from the Asia-Pacific region) to engage in debate on the G20 tax agenda for 2014-15. As host of the event it provided Australia with a great opportunity to drive greater collaboration on the G20 tax agenda and discuss the practical issues arising from the BEPS Action Plan.

    Exchange of information – common reporting standard

    The ability of tax administrations to exchange information between each other is also a very important element in tackling BEPS related issues, and also wider tax evasion. In February, the OECD released its new single global standard for the automatic exchange of information. The new standard calls on jurisdictions to obtain information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis. The OECD is expected to deliver a detailed commentary on the new standard, as well as technical solutions to implement the actual information exchanges, during a meeting of G20 finance ministers in September 2014.

    Australia now has over 100 information exchange treaty partners, and in 2012-13 it is estimated that exchange of information allowed us to collect $480 million in extra tax revenue. Currently, we also collect and automatically exchange information on non-resident taxpayers with a number of tax treaty partners; however the proposed new standard is broader in scope than our current system. So far, the ATO and Treasury have provided input into the OECD's ongoing work on the new standard through working party 10 which focuses on exchange of information. We have also consulted with industry stakeholders on the new standard and intend to further consult on its implementation.

    Other initiatives involving better information exchange between jurisdictions include the US Foreign Account Tax Compliance Act (FATCA) initiative which requires banks to identify US taxpayers and advise the Internal Revenue Service (IRS). Last month Australia and the US signed an intergovernmental agreement which will support FATCA and reduced the compliance burden which potentially faced Australian financial institutions.

    Conclusion

    In conclusion, while Australia’s taxation system remains relatively robust, it is important that we participate in the international discussions in order to protect Australian’s national interest, contribute to the development of a fairer system for developing countries, and support Australia’s presidency of the G20. It is also important that we ensure that the Australian community knows that its Treasury and Taxation Office are active in ensuring that laws are competently administered and that trade, economic growth and employment are being encouraged.

    I hope this presentation has been successful in conveying to you how much effort is being put into achieving these goals.

    Thank you.

    1Scoping Paper on Risks to the Sustainability of Australia’s Corporate Tax Base, July 2013

    2Action Plan on Base Erosion and Profit Shifting, Organisation for Economic Co-operation and Development, July 2013

    3ATO Commissioner, Chris Jordan, 'Reinventing the ATO' speech at Tax Institute of Australia 29th National Convention, 27 March 2014

    Last modified: 06 Mar 2015QC 40272