House of Representatives

Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 3 Multinational anti-avoidance law

Outline of chapter

3.1 Schedule 2 to this Bill amends the anti-avoidance provisions in the Income Tax Assessment Act 1936 (ITAA 1936) to introduce the multinational anti-avoidance law.

3.2 The multinational anti-avoidance law is designed to counter the erosion of the Australian tax base by multinational entities using artificial or contrived arrangements to avoid the attribution of business profits to Australia through a taxable presence in Australia.

3.3 All references to legislative provisions in this Chapter are references to the ITAA 1936, unless otherwise stated.

Context of amendments

3.4 This measure will ensure that multinational entities cannot use complex, contrived and artificial schemes to escape paying Australian tax. It targets those multinational entities that:

avoid a taxable presence by undertaking significant work in Australia in direct connection to Australian sales but booking their revenue offshore; and
have a principal purpose of avoiding tax in Australia or reducing their foreign tax liability.

3.5 Australia's current general anti-avoidance rule in Part IVA requires that schemes have been entered into for the sole or dominant purpose of obtaining an Australian tax benefit. Multinational entities may argue that their global arrangements are entered into for the purpose of avoiding tax in other countries where the Australian tax benefit is relatively small. For example, this might be argued where the Australian sales of multinational entities are a relatively small part of their global business.

3.6 The multinational anti-avoidance law will involve a lower threshold test to be met of 'one or more of the principal purposes' and it will allow foreign tax purposes to be included in that consideration.

3.7 The new law will clarify that a limited and clearly egregious set of circumstances involving sales to Australian customers by foreign multinationals are considered to be tax avoidance.

Summary of new law

3.8 Schedule 2 to this Bill amends anti-avoidance rules in the income tax law to negate certain tax avoidance schemes used by multinational entities to artificially avoid the attribution of profits to a permanent establishment in Australia.

3.9 The new measure does not limit the application of the existing general anti-avoidance rule in Part IVA, and accordingly section 177D can still apply to schemes involving permanent establishments.

Which entities will be subject to the new measure?

3.10 To reduce compliance costs and provide certainty, this measure only applies to foreign entities that are 'significant global entities' (as described in Chapter 2 of the Explanatory Memorandum).

What schemes will be captured by the measure?

3.11 Broadly speaking, this measure will target schemes where under, or in connection with, the scheme:

a foreign entity derives income from the making of certain supplies to Australian customers;
there is an entity in Australia (that is an associate of, or commercially dependent on, the foreign entity) supporting the making of those supplies; and
the foreign entity avoids the income derived from the supply being attributable to a permanent establishment of that foreign entity in Australia.

3.12 For the multinational anti-avoidance law to apply to a particular scheme, it must be concluded that the scheme was entered into or carried out for a particular purpose, consistent with the general framework of Part IVA.

3.13 Specifically, the person, or one of the persons, who entered into or carried out the scheme, must have done so for the principal purpose, or for more than one principal purpose that includes, enabling one or more taxpayers to obtain a tax benefit, or both to obtain a tax benefit and to reduce or defer (beyond a reasonable period) one or more of the taxpayers' liabilities to tax under a foreign law in connection with the scheme.

What will the tax outcome be where the measure applies?

3.14 Where a scheme is captured by the multinational anti-avoidance law, the Commissioner of Taxation (Commissioner) has the power to make a determination under Part IVA and, based on a reasonable alternative postulate, apply the tax rules as if the foreign entity had been making a supply through an Australian permanent establishment.

3.15 The quantum of the tax benefit obtained under the scheme will depend on the facts and circumstances of the case but is likely to include the ordinary and statutory income from the supply that would have been attributable to an Australia permanent establishment of the foreign entity, subject to any compensating adjustments allowing for deductions.

3.16 The quantum of the tax benefit obtained would also take into account obligations arising (for the relevant taxpayer or another taxpayer) under Australia's royalty and interest withholding tax rules.

Comparison of key features of new law and current law

New law Current law
A taxpayer who obtains a tax benefit under a scheme (involving the avoidance of the attribution of income to an Australian permanent establishment) that was entered into or carried out for the principal purpose of, or for more than one principal purpose that includes a purpose of obtaining a tax benefit or both obtaining a tax benefit and reducing or deferring a foreign tax liability under the scheme, may have their tax benefit cancelled by the Commissioner under Part IVA.

This would apply only to a taxpayer if the scheme relates to a foreign entity that is a 'significant global entity'.

The current law position will also continue to apply to all taxpayers.

A taxpayer who obtains a tax benefit under a scheme (including involving the avoidance of the attribution of income to an Australian permanent establishment) that was entered into or carried out for the sole or dominant purpose of obtaining a tax benefit under that scheme, may have their tax benefit cancelled by the Commissioner under Part IVA.

Detailed explanation of new law

Which entities will be subject to the new measure?

3.17 This measure will only apply where the foreign entity involved in the scheme is a 'significant global entity' for a year of income in which the relevant taxpayer (or another taxpayer) obtains a tax benefit, or reduces or defers a tax liability under a foreign law, in connection with the scheme. [Schedule 2, item 4, paragraph 177DA(1)(c)]

3.18 This measure picks up the new centralised concept of 'significant global entity' as defined in section 960-555 of the ITAA 1997. [Schedule 2, item 1, subsection 177A(1) - 'significant global entity']

3.19 This means that the measure will not apply to a scheme unless the foreign entity involved in the scheme has, or is part of a global group that has, annual global income in excess of AU$1 billion for the relevant income year.

3.20 Further information about how to determine whether an entity is a 'significant global entity' is in Chapter 2 of this Explanatory Memorandum.

What schemes will be captured by the measure?

