Country update:Australia
Anthony KleinPartner, PwC Australia
Liam CollinsPartner, PwC Singapore
www.pwc.com
PwC
Agenda
1. Economic and social challenges
2. Tax and politics
3. Recent developments
4. 2015 Federal Budget – key announcements
5. Regulatory environment – changes at the ATO
6. Q&A
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Economic outlook
4
‐2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2002
‐03
2003
‐04
2004
‐05
2005
‐06
2006
‐07
2007
‐08
2008
‐09
2009
‐10
2010
‐11
2011
‐12
2012
‐13
2013
‐14
2014
‐15
2015
‐16
2016
‐17
2017
‐18
2018
‐19
2019
‐20
2020
‐21
2021
‐22
2022
‐23
2023
‐24
2024
‐25
2025
‐26
2026
‐27
2027
‐28
2028
‐29
2029
‐30
2030
‐31
2031
‐32
2032
‐33
2033
‐34
2034
‐35
2035
‐ 36
2036
‐37
2037
‐38
2038
‐39
2039
‐40
2040
‐41
2041
‐42
2042
‐43
2043
‐44
2044
‐45
2045
‐46
2046
‐47
2047
‐48
2048
‐49
2049
‐50
$ billion
Commonwealth States and territories Federation
Australia’s net debt levels, A$ billion
Current year
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Impact of iron ore prices and AUD
5
1980 to 2015
0.1000
0.3000
0.5000
0.7000
0.9000
1.1000
1.3000
1.5000
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
200.00
Iron Ore Price
AUD:USD
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Domestic challenges
Domestic economy
• Declining per capita income
• Government spending previously underpinned by resources boom –now less affordable
• As a consequence, deficits ‘as far as the eye can see’
• A Government short on political capital
Demographic challenges
• Ageing population
• Declining ratio of working age individuals to retirees
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What might tax reform look like
What’s on the table
• Everything, in theory
• Lower corporate tax rate?
• Broader base and higher rate for GST?
Challenges to reform
• A wide range of powerful interest groups
• Dysfunctional Senate
• Federation
• A misunderstanding that BEPS process will fix everything
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But it’s not all bad news (1/2)
Stable, mature market
• Relatively low sovereign risk
• Strong rule of law
• Strong financial sector
• Well regulated markets
• Highly educated and skilled workforce
• Good quality of life
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But it’s not all bad news (2/2)
Opportunities for investment
• Continued infrastructure privatisation
• Real property sector strong
• Agriculture – clean, safe and plentiful
• Growing tech sector
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Tax and political events
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1 January 2017
Anti hybrid rules operative
1 January 2017
UK anti hybrid rules operative
1 January 2017
Anti hybrid rules operative
7 May 2015
UK election
1 January 2017
Anti hybrid rules operative
1 April 2015
UK Google Tax operative
1 January 2017
Anti hybrid rules operative
18 March 2015
UK announces anti hybrid
rules
1 January 2017
Anti hybrid rules operative
3 December 2014
UK Google Tax announced
1 January 2017
Anti hybrid rules operative
5 November 2014
“Lux Leaks”
1 January 2017
Anti hybrid rules operative
5 October 2014
7 Deliverables
1 January 2017
Anti hybrid rules operative
12 May 2015
Australian Federal Budget
1 January 2017
Anti hybrid rules operative
10 April 2015
“Netflix Tax” announced
1 January 2017
Anti hybrid rules operative
30 March 2015
Tax White Paper released1 January 2017
Anti hybrid rules operative
2 October 2014
Senate Inquiry announced
1 January 2017
Anti hybrid rules operative
26 September 2014
Tax Justice Report
released
1 January 2017
Anti hybrid rules operative
Late 2015
Green Paper to be released
1 January 2017
Anti hybrid rules operative
Late 2015ATO
mandatory reporting of
taxpayer information
1 January 2017
Anti hybrid rules operative
12 February 2013
BEPS
1 January 2017
Anti hybrid rules operative
19 April 2013
“Tax Transparency
and BEPS”
1 January 2017
Anti hybrid rules operative
19 July 2013
BEPs Action Plan
1 January 2017
Anti hybrid rules operative
8-10, 22 April 2015
Senate Hearings
1 January 2017
Anti hybrid rules operative
8 October 2015
Final 15 Deliverables
Dom
esti
cIn
tern
atio
nal
1 January 2017
Anti hybrid rules operative
14 May 2013
25-90 repeal announced
1 January 2017
Anti hybrid rules operative
November2013
25-90 retained
PwC
ATO needs to ‘man up’ on tax dodges
Michael WestSydney Morning Herald
Big business ‘shirks’ fair share of tax load
Sydney Morning Herald
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Senate inquiry demands answers from low-tax companies
Sydney Morning Herald “Ultimately, sustainable, well-run businesses should pay a fair level of tax, and avoid the reputational, legal and financial risks posed by overly aggressive tax planning. Doing so is in their interests, the interests of their shareholder and the interests of the long-term health of the global economy.”
Fiona Reynolds Managing Director, UN PRI Tax Justice Network’s
report on business is a hatchet job
Sydney Morning Herald
Tax on the front page
PwC
“When 29 per cent of Australia’s largest listed companies are paying an effective tax rate of 10 per cent or less, it’s clear that the system is broken”
David O’ByrneNational Security, United Voice
Tax minimisation practices of a minority of very large companies have a significant and disproportionate impact on Australia’s corporate tax revenue base
Who Pays For Our Common Wealth?
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…there should be a cohesive and clear legal framework that enables all taxpayers, large and small, to be confident that they are complying with their legal obligations.
