Treasury Laws Amendment (Combating Multinational Tax Avoidance) Act 2017 (27 of 2017)

Schedule 1   Diverted profits tax

Income Tax Assessment Act 1936

13   At the end of Part IVA

Add:

177H Diverted profits tax - objects

(1) The primary objects of the DPT provisions are:

(a) to ensure that the Australian tax payable by significant global entities properly reflects the economic substance of the activities that those entities carry on in Australia; and

(b) to prevent those entities from reducing the amount of Australian tax they pay by diverting profits offshore through contrived arrangements between related parties.

(2) In addition, the DPT provisions (in combination with Division 145 in Schedule 1 to the Taxation Administration Act 1953) have the object of encouraging significant global entities to provide sufficient information to the Commissioner to allow for the timely resolution of disputes about Australian tax.

177J Diverted profits tax - application

Scheme for a purpose including obtaining a tax benefit etc.

(1) This Part also applies to a scheme, in relation to a tax benefit (the DPT tax benefit ) if:

(a) a taxpayer (a relevant taxpayer ) has obtained, or would but for section 177F obtain, the DPT tax benefit in connection with the scheme, in a year of income; and

(b) it would be concluded (having regard to the matters in subsection (2)) that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a principal purpose of, or for more than one principal purpose that includes a purpose of:

(i) enabling the relevant taxpayer to obtain a tax benefit, or both to obtain a tax benefit and to reduce one or more of the relevant taxpayer's liabilities to tax under a foreign law, in connection with the scheme; or

(ii) enabling the relevant taxpayer and another taxpayer (or other taxpayers) each to obtain a tax benefit, or both to obtain a tax benefit and to reduce one or more of their liabilities to tax under a foreign law, in connection with the scheme;

whether or not that person who entered into or carried out the scheme or any part of the scheme is the relevant taxpayer or is the other taxpayer or one of the other taxpayers; and

(c) the relevant taxpayer is a significant global entity for the year of income mentioned in paragraph (a); and

(d) a foreign entity is an associate (within the meaning of section 318) of the relevant taxpayer at any time in the year of income mentioned in paragraph (a); and

(e) that foreign entity:

(i) is the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme; or

(ii) is otherwise connected with the scheme or any part of the scheme; and

(f) the relevant taxpayer is not any of the following:

(i) a managed investment trust (within the meaning of the Income Tax Assessment Act 1997);

(ii) an entity covered by paragraph 275-20(4)(f) of that Act (foreign collective investment vehicle with a wide membership);

(iii) an entity covered by paragraph 275-20(4)(h) of that Act (entity owned by foreign government etc.) that is a foreign entity;

(iv) a complying superannuation entity (within the meaning of that Act);

(v) a foreign pension fund (within the meaning of that Act); and

(g) it is reasonable to conclude that none of the following sections apply in relation to the relevant taxpayer, in relation to the DPT tax benefit:

(i) section 177K ($25 million income test);

(ii) section 177L (sufficient foreign tax test);

(iii) section 177M (sufficient economic substance test).

Have regard to certain matters

(2) For the purposes of paragraph (1)(b), have regard to the following matters:

(a) the matters in subsection 177D(2);

(b) without limiting subsection 177D(2), the extent to which non-tax financial benefits that are quantifiable have resulted, will result, or may reasonably be expected to result, from the scheme;

(c) the result, in relation to the operation of any foreign law relating to taxation, that (but for this Part) would be achieved by the scheme;

(d) the amount of the tax benefit mentioned in paragraph (1)(b).

Deferral of foreign tax liabilities

(3) For the purposes of paragraph (1)(b), a deferral of a taxpayer's liabilities to tax under a foreign law is taken to be a reduction of those liabilities, unless there are reasonable commercial grounds for the deferral.