The structure of the scheme

3.21 The multinational anti-avoidance law will apply to a scheme if under, or in connection with, the scheme:

a foreign entity makes certain supplies to an Australian customer; [Schedule 2, item 4, subparagraph 177DA(1)(a)(i)]
activities are undertaken in Australia directly in connection with the supply; [Schedule 2, item 4, subparagraph 177DA(1)(a)(ii)]
some or all of those activities are undertaken by an Australian entity (or an Australian permanent establishment of an entity) that is an associate of or is commercially dependent on the foreign entity; [Schedule 2, item 4, subparagraph 177DA(1)(a)(iii))]
the foreign entity derives ordinary or statutory income from the supply; and [Schedule 2, item 4, subparagraph 177DA(1)(a)(iv))]
some or all of that income is not attributable to an Australian permanent establishment of the foreign entity. [Schedule 2, item 4, subparagraph 177DA(1)(a)(v)]

Supply to an Australian customer

3.22 The supply must be made by the foreign entity to an Australian customer of the foreign entity. [Schedule 2, item 4, subparagraph 177DA(1)(a)(i)]

3.23 An Australian customer means an Australian entity, or an entity that is in Australia and excludes an entity that is a member of the foreign entity's global group. [Schedule 2, item 1, subsection 177A(1) - 'Australian customer']

3.24 This is designed to target schemes that involve supplies to arm's length Australian customers and exclude supplies between the foreign entity and members of its global group (that is, intra-group supplies).

Example 3.1 : Supply made by foreign entity through an Australian subsidiary

A foreign entity sells goods to its Australian subsidiary. The Australian subsidiary then sells the goods to unrelated Australian customers. The income from Australian customers is recognised for tax purposes by the Australian subsidiary.
Because the foreign entity is supplying goods to a related Australian subsidiary, the multinational anti-avoidance law will not apply

Australian entity

3.25 The term 'Australian entity' as used in this measure adopts the concept in Part X of the ITAA 1936 (the controlled foreign company rules). [Schedule 2, item 1, subsection 177A(1) - 'Australian entity']

3.26 Although the term 'Australian entity' is used for the purposes of Part X, the term has been used outside Part X, namely in the thin capitalisation rules (section 25-90 and Division 820 of the ITAA 1997), the taxation of financial arrangements (TOFA) rules (section 230-15 of the ITAA 1997) and the cross-border transfer pricing rules (section 815-5 of the ITAA 1997).

3.27 As per section 336, 'Australian entity' means an Australian partnership, an Australian trust or an entity (other than a partnership or trust) that is a 'Part X Australian resident'.

Australian partnership

3.28 An Australian partnership (as defined in section 337) at a particular time is a partnership that has at least one partner who is an Australian entity at that time.

Australian trust

3.29 An Australian trust (as defined in section 338) at a particular time is a trust:

where, at any time in the previous 12 months, any trustee of the trust was a Part X Australian resident or the central management and control was in Australia; or
that was a corporate unit trust or public trading trust at that time.

Part X Australian resident

3.30 Part X Australian resident (as defined in subsection 317(1)), means a resident under subsection 6(1) excluding any Australia resident that is deemed to be a resident of a foreign county under a residency tiebreaker rule in a tax treaty.

Foreign entity

3.31 The term 'foreign entity' as used in this measure also adopts concepts in the controlled foreign company rules and is defined in subsection 995-1(1) of the ITAA 1997 as an entity that is not an Australian entity. [Schedule 2, item 1, subsection 177A(1) - 'foreign entity']

3.32 The reference to 'entity' takes its meaning from section 960-100 of the ITAA 1997 and includes an individual, a body corporate, a body politic, a partnership, any other unincorporated association or body of persons, a trust, a superannuation fund and an approved deposit fund. [Schedule 2, item 1, subsection 177A(1) - 'entity']

3.33 In respect to a trust, the trustee of a trust is taken to be an entity consisting of the person who is the trustee, or the persons who are the trustees at any given time. Supply

3.34 The term 'supply' as used in this measure is taken from section 9-10 of the A New Tax System (Goods and Services) Tax Act 1999 and includes, amongst other things, the supply of electronic material, advertising services, downloads, the provision of data, intellectual property rights, and the right to priority in search functions. [Schedule 2, item 1, subsection 177A(1) - 'supply']

3.35 However, there are some exclusions from the broad definition of supply that apply for the purposes of this measure. The types of supplies excluded from the concept adopted for this measure include the following (or any combination of two or more of the following):

the supply of an equity interest in an entity (as defined in subsection 995-1(1) of the ITAA 1997);
the supply of a debt interest in an entity (as defined in subsection 995-1(1) of the ITAA 1997); and
the supply of an option to supply an equity or debt interest, or the supply of an option to supply any combination of the above. [Schedule 2, item 1, subsection 177A(1) - 'supply']

3.36 These supplies have been excluded from this measure as including them could have the unintended consequence of capturing the legitimate structures of offshore capital market participants including foreign investors in Australian shares and debt interests.

Example 3.2 : A supply made by foreign entity to Australian customers

A foreign entity sells shares in an Australian company to the Australian public through an Initial Public Offering (IPO).
As the supply to Australian customers is a supply of shares, which are equity interests, this would not be a supply that would be caught under the multinational anti-avoidance law.

3.37 The exclusion from the broader definition of supply for the types of supplies listed above only applies for an arrangement solely for that particular supply, or combination of supplies as indicated. It will not apply where the relevant supply is part of a composite supply that includes a supply that is not referred to in the list above (for example, a supply of goods).

Activities undertaken in Australia are directly connected with the supply

3.38 For the measure to apply, the scheme must involve activities being undertaken in Australia that are directly connected with the supply to the Australian customers. [Schedule 2, item 4, subparagraph 177DA(1)(a)(ii)]

3.39 The extent of the direct connection between the activities undertaken in Australia and the supply to the Australian customers that is required to satisfy this element of the scheme will depend on the facts and circumstances of the particular scheme but is intended to be broad. However, indirect connections to the supply to Australian customers will not be sufficient.

3.40 Activities that contribute to bringing about the contract for the supply, such as the building of client relationships, are captured.

Example 3.3 : Foreign entity carrying on activities in Australia with no direct connection to the supply

A foreign entity provides goods directly to an unrelated taxpayer in Australia.
There are no activities undertaken in Australia by an associate or commercially dependent entity in direct connection to the supply. The foreign entity communicates directly with customers from its country of residence and the goods are shipped using an independent freight and logistics company.
Because there are no activities being carried on in Australia in direct connection with the supply, the multinational anti-avoidance law does not apply.