Frank DrenthCorporate Tax Association
ASX 200 company tax avoidance bleeds Commonwealth coffers of billions a year, report finds
Heath Aston & Georgia WilkinsSydney Morning Herald
Tax on the front page
PwC
Australia’s international tax landscape
Corporate tax rate 30%
Withholding taxes
- Dividends 30% But, dividend imputation, conduit foreign income and lower for treaty residents
- Royalties 30% But, lower for treaty residents
- Interest 10% But, maybe lower for certain treaty residents (e.g. banks)
Taxation for foreign investors YesBut limited to: - Australian sourced income; and - CGT on Taxable Australian Property
Integrity measures
- Thin cap regime Yes Generally 1.5:1 safe harbour
- Anti avoidance measures Yes Existing GAAR and proposed multi-national anti avoidance rule (PE)
- BEPs agenda Yes Australia leading the charge – CbC, CRS,
- CFC regime Yes
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FIRB: Pre approval for agricultural land
Threshold at which FIRB review required reduced from AUD252m to AUD15m
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Foreign investor
FIRB
Agricultural land
AUD252m
AUD15m
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Proposed fees for foreign investment applications
Minimum AUD5,000 application fee for FIRB review of real estate investments
18
Foreign investor
Rural land
AUD5,000
FIRB
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Proposed increase in Victorian stamp duty for foreign purchasers
Additional 3% stamp duty upon purchases of Victorian residential land
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Foreign investor
5.5%
Vic SRO
$$
8.5%
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Investment Manager Regime
Provides certainty to foreign investors on taxation of Australian managed investments
20
Foreign investor
Australian manager
Management services
PE?Australian investments
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Premium Investor Visas
Significant Investor Visa (SIV) programme was introduced to compete effectively for high net work individuals seeking investment migration
Proposed to extend programme to include Premium Investor Visa (PIV) with effect from 1 July 2015.
PIV has:
• higher investment threshold (AUD15m)
• a more focused eligible investment class, including:
Private equity/start up funding; and
LICs and emerging ASX listed companies.
• shorter time frames (12 months)
Proposed new visa programme to attract entrepreneurial skill and talent to Australia
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Snapshot of budget changes
Measure Application Progress
Double penalties for large companies Income years from 1 July 2015
Multinational anti-avoidance law 1 January 2016
Transfer pricing documentation (country by country reporting) 1 January 2016
GST on digital B2C 1 July 2017
Targeting treaty abuse Apply to future treaties
Anti-hybrid measures Board of Tax consultation
Tax transparency code Board of Tax consultation
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Multinational anti-avoidance
Directly or indirectly related to
supply
ConnectionSupply
Foreign supplier
MNC
Low or No TaxNo Substantial
Activity
AustralianActivitiesCustomer
PE
Principal purpose
Reducing any taxes
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Goods and services tax (1/2)GST on digital products and services – the ‘Netflix Tax’
From 1 July 2017, GST will be payable on qualifying supplies of anything other than goods or real property to a non-registered ‘Australian consumer’, including:
• supplies of digital products such as streaming or downloading of movies, music, apps, games, e-books; and
• other services such as consultancy and professional services.
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Goods and services tax (2/2)GST on digital products and services – the ‘Netflix Tax’
Supplies made through an online intermediary (such as websites, gateways, stores or market places).
• GST collected through a reverse charge mechanism.
• Intermediary to remit the GST.
Projected annual revenue of AUD150m – AUD200m
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Changes at the ATO and what this means for you
• New Commissioner appointed (Jan 2013), first external to ATO
• Driving a massive cultural change agenda, including redundancy
programme and external hires at senior levels
• Alternative dispute resolution focus
• New ATO processes enable disputes to be resolved sooner
(e.g. independent review, settlements)
• Opportunities and challenges for taxpayers
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Tax transparency
• Australia to implement the OECD’s new transfer pricing documentation package, including requirement to file with ATO:
country by country reporting;
a master file; and
a local file that provides detailed information about the local taxpayer’s intercompany transactions.
• Many companies proactively considering their tax transparency strategy
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Assume three corporate tax entities (A1 Ltd, B1 Ltd and C1 Ltd) have total income of $100m or more in the 2013-14 income year, and a fourth company (Z Ltd) has a total income of $80m in the same income year.
The Commissioner will make the following information publicly available in relation to that income year.
30
Schedule 5 – tax secrecy and transparency
Name ABN Total Income Taxable Income Income Tax
A1 Ltd 10 234 567 890 $500,000,000 $200,000,000 $60,000,000B1 Ltd 97 876 543 210 $300,000,000 $150,000,000 $40,000,000C1 Ltd 10 293 847 756 $120,000,000 - -
T5
6S 7T
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Schedule 5 – transparency creating confusion
A CoB CoC CoD Co
Total Income
Taxable Income
Income Tax
1,000 10 31,000 150 451,000 300 901,000 250 75
%
0.3%4.5%9%
7.5%
Margin
1%15%30%25%
1 Retail2 Mining3 Technology 4 Banking
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Thank you.
The information contained in this presentation is of a general nature only. It is not meant to be comprehensive and does not constitute the rendering of legal, tax or other professional advice or service by PricewaterhouseCoopers Ltd. ("PwC"). PwC has no obligation to update the information as law and practices change. The application and impact of laws can vary widely based on the specific facts involved. Before taking any action, please ensure that you obtain advice specific to your circumstances from your usual PwC client service team or your other advisers.
The materials contained in this presentation were assembled in May 2015 and were based on the law enforceable and information available at that time.
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