AUSTRALIA: BEPS IMPLICATIONS FOR MULTINATIONAL ENTERPRISES

There are implications for multinational enterprises in Australia with this week’s release by the Organisation for Economic Cooperation and Development (OECD) of final recommendations for substantial international tax reform under the base erosion profit shifting (BEPS) project.

OVERVIEW

The final BEPS package follows on from, and is largely consistent with, various discussion drafts on recommended BEPS actions issued over the last two years. The OECD along with the G20 seems to have reached consensus with their members that substantial reform is required in relation to many aspects of the international tax regimes of member countries to stem widespread public and government concerns that multinational enterprises (MNEs) are engaged in significant base erosion and profit shifting.

AUSTRALIAN IMPLICATIONS

A number of the recommended measures, if implemented, would have substantial implications for Australian multinational enterprises (MNEs) and foreign MNEs with operations in Australia.

Recommended changes in the following BEPS actions, if implemented, could result in very significant increases in Australian tax paid by MNEs:

• Action 2 – Neutralising the Effects of Hybrid Mismatch Arrangements
• Action 4 – Limiting Base Erosion involving Interest Deductions and Other Financial Payments
• Action 7 – Prevent Artificial Avoidance of Permanent Establishment Status
• Action 8-10 – Assure that Transfer Pricing outcomes are in Line with Value Creation

Similar outcomes are likely in relation to tax levied on business operations conducted in other OECD and G20 jurisdictions.

KPMG OBSERVATION

The Australian government has actively participated in the formulation of this package and has shown an eagerness to be an early adopter of recommended changes—for example, country-by-country reporting measures. It is expected that the Australian government may give early consideration to the recommended measures and introduce legislation to implement these measures if required.

Read an October 2015 report prepared by the KPMG member firm in Australia.