Some or all of those activities are undertaken by an entity in Australia that is an associate or commercially dependent on the foreign entity

3.41 Some or all of those activities connected with the supply to the Australian customers need to be undertaken by an Australian entity or undertaken at or through an Australian permanent establishment of an entity. [Schedule 2, item 4, subparagraph 177DA(1)(a)(iii)]

Example 3.4 : 'Fly-in, fly-out' arrangement

A foreign entity that sells large highly specialised machinery has no associates in Australia and does not have an Australian permanent establishment.
In order to sell machinery to Australian customers, the foreign entity flies two of its employees to Australia for a week to meet with and understand the needs of Australian customers. The foreign entity's personnel then fly back to the host country to incorporate the information obtained from the meetings in Australia into the development of their product and offering. The arrangement is such that the two employees visiting Australia do not otherwise amount to a permanent establishment in Australia.
The Australian customer purchases the goods directly from the foreign entity. There is no other connection with Australia in relation to the arrangement.
Because there is no Australian entity, or entity in Australia, assisting with the sale, the multinational anti-avoidance law does not apply.

3.42 The measure will only apply to schemes where an Australian entity (or any entity with a permanent establishment in Australia) that is undertaking some or all of this activity is an associate of the foreign entity, or is commercially dependent on the foreign entity. [Schedule 2, item 4, subparagraph 177DA(1)(a)(iii)]

3.43 As a result, schemes are not caught by this measure where, for example, a foreign entity makes a supply through an independent agent or broker.

3.44 The term 'commercially dependent' is not defined in the tax law and takes its ordinary meaning. Whether an entity is considered commercially dependent on the foreign entity will depend on the particular facts and circumstances of the relationship.

3.45 Generally, an entity would be considered commercially dependent if they are, in substance, reliant on the foreign entity for their business to operate. This would clearly be the case where the commercially dependent entity is, through legal form, separate from the foreign entity but receives almost all of its business from the foreign entity.

Example 3.5 : Entity that is commercially dependent

A foreign entity supplies goods to Australian customers through a legally independent agent; however, the agent acts almost exclusively for the foreign entity. More than 90 per cent of its revenue is derived from commissions paid by the foreign entity.
As such, the agent is commercially dependent on the foreign entity and the multinational anti-avoidance law may apply to this arrangement.

Example 3.6 : Entity that is not commercially dependent

A foreign entity supplies services to Australian customers through a legally independent agent.
The agent has a diversified business and acts for multiple foreign suppliers. As such, it is not commercially dependent on the foreign entity's business and the multinational anti-avoidance law does not apply to this arrangement.

The foreign entity derives ordinary or statutory income from the supply

3.46 For the measure to apply, the scheme must involve a foreign entity deriving ordinary or statutory income from making the supply to the Australian customer. [Schedule 2, item 4, subparagraph 177DA(1)(a)(iv)]

3.47 The existing concepts and interpretation of 'deriving income' and 'constructive receipt' apply where another entity (normally connected with the foreign entity) receives income from the supply but is not the foreign entity that makes the supply. That is, the foreign entity will still be considered to have derived the income from the supply.

Some or all of that income from the supply is not attributable to an Australian permanent establishment of the foreign entity

3.48 For the measure to apply, some or all of the income derived from the supply by the foreign entity must not be attributable to an Australian permanent establishment of the foreign entity. [Schedule 2, item 4, subparagraph 177DA(1)(a)(v)]

3.49 Where some of the income derived from the supply by the foreign entity is attributable to an Australian permanent establishment of the foreign entity, this measure may still apply. This ensures that a foreign entity is unable to engineer around this measure by having an unreasonably small or nominal amount of income attributable to an Australian permanent establishment where it would otherwise, but for this scheme, have a much larger portion of the income from the supply attributable to its Australian permanent establishment.

3.50 The term 'Australian permanent establishment' covers both the treaty definition of 'permanent establishment' and the definition in the ITAA 1936. If the foreign entity is resident in a country with which Australia has a tax treaty containing a Permanent Establishment article, that definition of permanent establishment is to be used. Otherwise, the definition of permanent establishment in subsection 6(1) is to be used. [Schedule 2, item 1, subsection 177A(1) - 'Australian permanent establishment']

The purpose test

3.51 The measure applies a purpose test that is satisfied if it would be concluded, having regard to certain matters (discussed below at paragraph 3.66), that the scheme was entered into or carried out for the principal purpose of, or for more than one principal purpose that includes the purpose of, enabling a taxpayer (or taxpayers) to obtain a tax benefit or obtain a tax benefit and reduce foreign tax liabilities in connection with the scheme. [Schedule 2, item 4, paragraph 177DA(1)(b)]

3.52 The required purpose must be established objectively based on an analysis of how the scheme was implemented, what the scheme actually achieved as a matter of substance or reality as distinct from legal form (that is, its end effect), and the nature of any connection between the taxpayer and other parties. The subjective motives of participants in the scheme are irrelevant.

3.53 In coming to a conclusion about whether the purpose test is satisfied, regard is to be had to certain matters that are detailed in subsection 177D(2), and the additional matters, specific to this measure, that are further described at paragraph 3.72. [Schedule 2, item 4, subsection 177DA(2)]

3.54 Consistent with the current purpose test for the general anti-avoidance rule in subsection 177D(1), it is the purpose of the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme that is assessed under section 177DA. Where a person acts on professional advice, it may be appropriate, in certain circumstances, to attribute the objective purpose of the professional adviser to the person. [1]

3.55 The person who entered into or carried out the scheme or any part of the scheme does not have to be the same person as the taxpayer who obtains the tax benefit, or both obtains the tax benefit and reduces or defers a foreign tax liability in connection with the scheme.

3.56 However, the purpose test in this measure differs in two critical ways from the purpose test for the general anti-avoidance rule in subsection 177D(1):

the threshold is lowered from a 'sole and dominant purpose' to a 'principal purpose' or 'one of multiple principal purposes'; and
in addition to being satisfied by a purpose of obtaining an Australian tax benefit (as defined in section 177C), the test may also be satisfied by a combined purpose of obtaining an Australian tax benefit and reducing (or deferring) a foreign tax liability.

'Principal purpose'

3.57 The 'principal purpose or more than one principal purpose' threshold is lower than the 'sole or dominant purpose' threshold, which is used in subsection 177D(1). The relevant principal purpose need not be the sole or dominant purpose of a person or persons who entered into or carried out the scheme, but must be one of the main purposes, having regard to all the relevant facts and circumstances.

