The selected measures reflect the increasingly globalised trade and investment flows that underpin Australia’s economy. While we have strong commodities exports, we are a net services importer and do not earn significant royalty income from abroad.
Large amounts of FDI (relative to GDP) are flowing into hubs which receive significant services and royalties income, suggesting they are a more favourable location for MNEs to place particular functions, assets and risks. From Australia’s perspective, the increased intra-group trade with hub economies is important because MNEs operating in Australia increasingly rely on commercial services or the right to use intangible assets from offshore related entities as part of their global value chain. In TY2012, approximately 27% ($18 billion) of Australian international related party services and royalties traded was with one of the hub economies.
Australia has comparatively strong transfer pricing, general anti-avoidance, thin capitalisation and controlled foreign corporation rules that provide defences against BEPS risks. Given that Australia is dependent on corporate income tax revenue more than most other OECD economies, and the overall tax performance of a few companies can significantly affect the performance of the corporate tax base, we are focused on monitoring and understanding BEPS trends at both the taxpayer and tax system level. The results provide evidence to support the consideration of whether law reform is necessary domestically by Treasury, and internationally by the OECD Working Parties to the Action Plans.