By Robert Gordon, Pointon Partners
Bills to enact OECD BEPS measures No 2 & 15 were introduced into the House on 24 May 2018 and 28 March 2018 respectively, with the government's hope that they will pass the Parliament before the end of the financial year on 30 June 2018.
Measure No 2, the Anti-Hybrid rules will become a new Div 832 of the Income Tax Assessment Act 1997, as a result of Treasury Laws Amendment (Tax Integrity and Other Measures No. 2) Bill 2018 and will largely have effect from 1 January 2019 in relation to Hybrid Instruments and Hybrid Entities that achieve double non-taxation via:
- Deduction with non-inclusion outcomes on intragroup payments
- Double deduction outcomes on external payments across jurisdictions.
The rules will apply by self-assessment, to:
- Disallow a deduction; or
- Include an amount in assessable income
- With no purpose test
- And no de-minus rule
- Not limited to "Significant Global Entities"
- To control groups (≥50%) or related persons (≥25%)
- And Structured Arrangements (unrelated parties)
Similar UK rules have been operative since 1 January 2018, and the NZ rules are expected to be operative from 1 July 2018, with the EU countries expected to have such measures enacted by 1 January 2020.
Measure No 15, the Multilateral Instrument (MLI – signed by Australia and 67 other countries on 7 June 2017), will obtain the force of law in Australia by amendment to the Tax Agreements Act by Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 with earliest likely effect from 1 January 2019.
The MLI has some 16 main features which could be elected to be adopted. Note that Australia's recent DTA with Germany had already adopted the BEPS recommendations for DTA change.
As at 5 June 2018, eight countries with which Australia has DTA's have decided not to become signatories to the MLI: the US, Philippines, Thailand, Vietnam, Taiwan, Sri Lanka, PNG and Kiribati. It goes without saying that the US decision not to become a signatory to the MLI is very significant.
Of Australia's 43 DTAs, another four countries have chosen not to nominate their DTA with Australia as a "Covered Tax Agreement" which has the effect that like the nine countries that have not signed the MLI at all, Australia's DTAs with Austria, Korea, Sweden and Switzerland are also unaffected by the MLI.
Australia has decided not to adopt the MLI Article 10 – "Anti-abuse rule for permanent establishment situated in third jurisdictions", and also chosen not to adopt Article 12 – "Artificial avoidance of permanent establishment through commissionaire arrangements and similar strategies".
The Australian government's decision not to adopt Article 12 is more significant and was apparently because it would have potentially created a net loss of tax to Australia.