3.58 This recognises that a scheme or part of a scheme may be entered into or carried out for a number of purposes, some or all of which are principal purposes. The scheme will be caught under s177DA as long as one of those principal purposes satisfies the tax benefit requirements of the principal purpose test.

3.59 These new thresholds capture the language used in the 2014 OECD report titled 'Preventing the Granting of Treaty Benefits in Inappropriate Circumstances' [2] . The report (as discussed at pages 11-12 of the Executive Summary and pages 66-74 of the main report) aims to reduce or address treaty abuse through an anti-abuse rule based on 'one of the principal purposes of any arrangements or transactions'. That is, obtaining a treaty benefit need only be one of the principal purposes of an arrangement or transaction under the new threshold.

Obtaining a tax benefit or reducing (or deferring) liability to foreign tax

3.60 The concept of a tax benefit obtained in connection with a scheme is defined in section 177C. This section specifies a range of tax benefits in existence under the Australian income tax law.

3.61 Under this measure, it is sufficient that there was a purpose of obtaining the tax benefit and that this purpose, combined with another purpose of reducing liability to tax under a foreign law, amounted to the principal purpose or one of the principal purposes. This means that a principal purpose of reducing a foreign tax liability that included a purpose of obtaining a tax benefit (as per section 177C) would satisfy the purpose test. [Schedule 2, item 4, paragraph 177DA(1)(b)]

3.62 The concept of reducing liability to tax under a foreign law is specifically included to ensure that the purpose test can be satisfied even if the Australian tax benefit obtained is relatively minor compared to the reduction of a tax liability under a foreign law. [3]

3.63 Such an approach is necessary as a common (but not essential) feature of the arrangements to which the multinational anti-avoidance law is intended to apply involves a purpose of reducing liabilities to tax under foreign laws, in addition to obtaining an Australian tax benefit.

3.64 The term 'tax under a foreign law' embraces tax liabilities under both national and sub-national foreign laws, and extends beyond income tax liabilities. [Schedule 2, item 4, paragraph 177DA(1)(b)]

3.65 Moreover, a deferral of a foreign tax liability is treated as if it were a reduction of the foreign tax liability. The inclusion of such a provision is necessary in order to address situations where an entity may be avoiding a foreign tax liability by deferring it beyond a reasonable period, taking into account commercial grounds. [Schedule 2, item 4, subsection 177DA(3)]

Having regard to certain matters

3.66 In coming to a conclusion about the purpose test, it is necessary that regard is had to a number of matters. These factors include, but are not limited to, certain matters which look at how the scheme was implemented, what it achieved as a matter of substance or reality (that is, its end effect) and the nature of any connection between the taxpayer and other parties.

3.67 In arriving at this conclusion, the Commissioner must have regard to all of the matters referred to in subsection 177D(2) and a number of specific matters that are particularly relevant to this measure. [Schedule 2, item 4, subsection 177DA(2)]

3.68 This does not mean that each of those matters must point to the necessary purpose. It is the evaluation of all of these matters, separately or taken together, that determines whether the purpose test is satisfied.

Matters under subsection 177D(2) - general anti-avoidance rule

3.69 The specific matters to consider include those in subsection 177D(2). These factors apply for the purpose test under the general anti-avoidance rule as well as under the multinational anti-avoidance law. [Schedule 2, item 4, paragraph 177DA(2)(a)]

3.70 The matters in subsection 177D(2) are as follows and have regard to:

the manner in which the scheme was entered into or carried out;
the form and substance of the scheme;
the time at which the scheme was entered into and the length of the period during which the scheme was carried out;
the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme;
any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme;
any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme;
any other consequence for the relevant taxpayer, or for any person referred to in the dot point above, of the scheme having been entered into or carried out; and
the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in the dot points above.

3.71 The Commissioner will have regard to these matters in order to conclude if there is a principal purpose of obtaining a tax benefit, or both obtaining a tax benefit and reducing a liability to tax under a foreign law.

Additional matters for the multinational anti-avoidance law

3.72 For the purposes of the multinational anti-avoidance law, to the extent applicable, regard must also be had to two additional matters. These additional matters require the consideration of factors that are more specific to the kinds of schemes intended to be caught by this measure. [Schedule 2, item 4, paragraphs 177DA(2)(b) and (c)]

3.73 This does not mean that each of the additional matters will always apply, particularly where there is insufficient information to determine whether or to what extent they are relevant. Further, the Commissioner is only under an obligation to consider a matter in paragraph 177DA(2)(c) to the extent that information relevant to that matter is available to the Commissioner.

Having regard to the activities undertaken by different entities that contribute to bringing about the Australian supply

3.74 The first additional matter for the measure requires that regard must be had to the extent to which the activities that contribute to bringing about the contract for the supply are performed, and are able to be performed, by:

the foreign entity;
an entity described in subparagraph 177DA(1)(a)(iii) (Australian-based entity); or
any other entities. [Schedule 2, item 4, paragraph 177DA(2)(b)]

3.75 The reference to 'any other entities' will allow the Commissioner to have regard to the activities of entities that are linked to the scheme, including situations where there are multiple foreign entities or multiple Australian-based entities involved in the scheme.

3.76 This additional matter requires the Commissioner to look at the nature of activities that led to the conclusion of the contract for the supply and which entity conducts them. As part of this, consideration should be given to the differences (if any) between how the foreign entity interacts with the Australian customers in relation to the contract, and how the Australian-based entity and any other entities interact with those customers in relation to the contract.

3.77 This additional matter draws the Commissioner's attention to contrivance with respect to the way in which the activities are divided between the relevant entities. In particular, the extent to which the entity with which the contract is concluded carries out the activities required to obtain the contract will be considered.

3.78 It will also draw the Commissioner's attention to contrivance where it is clear that an entity would not have the capacity to perform certain activities themselves as part of the supply. For example, a foreign entity that has no senior staff would find it difficult to establish that it has the capacity to negotiate and conclude contracts even if it purports to do so.

3.79 This additional matter has the effect that schemes are more likely to be caught where it appears that activities have been split in such a way so as to deliberately fall short of constituting an Australian permanent establishment.