Modification where thin capitalisation provisions apply

(4) Subsection (5) applies if:

(a) Division 820 of the Income Tax Assessment Act 1997 (about thin capitalisation) applies to the relevant taxpayer for the year of income mentioned in paragraph (1)(a); and

(b) the DPT tax benefit includes all or part of a debt deduction (within the meaning of that Act); and

(c) the calculation of the amount of the DPT tax benefit involves applying a rate to a debt interest (within the meaning of that Act).

(5) For the purposes of the DPT provisions, in calculating the amount of the DPT tax benefit, apply the rate to the debt interest the entity actually issued (rather than the debt interest that would have existed if the scheme had not been entered into or carried out).

Modification where foreign entity is CFC

(6) Subsection (6A) applies if:

(a) the foreign entity mentioned in paragraph (1)(d) is a CFC (within the meaning of Part X); and

(b) an amount of attributable income (within the meaning of that Part) of the foreign entity has been included as a result of the operation of that Part in the assessable income of:

(i) the relevant taxpayer; or

(ii) an associate (within the meaning given by section 318) of the relevant taxpayer, if the associate is a Part X Australian resident (within the meaning of that Part) and is not a trust or partnership.

(6A) For the purposes of the DPT provisions, reduce the DPT tax benefit to the extent to which the amount included in assessable income as mentioned in paragraph (6)(b):

(a) would not have been so included if the scheme had not been entered into or carried out; and

(b) is directly referable to the DPT tax benefit.

Schemes outside Australia

(7) This section applies whether or not the scheme has been or is entered into or carried out in Australia or outside Australia or partly in Australia and partly outside Australia.

Non-limitation in relation to other provisions in this Part

(8) This section:

(a) does not limit section 177D, 177DA, 177E, 177EA or 177EB; and

(b) is not limited by those sections.

177K Diverted profits tax - $25 million income test

(1) This section applies in relation to the relevant taxpayer, in relation to the DPT tax benefit, if the sum of the following does not exceed $25 million:

(a) the assessable income of the relevant taxpayer for the year of income mentioned in paragraph 177J(1)(a);

(b) the exempt income of the relevant taxpayer for that year of income;

(c) the non-assessable non-exempt income of the relevant taxpayer for that year of income;

(d) the assessable income of each entity covered by subsection (2) for that year of income;

(e) if the DPT tax benefit is a tax benefit mentioned in paragraph 177C(1)(a) - the amount of the DPT tax benefit.

(2) An entity is covered by this subsection if for the year of income mentioned in paragraph 177J(1)(a):

(a) the entity is an associate (within the meaning given by section 318) of the relevant taxpayer; and

(b) both the entity and the relevant taxpayer:

(i) are members of the same global group; and

(ii) are significant global entities because they are members of that group.

177L Diverted profits tax - sufficient foreign tax test

(1) This section applies in relation to the relevant taxpayer, in relation to the DPT tax benefit, if the amount worked out under subsection (2) (foreign tax liability) equals or exceeds 80% of the amount worked out under subsection (6) (reduced Australian tax liability).

Foreign tax liability

(2) The amount is the total of the increases in liability for foreign income tax (within the meaning of the Income Tax Assessment Act 1997) of each entity covered by subsection (5) that results, will result, or may reasonably be expected to result, from the scheme during a foreign tax period that corresponds to the year of income mentioned in paragraph 177J(1)(a).

(3) The regulations may provide for a method of working out increases in foreign tax liability for the purposes of subsection (2):

(a) for all situations; or

(b) for specified situations.

(4) If the regulations provide for such a method, apply that method in working out increases in foreign tax liability for the purposes of subsection (2) in relevant situations.

(5) An entity is covered by this subsection if:

(a) the entity is a foreign entity; and

(b) the entity is the relevant taxpayer or an associate (within the meaning given by section 318) of the relevant taxpayer; and

(c) the entity:

(i) is the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme; or

(ii) is otherwise connected with the scheme or any part of the scheme.

