Swinburne ACC80012 Taxation Law Report: Anti-Avoidance Measures

This report examines Australia's approach to combating multinational tax avoidance, focusing on the Multinational Anti-Avoidance Law (MAAL), Diverted Profit Tax (DPT), and Country-by-Country (CbC) reporting. It analyzes the intent, central constituents, and application of MAAL, including its purpose test and the concept of significant global entities (SGEs). The report delves into the aims and mechanics of DPT, discussing its applicability to SGEs and the schemes it targets, along with its limitations and potential for broad application. Furthermore, it explores the objectives and scope of CbC reporting, highlighting its role in providing tax administrations with a comprehensive overview of multinational enterprises' operations and tax risk profiles. The report concludes with an overview of the key aspects of the Australian taxation regime in dealing with global tax avoidance.

Running head: TAXATION LAW
Taxation Law
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Executive Summary:
The present report is based on understanding the rules associated to anti avoidance of tax by the
multinational companies. The report will primarily create an emphasis on the intention of
Multinational anti-avoidance legislation and the manner in which it is designed to operate. The report
will also be examining the mechanism and the aims of Diverted Tax Profits (DPT) and also discusses
regarding its success or failure in the Australian taxation law. The report will be analysing the main
objectives and the scope involved in the CbC reporting and the reasons why it has been adopted in
Australia.

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Table of Contents
Introduction:..........................................................................................................................................3
Intent of MAAL legislation:..................................................................................................................3
Central constituents of MAAL:.............................................................................................................3
Significant global entities:.....................................................................................................................4
Application of the MAAL:....................................................................................................................4
Aims and mechanics of Diverted Profit Tax:.........................................................................................5
Discussion of its success:......................................................................................................................6
Objectives and scope of CbC reporting and its reasons for adoption:....................................................7
Conclusion:............................................................................................................................................7
References:............................................................................................................................................8

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Introduction:
The connection of MAAL revolves around “Pt IVA of the ITAA 1936” and the newly
introduced “sec 177D”. As per this section two practical perceptions of the MAAL that brighten up is
the provision of subsequent penalty and administrative powers that are stated under the “Pt IVA” and
the “Tax Administration Act 1953”. If the taxpayer is in breach of MAAL, the commissioner has the
control of cancelling the estimated “tax benefit” which will be invigorated within the “ITAA 1936”
(Berg and Davidson 2015). The corporate tax rate of 30% will be implemented and the fines of
around 120% to evaluate the “tax benefit” might be implemented within “TAA 1953”.
The MAAL is created to give permission to ATO to implement the new provision in order to
make sure that “large-scale multinational tax avoidance” does not affect the truthfulness of the
global and national tax system by corroding the base of tax. It is thought that MAAL will stop
international business that trade with customers of Australia by using artificial arrangements for
booking revenue offshore. Unlike the MAAL the DPT provision also has the objective of promoting
the significant global companies to lay down adequate information to commissioner and allowing on
time resolution of disputes.
Intent of MAAL legislation:
The main objective of MAAL provisions is to apply the principle purpose test where an
individual has entered in the scheme with the principle objective or for greater than one principal
objective of getting “tax benefit” and to lower or defer one or greater than one taxpayer’s liabilities to
impose tax under the overseas law that are connected with the system. The “Multinational anti-
avoidance law” (MAAL) is regarded as the addition of “Australia’s general anti-avoidance” rules
(Waerzeggers and Hillier 2016). This law makes sure that international companies pay their
reasonable amount of duty on the incomes that is earned from Australia. The MAAL counters the
wearing down of “Australian tax base” by the international business by utilizing false and affected
engagements in order to evade distribution of profits to the “permanent establishment” in Australia.
The law is applicable on the certain benefits that is derived on or following the 1st January
2016. It is widely applicable on the significant global companies (Merlo, Riedel and Wasmer 2014).
A significant global companies is a separate or “accounting consolidated” parent corporation that has
yearly world-wide earnings of A$1 billion or more.
Central constituents of MAAL:
The MAAL has numerous constituents’ elements:
a. The concept of significant global entities (SGE)
b. Making of supplies to unrelated Australian consumers

