Australia has enacted two significant BEPS Actions unilaterally. The first, the Multinational Anti-Avoidance Law (MAAL), which applies as from 1 January 2016. It aims to challenge the artificial avoidance of Australian permanent establishments (PEs) and broadly applies to significant global entities (SGEs), that is, members of a global group with annual global income of $AU1 billion or more, and an Australian income exceeding $AU25 million.

The second, the Diverted Profits Tax (DPT), applies as from 1 July 2017. Broadly, the DPT applies to SGEs and imposes a 40% tax rate (as opposed to the normal 30% rate) on profits transferred offshore (the diverted profit) through related party transactions.

Bruce comments in a recent article:

The MAAL looks poised to combat multinational tax avoidance effectively. What practical impact the legislation has remains to be seen but there is sufficient scope that if administered successfully, this legislation could have a significant effect on the general anti-avoidance laws and herald a shift in tax jurisprudence from focusing on the dominant purpose to the adoption of a tax structure to a detailed consideration of the substance of a commercial transaction to properly target revenues derived from genuine Australian economic activity.

The DPT Act however is less likely to be readily applied. It is substantially more complicated than the MAAL, highly ambiguous and has already agitated many in the legal and tax professions. It is not hard to envisage that this combination is liable to motivate a court challenge by the well-resourced multinational targets of the DPT Act should this legislation seek to be applied. Despite this, the DPT Act will act as a peremptory measure, compelling propitiation on the part of multinationals to resolve disputes under the MAAL and Pt IVA [Income Tax Assessment Act 1997 (Cth)] more readily.

Currently there is no case law regarding the new legislation and what impact the new legislation has on strengthening the tax base remains to be seen. Though, as it stands, both the MAAL and DPT Act will be of limited application, practitioners should still give consideration to its operations and follow any judicial developments keenly. Whether by foresight and prudence, or an accident of drafting, the provisions of the MAAL and DPT Act are readily adaptable to a broader application.

Max Bruce, Multinational Anti-Avoidance Law (MAAL) and Pt IVA a critical analysis of the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 (Cth) and Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 (Cth) and comparison with general anti-avoidance provisions (2017) Australian Tax Law Bulletin (July) 63, at 68.

Required:

You work for New Zealand Inland Revenue as part of the Policy and Strategy Group (PSG). You have been requested to prepare a draft briefing paper that will ultimately go to the Minister of Revenue, outlining whether New Zealand should introduce similar unilateral measures to support its existing action designed to combat BEPS activities. Your briefing paper should also outline the pros and cons of following the Australian approach.

25 MARKS