Example 3.6 : Operation of the principal purpose test, having regard to matter in paragraph 177DA(2)(b)

Revenue from Australian sales is returned to Berksy Ltd which is a multinational corporation that is resident in Country H.
Berksy Ltd has a significant number of employees that work with an Australian associate and Australian customers to establish a business case for Berksy Ltd's products and communicate the group's global price list.
Berksy Ltd's employees also perform credit checks on Australian customers. Berksy Ltd also has senior operational employees that actively work with its legal team to negotiate any non-standard terms or discounts with customers on an ongoing basis. Berksy Ltd has sufficient employees to perform these activities at the outset and on an ongoing basis.
The activities undertaken by the Australian associate, by comparison, are limited to identifying potential customers and communicating standard price lists. The employees of the Australian associate are not involved in creating and recommending business cases and product solutions to Australian customers, or negotiating contractual terms with Australian customers.
Having regard to paragraph 177DA(2)(b), Berksy Ltd appears to have the capacity to negotiate and conclude contracts. The consideration of this factor, along with the other factors prescribed in subsection 177DA(2), may show that Berksy Ltd did not have a principal purpose of obtaining a tax benefit or both obtaining a tax benefit and reducing a foreign tax liability.

Having regard to the result, in relation to the operation of a foreign tax law, that the scheme would achieve

3.80 The second additional matter in this measure requires consideration of the result, in relation to the operation of any foreign law relating to taxation, that (but for the measure) would be achieved by the scheme. [Schedule 2, item 4, paragraph 177DA(2)(c)]

3.81 The focus of this additional matter is on the result that is achieved under foreign laws relating to tax for each taxpayer that is connected with the scheme. This is relevant for determining whether a person had a purpose of enabling a taxpayer (or taxpayers) to reduce their foreign tax liability in connection with the scheme.

3.82 For example, for each member in an entity's global group that is connected with the scheme, consideration should be given to how they are taxed in the country in which they are resident for tax purposes.

3.83 Part of this consideration will involve looking at how the income from sales to customers in Australia flows through the members of the entity's global group and whether they are subject to tax on that income in any country. The extent to which this income is not subject to tax in any country will be relevant for determining whether the taxpayer had a purpose of reducing a foreign tax liability in connection with the scheme.

3.84 For the additional matter in paragraph 177DA(2)(c), the Commissioner need only have regard to this matter where there is sufficient information available that would allow the Commissioner to undertake this analysis. [Schedule 2, item 4, subsection 177DA(5)]

Example 3.7 : Operation of the principal purpose test, having regard to matter in paragraph 177DA(2)(c)

EDeamoch Inc. in Country A supplies widgets to customers in Australia under a scheme that satisfies the requirements of paragraph 177DA(1)(a).
The income from the sales of those supplies flows directly from Deamoch Inc. to Clipner Ltd. in Country B, and then again from Clipner Ltd to Clipner Holdings Inc. in Country C, where the funds are retained.
No tax is levied by Country A, B or C in respect of this income. Deamoch Inc., Clipner Ltd and Clipner Holdings Ltd are all members of the same global group.
The fact that none of the income from the sales to customers in Australia that flows through the members of the entity's global group is subject to tax in any country may indicate a principal purpose of reducing a foreign tax liability in connection with the scheme.

Example 3.8 : Operation of the principal purpose test, having regard to matters in subsection 177DA(2)

Arlow Ltd, a business based in Country A, sells online advertising services to Australian business customers. Under an agreement with the tax authority in Country A, Arlow Ltd is exempt from income tax for up to 15 years.
An Australian subsidiary of Arlow Ltd has a service contract with Arlow Ltd, which requires it to solicit Australian customers and introduce them to Arlow Ltd's services.
Australian customers conclude contracts with Arlow Ltd and the revenue is recorded in its accounts. Once the Australian subsidiary has made contact with a customer, the customer is referred to Arlow Ltd to negotiate on the product specifications and the terms and conditions of the sale, including price. In practice, the Australian subsidiary has little involvement in these conversations and the relevant expertise does not sit in the Australian subsidiary.
Australia has a tax treaty with Country A. Under the treaty, a person acting in Australia on behalf of an enterprise of Country A, other than an independent agent, is deemed to be a permanent establishment of the Country A enterprise in Australia, if the person has, and habitually exercises in Australia, an authority to conclude contracts on behalf of the enterprise.
Having regard to the matters in subsection 177DA(2), Arlow Ltd's arrangements do not appear to have been entered into for a principal purpose of obtaining an Australian tax benefit or reducing a foreign tax liability. Arlow Ltd's employees undertake substantial activities that contribute to the conclusion of contracts with Australian customers. The commercial knowledge and capacity to perform those activities are all located in Country A. The service arrangement between Arlow Ltd and its Australian subsidiary accurately reflects the limited assets, risks and functions of the Australian subsidiary. While Arlow Ltd is exempt from income tax for up to 15 years, its arrangements do not appear artificial or contrived.
While the arrangements mean that the income derived from supplies to Australian customers are not attributable to an Australian permanent establishment of the foreign entity, no taxpayer connected with the scheme is considered to have a principal purpose of avoiding tax. The arrangements accurately reflect where the capacity to carry out activities relating to the consumer contracts is located. There has been no attempt to deliberately avoid creating a permanent establishment in Australia.

Example 3.9 : Operation of the principal purpose test, having regard to matters in subsection 177DA(2)