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c. Actions that are undertaken in Australia
d. Determining whether the arrangements contained fundamental objective of gaining an
Australian tax advantage.
Significant global entities:
The MAAL makes an introduction of “significant global entities” (SGE) across all the acts
which it amends (Bruce 2017). In order to classify the SGE, an entity should be either the parent
global entity or member of group of companies which is consolidated for book-keeping purpose as the
solitary group where one of the other members of group is an international parental company.
Making supply to unrelated Australian customers:
The second constitute of MAAL comprises of making of supply, particularly a foreign
company which supplies goods and services to the unconnected Australian consumers and activities
which is taken in Australia that are directly related to supply.
Activities undertaken directly in relation with supply:
The degree of direct relation between the activities in Australia and supply to Australian
customer needs the satisfaction of subs (a)(ii) which will be reliant on the facts and circumstances of
specific cases. The activity should be undertaken completely or in parts by the related Australian
entities of the SGE or the Australian permanent establishment of SGE or by the unrelated Australian
company that is commercially reliant on the overseas company (Morse and Deutsch 2015). At last the
foreign company should gain an “ordinary or statutory income” from the supply and that earnings
should not be attributed to Australian entity.
The purpose test:
In agreement with the current “purpose test” for “GAAR in sec 177D (1)”, the main purpose
is to determine whether the plan carried the ultimate objective of deriving “Australian tax benefit”. It
is aimed that the scheme would fall inside the MAAL where at least one of the principle purposes for
taking a transactional relationship in such a way as implemented was to gain a tax advantage (Gelski
2017). To conclude the purpose test, the MAAL references the similar criteria as the general anti-
avoidance provisions referred under the “sec 177D (2)”.
Application of the MAAL:
As the subject of lawful interpretation, the MAAL is designed operate in a slightly different
way to general anti-avoidance provision where “sec 177D” looks to the substance of relationship
inside the corporate group to ascertain whether the arrangements are contrived or it is artificial (West
2018). The MAAL seeks to straight-away target income which it believes to be obtained from genuine

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Australian economic activities by investigating the substances of transactions amid the members of
corporate group and their unconnected Australian customers.
MAAL is designed to target the international businesses that carryout the substantial ampimt
of work in Australia but also avoids making the payment of tax by depositing their profits offshore.
The MAAL will largely create an effect on the international companies that enter in the arrangements
having the main objective of evading tax in Australia or lowering their overseas tax liability.
Aims and mechanics of Diverted Profit Tax:
The diverted profit tax (DPT) attains the following outcome:
a. The aim of DPT is to assure that the taxes are paid by the substantial international companies
to correctly reflect the financial matter of their business doings in Australia (Neidle 2015).
b. The aim of DPT is to stop the diverting of profit to offshore through measures that involve
“related parties”.
c. It promotes SGEs to offer adequate evidence to ATO to permit timely resolving of tax
disagreements.
Entities to which DPT is applicable
The DPT is only applicable on the SGEs. A company will be considered SGE for the income
year if it is either;
a. International parental company with the yearly worldwide income of A$1 billion or greater
than that
b. A member of group of companies where the international parental company has the yearly
world-wide profits of A$1 billion or greater than that (Baker 2015).
For the purpose of DPT, the definition comprises of both;
a. The Australian headquartered entities that has overseas operations
b. The local processes of foreign headquartered international business
If the world-wide fiscal statement is not prepared for the international parental company, then
in such case the taxation commissioner might make a determination (Van‘t Riet and Lejour 2018).
This determination is based on the info obtainable, it is reasonable to believe that the yearly
international income of the company would be “A$1 billion” or more during this period and hence the
company is SGE.
Schemes where the DPT is applicable:

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The DPT is applicable to income years which commences on or following the 1st July 2017.
Most importantly it is applicable to schemes which is entered prior to 1st July 2017. More broadly
DPT is applicable if within the scheme or in relation with the scheme
a. A taxpayer has got the tax benefit
b. The main objective of an individual that entered into or executed the arrangement was to
allow the related taxpayer to get an Australian tax advantage or to get both the Australian as
well as overseas tax advantage (Li 2015).
c. An overseas associate of the relevant taxpayer is engaged in entering in or executing the
scheme or is related with the arrangement.
When the DPT is not applicable:
The DPT is not applicable where the taxpayer meet any one of the below stated schemes
a. The “$25 million income test”
b. The “sufficient foreign tax test”
c. The “sufficient economic substance test”.
The DPT will not be applicable on the taxpayer if they are one of the below given following types
of entities
a. A “managed investment trust”
b. An overseas investment collection vehicle with the wide membership
c. A “complying superannuation entity”
d. An overseas company that is owned by overseas government
e. An overseas pension fund.
Discussion of its success:
In spite of the structure given above possibly avoiding the operations of MAAL, it might not
be possible for the DPT to be applied. It may seem logical that where MAAL is not applicable, the
DPT should not be applied as well because they widely speak the similar criteria ( Hoopes, Robinson
and Slemrod 2018). The structure of DPT is designed in such a manner it might as a matter of fact
operate independently of the MAAL. As the example of coercive objectives, the DPT is stated to offer
the ATO with the superior powers to transact with the taxpayer that transmits profits, properties or
threats to overseas “related parties” by using the false or artificial measures to evade the Australia
tax and those that does not collaborate with the ATO.
Statements of this type can be a cause of concern. This is because without any suitable
controls and governance across the new wide-ranging powers to be consulted with the ATO, the DPT
would exclusively reserve to ATO for not only determining when the arrangements related to tax are

