What is the most significant change to your region/jurisdiction's tax legislation in the past 12 months?
The international tax rules for Australia have continued to evolve at a rapid pace broadly in line with recommendations of the OECD's Base Erosion and Profit Shifting (BEPS) Action Plan, supplemented with expansive unilateral measures. New anti-hybrid provisions came into force at the start of the calendar year that complement previously introduced measures such as the Multi-national Anti-Avoidance Law, the Diverted Profits Tax, Country-by-Country reporting, updated transfer pricing rules and a myriad of increased transparency reporting requirements such as Reportable Tax Position Schedules and increased financial statement disclosures. Large corporates are also subject to significant financial penalties for non-compliance and late filings.
What has been the most significant impact of that change?
Many of these new laws require advisers to consider a broader range of circumstances and considerations for both the Australian and global operations of cross-border groups. With these rules, the operation and application of Australia tax law is explicitly and directly contingent on the outcome of the application of foreign tax laws in an unprecedented way. The effective tax rate of a taxpayer could, in effect, be adversely impacted through the operation of a foreign law and irrespective of the absence of any tax avoidance or minimisation motive.
How do you anticipate that change impacting your work and the market moving forwards?
Advisors and corporate taxpayers need to be cognisant of the potential breadth of application of these new laws and adequately document their analysis, as a first step in both understanding and managing the organisation's tax risk profile. Where appropriate, corporate taxpayers should then consider how best to respond to these law changes which may result in their structures, financing or transactions no longer meeting legal and/or reputational standards.
These new laws, together with new revenue authority guidance products that set out risk zones (Practical Compliance Rulings), have enabled the Australian revenue authorities to influence taxpayer behavior like never before. In this new post-BEPS world, taxpayers are being asked to explain their business model, tax governance framework and effective tax borne on a global basis in order to provide assurance to revenue authorities that they are paying the right amount of tax (called 'Justified Trust'). The tax adviser has been critical in guiding corporate taxpayers through this process.
How has this changed the way you offer tax advice?
It has not changed the way advice is provided but it is a broader analysis. As a result of the level of detailed understanding around the operation and application of foreign tax rules that is demanded by the new rules, the provision of fully considered Australian tax advice cannot be undertaken in jurisdictional isolation. The multijurisdictional interconnectivity embedded within the Australian law means that tax expertise from different jurisdictions needs to be obtained. In other words, the multijurisdictional interconnectivity of the laws needs to be mirrored in the approach of assessing them. It is bringing the global tax world a lot closer to Australia.
What potential other legislative changes are on the horizon that you think will have a big impact on your region/jurisdiction?
The focus of the legislature has been on ensuring the integrity of the Australian tax system with increased reporting and transparency as a focus. While there have been calls for more substantive structural tax system changes, there are no current proposed reforms. Tackling the cash economy continues to be a focus.
What are the potential outcomes that might occur if those changes are implemented?
Substantive tax reform is not currently proposed in Australia.
Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Any future tax law changes (provided they are consistent with other countries' international tax reforms), should provide some measure of uniformity in application and therefore compliance costs for corporates should reduce, which would have a positive effect.
How are issues surrounding the taxation of the digital economy affecting your jurisdiction?
Consideration as to whether and/or how to tax the digital economy is in a longer-term consultation phase in Australia. An initial discussion paper released in late 2018, did not provide any specific recommendations in respect to any particular methodology for taxing the digital economy, either on a long-term structural basis or an interim basis. The Australian government is focused on engaging in the multilateral process and will not proceed with any interim measures, such as a digital services tax, at this time. In view of this approach, Australian issues and impacts will likely be contingent on the outcome of any consensus-based multilateral solution.
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