Reduced Australian tax liability

(6) The amount is:

(a) if the DPT tax benefit is a tax benefit mentioned in paragraph 177C(1)(a), (b), (ba) or (bc) - the amount of the tax benefit multiplied by the standard corporate tax rate; or

(b) otherwise - the amount of the DPT tax benefit.

(7) If the relevant taxpayer must withhold an amount in respect of withholding tax as a result of the tax benefit, reduce the amount worked out under subsection (6) by the amount withheld.

177M Diverted profits tax - sufficient economic substance test

(1) This section applies in relation to the relevant taxpayer, in relation to the DPT tax benefit, if the profit made as a result of the schemebyeach entity covered by subsection (2)reasonably reflects the economic substance of the entity's activities in connection with the scheme.

(2) This subsection covers an entity if:

(a) the entity is the relevant taxpayer or an associate (within the meaning given by section 318) of the relevant taxpayer; and

(b) any of the following apply:

(i) the entity entered into or carried out the scheme or any part of the scheme;

(ii) the entity is otherwise connected with the scheme or any part of the scheme.

(3) However, subsection (2) does not cover an entity if the entity's role in the scheme is minor or ancillary.

(4) In determining whether the profit made as a result of the schemebyan entity reasonably reflects the economic substance of the entity's activities in connection with the scheme, have regard to:

(a) the functions that the entity performs in connection with the scheme, taking into account assets used and risks assumed by the entity in connection with the scheme; and

(b) the documents covered by section 815-135 of the Income Tax Assessment Act 1997, to the extent that they are relevant to the matters mentioned in paragraph (a) or to any other aspect of the determination; and

(c) any other relevant matters.

177N Diverted profits tax - consequences

If this Part applies to a scheme because of section 177J:

(a) section 177P applies to the relevant taxpayer mentioned in section 177J; and

(b) the Commissioner cannot make a determination under subsection 177F(1) or (2A) in relation to the scheme merely because of section 177J.

177P Diverted profits tax - liability

(1) The relevant taxpayer is liable to pay tax at the rate declared by the Parliament on:

(a) if this Part applies to a scheme in respect of the relevant taxpayer for the year of income mentioned in paragraph 177J(1)(a), in relation to one DPT tax benefit - the DPT base amount for that DPT tax benefit; or

(b) if this Part applies to a scheme in respect of the relevant taxpayer for the year of income mentioned in paragraph 177J(1)(a), in relation to more than one DPT tax benefit - the sum of the DPT base amounts for those DPT tax benefits.

Note: The tax is imposed by the Diverted Profits Tax Act 2017 and the rate of the tax is set out in that Act.

(2) The DPT base amount for a DPT tax benefit is:

(a) if the DPT tax benefit is a tax benefit mentioned in paragraph 177C(1)(a), (b), (ba) or (bc) - the amount of the DPT tax benefit; or

(b) otherwise - the amount of the DPT tax benefit divided by the standard corporate tax rate.

(3) The tax is due and payable at the end of 21 days after the Commissioner gives the relevant taxpayer notice of the assessment of the amount of the tax for the year of income mentioned in paragraph 177J(1)(a).

Note: For assessments of the amount of the tax see Divisions 145 and 155 in Schedule 1 to the Taxation Administration Act 1953.

177Q Diverted profits tax - general interest charge on unpaid diverted profits tax or shortfall interest charge

If an amount of diverted profits tax or shortfall interest charge that an entity is liable to pay remains unpaid after the time by which it is due to be paid, the entity is liable to pay the general interest charge on the unpaid amount for each day in the period that:

(a) starts at the beginning of the day by which the amount was due to be paid; and

(b) finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid:

(i) the diverted profits tax or shortfall interest charge;

(ii) general interest charge on any of the diverted profits tax or shortfall interest charge.

Note: The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953.

177R Diverted profits tax - when shortfall interest charge is payable

An amount of shortfall interest charge that an entity is liable to pay under section 280-102C in Schedule 1 to the Taxation Administration Act 1953 is due and payable 21 days after the day on which the Commissioner gives the entity notice of the charge.