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artificial or contrived but also when the taxpayer as not cooperating with the ATO ( Johannesen and
Larsen 2016).
Overall, the DPT is very broad and carries the potential of applying to wide range of
multinational companies (Fisher 2014). In addition to this, there is a significant amount of uncertainty
in respect to wide number of critical elements of DPT in regard to its real-world use and scope. The
long awaited DPT is welcome but do not address several uncertainties that are recognized in the DPT
legislation.
Objectives and scope of CbC reporting and its reasons for adoption:
The objective of CbC reporting is to given the tax administration with the higher level of
overview regarding the operations and tax risk profiles of the largest multinational enterprises (Harris
2020). In the actual purpose form, CbC is a regarded as the bookkeeping instrument that needs the
international companies to disclose their info on their operations operating in diverse physical sites
and help the shareholders to understand more regarding the social accountability performance of
international companies.
The broad scope of CbC reporting requires a multinational company to make a public
disclosure of the name of every “subsidiary company, financial performance figures” and particulars
of tax charges (Bramall 2016). It also includes the actual amount of taxes paid and the “deferred tax
liabilities” for all the individual country basis.
Australian has adopted the “Country-by-Country reporting” as the part of its wide ranging
world-wide measures. It is intended at fighting the tax avoidance with the help of highly
comprehensive exchanges of information between the nations. In Australia the CbC reporting is
mainly applicable on the specific types of global entities (Arnold, Ault and Cooper 2019). The fresh
legislature of CbC necessitates the large companies to file the yearly report with the tax officer. The
statement which the multinational companies are required to include is the CbC report, a “master
file” and the “local file” which is created to help the commissioner in conducting the transfer pricing
risk assessment (Murphy 2016). The CbC is a new tool in Australian taxation legislation that is
largely aimed at dealing with the problems of tax evasion and aggressive tax planning that is
facilitated by the non-transparent reporting practices of international businesses that is allowed by the
current regulations.
Conclusion:
Conclusively, the MAAL is very much poised to fight the multinational tax avoidance
efficiently. The type of practical effect the legislation has is yet to be seen however there is a
sufficient amount scope that if the law is managed successfully, the legislation can create a significant
impact on the general anti-avoidance laws. The DPT on the other hand is very likely to be readily

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implemented. It is more complicated than the MAAL, highly unclear and has already agitated several
legal and tax professions.

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References:
Berg, C. and Davidson, S., 2015. Submission to Treasury Consultation Into Exposure Draft of Tax
Laws Amendment (Tax Integrity Multinational Anti-Avoidance Law) Bill 2015. Institute of Public
Affairs (Melbourne). Institute of Public Affairs.
Waerzeggers, C. and Hillier, C., 2016. Introducing a General Anti-Avoidance Rule (GAAR):
Ensuring that a GAAR Achieves its Purpose. Tax Law IMF Technical Note, 1.
Merlo, V., Riedel, N. and Wasmer, G., 2014. Anti-Avoidance Legislations and the Location Choice of
Multinational Firms. mimeo.
Bruce, M., 2017. Multinational Anti Avoidance Law (MAAL) & Part IVA.
Morse, S.C. and Deutsch, R., 2015. Tax Anti-Avoidance Law in Australia and the United States. The
International Lawyer, 49(2), pp.111-148.
Gelski, R., 2017. Law, morality and multinationals. Tax Specialist, 20(4), p.174.
West, A., 2018. Multinational tax avoidance: Virtue ethics and the role of accountants. Journal of
Business Ethics, 153(4), pp.1143-1156.
Neidle, D., 2015. The diverted profits tax: flawed by design?. British Tax Review, (2), pp.147-166.
Baker, P., 2015. Diverted profits tax: a partial response. British Tax Review, (2), pp.167-171.
van‘t Riet, M. and Lejour, A., 2018. Optimal tax routing: Network analysis of FDI
diversion. International Tax and Public Finance, 25(5), pp.1321-1371.
Li, J., 2015. Protecting the Tax Base in a Digital Economy. United Nations Handbook on Selected
Issues in Protecting the Tax Base of Developing Countries.
Hoopes, J.L., Robinson, L. and Slemrod, J., 2018. Public tax-return disclosure. Journal of Accounting
and Economics, 66(1), pp.142-162.
Fisher, J.M., 2014. Fairer shores: Tax havens, tax avoidance, and corporate social responsibility. BUL
Rev., 94, p.337.
Harris, P., 2020. International commercial tax. Cambridge University Press.
Bramall, R., 2016. Tax justice in austerity: logics, residues and attachments. New formations, 87(87),
pp.29-46.
Arnold, B.J., Ault, H.J. and Cooper, G. eds., 2019. Comparative income taxation: a structural
analysis. Kluwer Law International BV.

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Murphy, R., 2016. Country-by-country reporting. Global tax fairness, 96.
Johannesen, N. and Larsen, D.T., 2016. The power of financial transparency: An event study of
country-by-country reporting standards. Economics Letters, 145, pp.120-122.