Horsbell Ltd, a business based in Country B, sells enterprise software to Australian business customers.
An Australian subsidiary of Horsbell Ltd employs staff that provide significant levels of support to Australian customers. The Australian subsidiary establishes a business case for Horsbell Ltd's products and provides customers with advice on product optimisation, pricing and terms. Australian customers who buy the product almost exclusively deal with the Australian employees.
However, the sales contracts, which are essentially negotiated by the Australian subsidiary with the Australian customer, are legally binding on Horsbell Ltd and the revenue is recorded in its accounts.
In this example, the Australian subsidiary is, through its employees in Australia, providing significant levels of support to the customer. Commercial discussions are almost exclusively conducted with the subsidiary, even though this is not permitted under its service agreement with Horsbell Ltd.
Australia has a tax treaty with Country B. The terms of that treaty are the same as for Country A (see Example 3.8, above).
Horsbell Ltd uses an identical structure throughout the region. All sales revenue from the region is recorded in Horsbell Ltd's accounts. However, Horsbell Ltd only has a small number of employees who undertake mostly clerical work.
Horsbell Ltd pays a large license fee to a related entity (SJ1 Inc.) in a no tax jurisdiction, Country C, for the use of the intellectual property associated with the software it sells. SJ1 Inc. has no office premises. It has a post office box and there is one employee/director who attends various meetings and attends to administrative work on the registration and licensing of the patents held by SJ1 Inc.
The development of the intellectual property in relation to the patents and the decisions about its management and exploitation are undertaken by another group entity in a different jurisdiction from either Country B or Country C.
Under the tax treaty between Country B and Country C, no tax is payable in Country B on royalties paid from Country B to Country C.
However, withholding tax would have been payable in Australia if the royalty income received by SJ1 Inc. instead related to an outgoing incurred by Horsbell Ltd in carrying on business in Australia at or through a permanent establishment in Australia.
In this example, it would be concluded that Horsbell Ltd carried out the scheme for a principal purpose of enabling it and SJ1 Inc. to obtain a tax benefit.
Horsbell Ltd obtains a tax benefit by not including an amount in its assessable income from the income attributable to a permanent establishment and SJ1 Inc. obtains a tax benefit by not being liable to Australian withholding tax on the royalties it derives from Horsbell Ltd.
While the scheme might have some commercial benefits, such as centralising accounts receivable functions, which in part may have motivated the scheme, the purpose test will still be met if obtaining the tax benefits constitutes a principal purpose for the foreign entity structuring their affairs in the manner described. The matters in subsection 177DA(2) support this conclusion:

in practice, and contrary to its services agreement with Horsbell Ltd, most of the activities that are undertaken in order to bring about the contracts for supply are undertaken by the Australian subsidiary;
Horsbell Ltd does little to contribute to the solicitation of customers, the identification of customer needs in relation to the supply, negotiating the details of the supply to be provided and the contractual terms under which the supply will be provided, optimising the sales provided to customers in Australia, and finalising the contracts;
Horsbell Ltd employs only a small number of staff and they do not have the necessary capability or knowledge to undertake any of the functions necessary for bringing about contracts with customers in Australia, nor do they actually undertake such functions with customers in Australia;
the division of activities between Horsbell Ltd and the Australian subsidiary appears contrived in order to avoid creating an Australian permanent establishment;
income from the supply to Australian customers is being returned to a no tax jurisdiction in which little real economic activity occurs; and
royalty income paid by Horsbell Ltd to SJ1 Inc. in connection with the scheme is not subject to royalty withholding tax in Australia because Horsbell Ltd does not have an Australian permanent establishment.

As a result of the scheme, the foreign entity avoids income from the supply of software to Australian customers being attributed to a permanent establishment in Australia. SJ1 Inc. also avoids a royalty withholding tax liability.

What will the tax outcome be where the measure applies?

3.85 Where a scheme is captured by the multinational anti-avoidance law, it will amount to a scheme to which the rest of Part IVA applies. [Schedule 2, item 4, subsection 177DA(1)]

3.86 This will trigger the Commissioner's power under section 177F to cancel tax benefits obtained in connection with the scheme.

3.87 To identify a tax benefit obtained in connection with a scheme, and to quantify it, it is necessary to compare the tax consequences of the scheme with the tax consequences that either would have arisen, or might reasonably be expected to have arisen, if the scheme had not been entered into or carried out. This involves a comparison between the tax effects of a scheme and those of an alternative postulate.

Step 1: Determine the scope of the alternative postulate

3.88 The alternative postulate is a particular tax effect that 'would have occurred' if the scheme was annihilated, or 'might reasonably be expected to have occurred' had the taxpayer entered into a different arrangement that was a reasonable alternative to the actual scheme.

3.89 An alternative postulate could be merely that the scheme did not happen (the 'would have occurred' limb) or that the scheme did not happen but that something else did happen (the 'might reasonably be expected to have occurred' limb).

3.90 Although the 'would have occurred' limb may apply, the 'might reasonably be expected to have occurred' limb is likely to be more relevant to schemes captured by this measure. Working out an alternative set of facts to a scheme that included the avoidance of a permanent establishment will normally require a hypothesis that something else did occur in place of the scheme (and not just that the scheme did not happen).

3.91 A decision that a tax effect 'might reasonably be expected to have occurred' if the scheme had not been entered into or carried out must be based on a postulate that is a reasonable alternative to entering into or carrying out the scheme (as per subsection 177CB(3)).

3.92 Where section 177DA is triggered, a reasonable alternative to the scheme will typically include the supplies being made through an Australian permanent establishment of the foreign entity (the notional permanent establishment). In this typical case, the notional permanent establishment could include all of the activities of the Australian-based entity that is described in subparagraph 177DA(1)(a)(iii) as well as the functions, assets and risks of the foreign entity associated with formally concluding the contracts. Another alternative may be that the notional permanent establishment includes all of the activities that are undertaken by the foreign entity, the Australian-based entity or another entity in connection with the supply.

3.93 However, the scope of a notional permanent establishment, the activities it undertakes, and its characteristics will depend on the facts and circumstances of the individual scheme. The alternative postulate is for the Commissioner to determine, however, it must meet the standard of a 'reasonable alternative' to the scheme being entered into or carried out (see subsection 177CB(3)).

Alternative postulate - disregard tax consequences (including foreign tax liabilities)

3.94 Subparagraph 177CB(4)(a)(ii) and paragraph 177CB(4)(b) have the effect that certain tax liabilities are not to be taken into account in assessing the likelihood or reasonableness of any alternative postulate. [4]

3.95 These provisions are intended to make clear that alternative postulates should not be rejected as unreasonable postulates on the grounds that the tax costs involved in undertaking those postulates would have caused the parties to either abandon or indefinitely defer the schemes and/or the wider transactions of which they were a part. [5] However, these provisions currently only apply in relation to Australian income tax consequences.

3.96 The multinational anti-avoidance law is capable of capturing schemes that have a purpose of reducing a foreign tax liability. Unlike the general anti-avoidance rule purpose test in section 177D, the purpose test under this measure can be satisfied by a purpose of both obtaining a tax benefit and reducing one or more taxpayers' liabilities to tax under a foreign law.

3.97 As a consequence, this measure extends subparagraph 177CB(4)(a)(ii) and paragraph 177CB(4)(b), for the purposes of schemes captured under the multinational anti-avoidance law, so that results in relation to the operation of any foreign law relating to taxation are also disregarded (and not just Australian income tax consequences). [Schedule 2, item 3, subsection 177CB(5)]

Step 2: Work out the tax effects of the alternative postulate

3.98 Once the alternative postulate is determined, the next step is to work out the tax effects of the alternative postulate.

