International measures in the Budget are headlined by the Government’s Multinational Tax Integrity Package (MTIP).
The package is geared towards combating multinational tax avoidance and consists of initiatives in relation to:
- amending the thin capitalisation rules (as set out in the ‘Corporate’ section of this alert);
- denying deductions for intangibles held in low or no tax jurisdictions; and
- reporting requirements for large multinationals (as well as for Australian public companies and tenderers for Australian Government contracts).
Other international measures announced in the Budget relate to increased penalties under the foreign investment framework, a new double tax agreement and an increase to the 2022-23 permanent migration planning level.
MTIP – intangibles
As part of the MTIP, the Government will introduce an anti‑avoidance rule to prevent ‘significant global entities’ (SGEs) from claiming tax deductions for payments made directly or indirectly to related parties in relation to intangibles held in low or no tax jurisdictions. An SGE is a concept that is already defined in the tax rules and - at a high level – refers to an entity (or corporate group) with an annual global revenue of at least $1 billion.
For the purposes of this measure, a low or no tax jurisdiction is a jurisdiction with:
- a tax rate of less than 15%; or
- a tax preferential patent box regime without sufficient economic substance.
The measure will apply to payments made on or after 1 July 2023.
MTIP - reporting
The Government announced an intention to introduce reporting requirements for certain companies in order to increase the scope of the tax information that they are required to disclose to the public. The measure involves:
- requiring SGEs to prepare certain tax information for public release on a country by country (CbC) basis. SGEs are also required to prepare a statement on their approach to taxation, which is to be disclosed by the ATO;
- requiring Australian public companies (listed and unlisted) to disclose information in relation to their subsidiaries. This is to include the number of subsidiaries held by the relevant public company and each subsidiary’s country of tax domicile; and
- requiring tenderers for Australian Government contracts worth more than $200,000 to disclose their country of tax domicile (by supplying their ultimate head entity’s country of tax residence).
The enhanced reporting requirements will apply for income years commencing from 1 July 2023.
Other measures
Further measures announced in the Budget include:
- the doubling (from 1 January 2023) of the maximum financial penalties for breaches of the residential land rules under the foreign investment framework;
- the signing of a double tax agreement between Australia and Iceland; and
- as previously announced at the Jobs and Skills Summit, the 2022–23 permanent migration program planning level will be increased from 160,000 to 195,000.
