Diverted Profits Tax (DPT) : Assignment

Added on - 24 Apr 2021

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Running head: TAXTaxName of the Student:Name of the university:Authors note:
2TAXTable of ContentsContext of enactment of Diverted Profit tax..................................................................3Proposed operation of Diverted Profit tax....................................................................4Evaluating the tax using canon of Taxation..................................................................4Diverted Profits Tax as a reasonable and necessary response...................................6Reference.....................................................................................................................8
3TAXToMr XSubject: Proposed enactment of legislation regarding Diverted profit taxIn this letter, an advice is being provided in response to your query relating toDiverted Profit Tax. The letters cover the impetus for the introduction of DivertedProfits Tax in Australia, will evaluate with the traditional canons of taxation andobserve the DPT’s necessity for the problem of Diverted Tax by the big multinationalorganisations with a contrived arrangements made by them for reduction of taxliabilities for the company in Australia. Lastly, it can be observed the efficiency ofmeasure of DPT in other countries who have implemented the same for solving theproblem in their own countries1.Context of enactment of Diverted Profit taxIt is important to understand the DPT’s (Diverted Profits Tax) context for whichthis tax and laws were enacted. In the process of solving this serious problem ofdiversion of profits from Australian soil to other countries who have low tax ratesthrough contrived arrangements made by the multi-national organisation with othercorporation or its unit in that country2.Base Erosion and Profit Shiftingmeans aprocess of planning of tax arrangements that utilizes the loopholes in tax rules of thecountry to make the profits earned by the company to disappear for tax purpose.This might be done through shifting of profits to another location where theoperations of the company has no activity or very low activity but tax rates are verylow. This has resulted in the company is paying little corporate taxes. Big multi-national corporations do this generally in diverting profits from Australia3. This isbeing observed in current year’s big corporate like Apple, Google, Starbucks, etc. Allare structuring their financials and arranging for diverting profits to pay lower tax tothe Australian Government. In United Kingdom, they have introduced the DivertedProfits Tax to tackle the arrangements that are made in the profit shifting at theinternational level. The Australian DPT has aimed in broad variety of structuredarrangements involving royalty arrangement, offshore service, a few leasingarrangement, etc.Theimpetus of bringing the new DPT (Diverted Profits Tax) in Australiathat charges a tax of 40% on profits that is a fine on the diverted profits that areartificially done by the multinational corporate entities in Australia. The AustralianGovernment is firmly dedicated for ensuring that multi-nationals compensate itsreasonable share of tax in Australia4. The Australian government is working indirection of ensuring that multi-nationals are giving appropriate amount of tax by1McClure, Ross, Roman Lanis, and Brett Govendir. "Analysis of Tax Avoidance Strategies of TopForeign Multinationals Operating in Australia: An Expose." (2017).2Lanis, Roman, Ross McClure, and Mark Zirnsak. "Tax aggressiveness of alcohol and bottlingcompanies in Australia."Canberra: Foundation for Alcohol Research and Education(2017).3Dunne, Joanne. "The MAAL and the diverted profits tax-a comparative."Taxation in Australia51, no.1 (2016): 21.4Picciotto, Sol. "The UK's diverted profits tax: an admission of defeat or a pre-emptive strike?."TaxNotes International77, no. 3 (2015): 239-242.
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