3.99 A comparison between the tax effects of the scheme and the tax effects of the alternative postulate allows the identification of a tax benefit obtained in connection with the scheme. Under subsection 177C(1), tax benefits that may be identified include:

an amount not being included in assessable income;
a deduction being allowed;
a capital loss being incurred;
a foreign income tax offset being allowed; and
a taxpayer not being liable to pay withholding tax on an amount.

3.100 Section 177F does not require that the tax benefit cancelled is the same tax benefit that is relevant to the purpose test. What is required is that the tax benefit has been obtained by a taxpayer in connection with the scheme. The Commissioner does not have the power to cancel a benefit obtained by a taxpayer in relation to a foreign tax law.

3.101 With respect to schemes captured by this measure, section 177F would allow the Commissioner to make a determination cancelling a tax benefit that the foreign entity obtained in connection with the scheme. It may also allow the Commissioner to make determinations cancelling any tax benefits obtained by other taxpayers in connection with the scheme.

3.102 As noted above, where a scheme is captured under this measure, the alternative postulate will typically include supplies being made to Australian customers through an Australian permanent establishment (the notional permanent establishment) of the foreign entity. Two of the tax benefits that may be cancelled under section 177F are likely to be particularly relevant to such schemes. These are:

an amount not being included in the assessable income of a taxpayer; and
a taxpayer not being liable to pay withholding tax on an amount.

Tax benefit - assessable income

3.103 Determining that an amount would have or might reasonably be expected to have been included in a taxpayer's assessable income if a scheme captured by this measure had not been entered into or carried out will typically require the profits attributable to the notional Australian permanent establishment to be worked out.

3.104 This is because, where a foreign entity has a permanent establishment in Australia, under both Australia's tax treaties and Subdivision 815-C of the ITAA 1997, the profits attributable to an Australian permanent establishment will usually have an impact on the calculation of an entity's taxable income, including their assessable income, in Australia.

3.105 The approach of attributing profits to a permanent establishment in accordance with the arm's length principle is contained in Australia's tax treaties (see, for example, paragraph 2 of Article 7 of the United Kingdom Convention). Section 815-225 of the ITAA 1997 reflects this approach in the concept of 'arm's length profits' of a permanent establishment. Additionally, section 815-225 of the ITAA 1997 applies for the purposes of Australian permanent establishments of residents of countries with which Australia does not have a tax treaty.

3.106 Once the profits attributable to the notional Australian permanent establishment have been worked out in accordance with the arm's length principle, it is necessary to determine the impact of those attributed profits on the foreign entity's Australian taxable income. Any elements in the calculation of the foreign entity's taxable income under the relevant sections of the tax law must be considered (see paragraphs 4.15 and 4.16 of the Explanatory Memorandum to the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 and paragraphs 3.28 and 3.29 of Taxation Ruling TR 2001/11).

3.107 For example, in some circumstances, under the alternative postulate, the calculation of the foreign entity's Australian taxable income will be limited by the profits attributable to the notional Australian permanent establishment. This would be the case where the foreign entity derives other Australian sourced income that is not attributable to the notional permanent establishment: Australia would not be permitted to tax that income under a relevant tax treaty. In such circumstances the foreign entity's taxable income will be limited to the amount of the profits attributable to the notional permanent establishment.

3.108 In some circumstances the foreign entity's Australian taxable income may be less than the profits attributable to the permanent establishment such as where the income is non-assessable non-exempt income (NANE income) or exempt income. In these circumstances the entity's taxable income will remain the (lower) amount of taxable income.

3.109 Determining the entity's taxable income may also be impacted by special provisions in the relevant tax treaty, such as source deeming rules. Source deeming rules ensure that income that Australia is permitted to tax under the relevant tax treaty, for example, the income that forms part of the profits attributable to a permanent establishment in Australia, is deemed to have an Australian source for Australian tax purposes (see, for example, Article 21 of United Kingdom Convention). An equivalent deeming rule is contained in subsection 815-230(1) of the ITAA 1997 for the arm's length profits of a permanent establishment in Australia.

3.110 Accordingly, an item of income derived by a foreign entity (that is not NANE income or exempt income) that would have or might reasonably be expected to have been deemed to have an Australian source, as part of the profits attributable to a notional Australian permanent establishment of the foreign entity under an alternative postulate, will form part of a tax benefit obtained in connection with the scheme. The item of income will constitute an amount that would have or might reasonably be expected to have been included in the foreign entity's assessable income if the scheme had not been entered into or carried out.

Tax benefit -- withholding tax

3.111 Part IVA allows the Commissioner to cancel withholding tax benefits obtained under or in connection with a scheme (paragraph 177C(1)(bc) and subsection 177F(2A)).

3.112 For schemes where, as part of the alternative postulate, the foreign entity might reasonably be expected to incur royalty or interest expenses with respect to the notional Australian permanent establishment, the Commissioner may determine that the recipient of the payment is subject to withholding tax under section 128B on that amount.

Example 3.10 : Tax outcome - foreign entity resident in treaty country

In Example 3.9 above, the foreign entities (Horsbell Ltd and SJ1 Inc.) have obtained Australian tax benefits in connection with the scheme and meet the conditions to be subject to this measure.
For Horsbell Ltd, a reasonable alternative postulate is that the supplies were made through a permanent establishment in Australia of Horsbell Ltd. This notional permanent establishment would be a 'dependent agent' permanent establishment, in accordance with the tax treaty between Australia and Country B.
This is on the basis that, under the tax treaty, a person acting in Australia on behalf of an enterprise of Country B, other than an independent agent, is deemed to be a permanent establishment of the multinational entity in Australia, if the person has, and habitually exercises in Australia, an authority to conclude contracts on behalf of the enterprise.
The notional permanent establishment would include all of the activities that the dependant agent undertakes in Australia on behalf of Horsbell Ltd.
The tax benefit obtained by Horsbell Ltd under the scheme is the amount not being included in Horsbell Ltd's assessable income which would have or might reasonably be expected to have been included if it had made the supplies to Australian customers through the notional Australian permanent establishment.
The tax benefit would include the amount of assessable income attributable to the notional permanent establishment under arm's length conditions (worked out in accordance with the relevant tax treaty between Australia and Country B, and Subdivision 815-C of the ITAA 1997).
In accordance with the tax treaty, and section 815-230 of the ITAA 1997, this assessable income would have an Australian source. The Commissioner would include this amount in Horsbell Ltd's assessable income under paragraph 177F(1)(a).
To the extent that the license fee paid by Horsbell Ltd to SJ1 Inc. was incurred, in the alternative postulate, with respect to the notional Australian permanent establishment, SJ1 Inc. has obtained a tax benefit with respect to withholding tax under paragraph 177C(1)(bc). The Commissioner may determine that these amounts are subject to withholding tax under subsection 177F(2A). The rate of the withholding tax would be as prescribed in the tax treaty between Australia and Country C (where SJ1 Inc. is resident).

Example 3.11 : Tax Outcome - foreign entity resident in non-treaty country

Assume the same set of facts as for Example 3.9, above, except that Australia has no tax treaty with Country B, where Horsbell Ltd is resident.
For Horsbell Ltd, a reasonable alternative postulate is that the supplies were made through a permanent establishment in Australia of Horsbell Ltd. The notional permanent establishment would amount to a permanent establishment within the definition of permanent establishment in subsection 6(1).
The tax benefit would include the amount of assessable income attributable to the notional permanent establishment under arm's length conditions (worked out in accordance with Subdivision 815-C of the ITAA 1997).
In accordance with section 815-230 of the ITAA 1997, this assessable income would have an Australian source. The Commissioner may include this amount in Horsbell Ltd's assessable income under paragraph 177F(1)(a).
To the extent that the interest or royalties paid by Horsbell Ltd to SJ1 Inc. were incurred, in the alternative postulate, with respect to the notional Australian permanent establishment, SJ1 Inc. has obtained a tax benefit in respect to withholding tax under paragraph 177C(1)(bc).
The Commissioner may determine that these amounts are subject to withholding tax under subsection 177F(2A). The rate of the withholding tax would be as prescribed in the tax treaty between Australia and Country C (where SJ1 Inc. is resident). If there is no tax treaty between Australia and Country C, then the current rate of 30 per cent would apply.

Step 3: Compensating adjustments

3.113 Where the Commissioner has made a determination under subsection 177F(1) or subsection 177F(2A), cancelling a tax benefit, the Commissioner may also make a 'compensating adjustment' under subsection 177F(3). A compensating adjustment may be made in relation to a taxpayer, where, in the opinion of the Commissioner, it is fair and reasonable to do so.

3.114 In situations where the alternative postulate includes a notional Australian permanent establishment, in relation to which a determination to include an amount in a taxpayer's assessable income has been made, it may also be open to the Commissioner to make a compensating adjustment, allowing deductions (paragraph 177F(3)(b)). The combination of determinations including amounts in a taxpayer's assessable income, and determinations allowing deductions is the mechanism by which the arm's length profits of a notional permanent establishment in an alternative postulate could be included in a taxpayer's assessment.

3.115 However, where the foreign entity might reasonably be expected to incur royalties or interest with respect to its notional Australian permanent establishment, the Commissioner will need to determine whether it is fair and reasonable to provide a compensatory adjustment for this expense under subparagraph 177F(3)(b)(ii), particularly where withholding tax has not been applied to that amount.

3.116 The Commissioner will also consider whether the conditions under which the amount is paid are consistent with the arm's length principle in Subdivision 815-B of the ITAA 1997.

Example 3.12 : Tax outcome - Compensating adjustments

The facts and conclusions are the same as Example 3.10 above. In addition, assume that the license fee paid by Horsbell Ltd to SJ1 Inc. was incurred with respect to the notional Australian permanent establishment and the Commissioner determined that SJ1 Inc. is subject to withholding tax on this amount under subsection 177F(2A). Also assume that SJ1 Inc. complies with the determination and makes full payment in respect of the tax liability.
The issue arises as to whether it is fair and reasonable for the Commissioner to provide a compensating adjustment for Horsbell Ltd in respect of the license fee expense.
In considering this issue, it is relevant that because the withholding tax aspects relating to the license fee will arise in respect to a notional permanent establishment, no withholding would have taken place by Horsbell Ltd. Under section 26-25 of the ITAA 1997 a deduction would not be allowable to a payer in determining its taxable income if it failed to withhold. However, a deduction is allowable to the payer if the withholding tax payable is paid.
Given that SJ1 Inc. has made full payment in respect of the withholding tax liability, the Commissioner would consider that it would be fair and reasonable to make a compensatory adjustment to recognise a deduction for the license fee.

Consequential amendments

3.117 There are a number of consequential amendments to the tax law to accommodate the introduction of the multinational anti-avoidance law into Part IVA. [Schedule 2, items 2, 5 and 6]

Application and transitional provisions

3.118 This measure applies on or after 1 January 2016 in connection with a scheme, whether or not the scheme was entered into, or was commenced to be carried out, before that day. [Schedule 2, item 7]

3.119 However, the measure does not apply in relation to tax benefits that a taxpayer derives before 1 January 2016. [Schedule 2, item 7]

Example 3.13 : Application provision

The facts and conclusions are the same as Example 3.10 above. In addition, assume that for the income year ending 30 June 2016 for Horsbell Ltd the amount of assessable income attributable to the notional permanent establishment is $10 million, and that $6 million was derived from 1 January 2016.
Under the application provision only amounts derived, or which should have been derived on or after 1 January 2016, are considered to be a tax benefit. Accordingly, the Commissioner would only include $6 million in Horsbell Ltd's assessable income under paragraph 177F(1)(a).

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Multinational anti-avoidance law

3.120 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

3.121 Schedule 2 to this Bill amends the anti-avoidance provisions in the ITAA 1936 to introduce the multinational anti-avoidance law.

3.122 The multinational anti-avoidance law is designed to counter the erosion of the Australian tax base by multinational entities using artificial or contrived arrangements to avoid the attribution of business profits to Australia through a taxable presence in Australia.

Human rights implications

3.123 This Schedule does not engage any of the applicable rights or freedoms as it applies to multinational entities not individuals.

Conclusion

3.124 This Schedule is compatible with human rights as it does not raise any human rights issues.


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